Santa Clara (CA) - NVIDIA is admitting that some of its notebook chips are failing at "higher than normal rates" in a new filing with the Securities and Exchange Commission. The chip failures will cause Nvidia to take a $150 to $200 million charge this quarter to cover what it calls "warranty, repair and return and replacement" for laptops with unspecified NVIDIA graphics chips and chipsets. In after hours NASDAQ trading, NVIDIA (NVDA) plunged 21.94% or $3.95 to $14.08 a share. The stock had been down as much as 25% after the close of regular trading on Wednesday July 2nd 2008.

While it’s a bit too early for NVIDIA to do any conclusive finger pointing, NVIDIA does say that "significant quantities" of chips are experiencing thermal issues caused by possibly weak die and packaging - in essence, the parts are overheating and failing. NVIDIA isn’t publicly saying which laptop brands and models are affected by the faulty chips, but it has issued an emergency driver that increases cooling by powering up fans immediately after the system starts (boy, that’s going to be noisy).

Presumably, the bulk of the $150 to $200 million will go towards reimbursing laptop companies for any customer repairs and replacements and this is supported by NVIDIA’s words. "We intend to fully support our customers in their repair and replacement of these impacted MCP and GPU products that fail," NVIDIA stated in the filing.

NVIDIA is also predicting that its sales for the quarter ending July 27 will be approximately $875 million to $950 million, which is a bit lower than analysts’ expectations of nearly $1 billion. Who knows if the stock will continuing tanking in the morning, but it’s definitely going to be an interesting trading day.