By
Rich Smith (TMFDitty)
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August 13, 2008
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The damage is done. Now comes the revival.
Graphics-chip king and Motley Fool Stock Advisor recommendation NVIDIA (Nasdaq: NVDA ) confirmed yesterday that "weak die/packaging material" in its laptop computer chips cost the company $196 million -- toward the top end of its previous estimate, but importantly, not over the top.
We already know about the price war with AMD (NYSE: AMD ) and issues with its own cost of production. Combine that with a weakened desktop PC market -- confirmed by recent reports from Dell (Nasdaq: DELL ) and Hewlett-Packard (NYSE: HPQ ) , and supported by Intel's (Nasdaq: INTC ) saying that laptop sales were strong -- and it all adds up to a 5% decline in revenue and a $0.22-per-share loss for the quarter. But that's about what we had been led to expect, so no big surprise there.
As the share price has swooned, I admit I've been looking intently at buying some NVIDIA shares. The one thing that's held me back was my fear that if you see one cockroach, you know there are a hundred more lurking under the fridge. Specifically, hearing NVIDIA warn of $150 million to $200 million in anticipated warranty costs last month, I wondered how many more charges might be hiding under NVIDIA's icebox.
No more
Management termed the final figure of $196 million "a non-recurring warranty charge." Later, in the post-earnings conference call, CEO Jen-Hsun Huang went a step further in allaying our concerns: "We're not expecting more writedowns in the future. When we scoped out the problem … we felt we had enough data to project out the anticipated failures from the various platforms that are out there."
Mind you, settling on a charge just $4 million short of NVIDIA's previous worst-case scenario doesn't seem conservative to me. But I'm willing to give NVIDIA some rope.
It's up to management to either hang itself, or hoist its credibility to new heights.
Want to know more about NVIDIA's issues? Read:
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