Nvidia spent $43.6 million to replace faulty graphic chips

Graphics chip vendor Nvidia spent US$43.6 million during its last fiscal year to cover warranty and product replacement claims related to graphics chips that were manufactured and sold with a weak packaging material, the company said on Friday.

In July 2008, Nvidia took a one-time $196 million charge against its second-quarter earnings to cover additional warranty and replacement costs related to faulty graphics chips, which the company said included a “weak die/packaging material set.” Nvidia's financial year ended on January 25.

Based on the $43.6 million spent so far, approximately 78 percent of the original amount set aside, or $152.4 million, remains available to cover costs related to this flaw.

The amount Nvidia has spent so far to replace or fix the flawed chips was detailed in explanatory notes contained in the company's annual report that detail changes in funds that are set aside to cover the expected costs of product warranties and returns, a requirement under U.S. accounting rules.

Besides the July 2008 provision for additional warranty and replacement costs, Nvidia also released a software update to computer makers that makes notebook fans run more often to reduce the thermal stress on the affected graphics chips.

Nvidia did not increase the amount it set aside to cover warranty costs for the flawed products in its annual report, suggesting executives believe the original $196 million provision will be sufficient to cover the problem. But Nvidia faces the possibility of future payouts. The company is now fighting lawsuits from investors and customers who are seeking punitive damages over the flawed chips and its handling of the issue.