Faulty GPUs continue to burden Nvidia's profitability

A charge related to faulty graphics cards pushed Nvidia to a loss in the second quarter

Nvidia on Thursday reported a loss for the second quarter of its 2011 fiscal year, caused partly by charges related to faulty laptop graphics processors the company sold more than two years ago.

The company reported a net loss of US$141 million for the quarter ended on Aug. 1, even worse than the net loss of $105.3 million reported in last year's second quarter.

The earnings were affected by a charge of $193.9 million related to a pending settlement of a class-action lawsuit over faulty dies and weak packaging material used in its graphics chips. In 2008, the company reported that the graphics chips were overheating due to weak packaging material and the thermal design of some laptops. PC makers such as Dell, Hewlett-Packard and Apple used the faulty graphics chips in their products. Nvidia has taken other charges in the past to cover costs related to the chips.

The settlement in the class-action lawsuit, which was consolidated in the U.S. District Court for the Northern District of California, is subject to final approval by the court.

The company's second-quarter profitability was also affected by an inventory write-off resulting from weaker demand for high-end graphics processing units. Higher memory prices and economic weakness in Europe and China led to more demand for lower-priced graphics processing units and integrated graphics.

Nvidia's product strategy revolves around higher-priced GPUs, so the market's move toward lower-priced alternatives affected the company's earnings, Nvidia said in a statement. The company's GPU revenue fell by 29.5 percent to $550.4 million, down from $780.9 million in the first quarter.

The company reported revenue of $811.2 million for the second quarter, an improvement over $776.5 million reported in the year-earlier quarter.

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