Nvidia’s second quarter profits are evidence that poor quality costs much more than just bad PR. The company recorded a charge of $119 million to cover warranty costs associated with faulty die and weak packaging materials used in its graphics chips. This is significantly better than the $196 million it had already written off for the same reason, but it was still much higher than analysts were expecting.
Most of these issues can be traced back to a faulty solder bump that was discovered in its 8M-series mobile graphics chip. Nvidia estimated at the time that the warranty costs could be somewhere in the range of $200 million , but clearly the $315+ million they have already spent shows they were perhaps a bit overly conservative in their estimates. This might be a result of the problem reportedly cropping up in G92 and G94 series mobile cards as well , but Nvidia has been pretty tight lipped on the issue.
When asked to comment on the charge Nvidia downplayed the impact and described them as a small distraction. Nvidia President and CEO Jen-Hsun Huang claims it hasn’t impacted Nvidia’s ability to launch new products, and he expects profits to rise in the near future. Huang is being optimistic, but he is likely hoping to reassure investors who saw the company’s revenue drop this quarter to $776.5 million from $892.6 million only a year ago. “The company has invested in new products such as Tesla, a graphics processing unit for high-performance computing, and low-power Tegra chips for mobile devices. The products should start contributing to the revenue stream soon”, Huang said.