Faulty GPUs Cost Nvidia $43.6 Million

Nobody likes to lose money in this economy, whether it's a dwindling IRA account due to falling stock values, or faulty GPUs sold using crappy packaging.

There's something to be said about today's financial times. Most of us are standing back, watching the dollar bills slide down the drain of recession, taking hopes, dreams and security away with each passing month. There's no question that the hardware industry is watching the declining economy with horrified eyes as well, especially when additional problems begin to surface; additional financial vortexes threatening to dwindle away the foundation.

Friday Nvidia announced that, during its last fiscal year, it spent $43.6 million to cover warranty and product replacement claims due to GPUs housed in weak packaging. No, we're not talking about the pretty little packages that make the graphics cards look uber-super cool on the retail rack, but rather the material housing the internal circuitry. Because the outer hull was weak, the GPUs began to overheat and damage themselves, thus rendered unusable. The problem made industry veterans and consumers wonder what was going on with the company, and the financial blow under the belt--especially during these economical dark times--surely made Nvidia wonder the same thing.

In the company's annual report, Nvidia said it originally took a one-time $196 million charge against its second quarter (cost of revenue) back in July 2008, specifically addressing the warranty and replacement costs stemming from the faulty housing issue. "The previous generation MCP and GPU products that are impacted were included in a number of notebook products that were shipped and sold in significant quantities," the company said in the report. "Certain notebook configurations of these MCP and GPU products are failing in the field at higher than normal rates. While we have not been able to determine a root cause for these failures, testing suggests a weak material set of die/package combination, system thermal management designs, and customer use patterns are contributing factors."

But with that huge wad of cash set aside, currently Nvidia has only spent 22 percent of the total amount thus far, meaning that it's likely that there are faulty GPUs still wandering about, waiting to bring notebooks down to a grinding halt. Then again, some of that amount may be set aside for current and potential lawsuits from investors and customers generated by the faulty GPUs, a legal issue the company is now facing, although that's highly doubtful.

Previously Nvidia tried to address the failure issue by releasing a software driver that kick-started the system fan during the boot process, reducing the thermal stress on the faulty chips. However their actions were a little too late, and now Nvidia not only faces punitive damages resulting from the GPUs, but from the way the company handled the situation in the first place. "We intend to fully support our customers in their repair and replacement of these impacted MCP and GPU products that fail, and their other efforts to mitigate the consequences of these failures," Nvidia said.

As of this writing, Nvidia has not increased the amount set aside for the GPU failures; the original amount, or rather the remaining $152.4 million, may very well cover whatever surfaces in the future.