SANTA CLARA, Calif. -- Is Nvidia Corp. experiencing IC design or manufacturing problems with its high-end graphics chip? Maybe both.
Production and design problems have prompted one investment banking firm to lower its forecast at Nvidia Corp. for the remainder of the year. Michael McConnell, an analyst with Pacific Crest Securities Inc. of Portland, Ore., lowered his estimates for Nvidia, due to lackluster sales with its nForce 2 chip-set line and manufacturing problems with its GeForce FX 5600 line of graphics devices.
The production problems with the FX 5600 reside at Nvidia's main foundry--Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), McConnell wrote in a report. On the other hand, the problem may be a design issue at Nvidia. "We believe the yield issue is Nvidia-specific," he wrote in a report today (July 29).
On Monday (July 28), Nvidia announced it would meet its sales forecast for the quarter, but the company lowered its gross-margin expectations. The graphics chip maker blamed the issues on higher-than-expected product costs for its 0.13-micron foundry technology, reportedly at TSMC.
The Santa Clara-based graphics chip maker expects to report sales of approximately $455-to-$460 million for the second quarter of fiscal 2004, which ended July 27. This range is within the guidance provided by the company on its last quarterly conference call.
But gross margins are expected to be slightly lower than the company's original guidance. "This was a result of higher than anticipated product costs attributed to 0.13 micron semiconductor process technology," according to Nvidia ( see July 28 story ).
Calls to Nvidia were not returned. Meanwhile, analysts believe that there are production problems with Nvidia's GeForce FX 5600, a high-end graphics chip for 3-D applications in computers. The FX 5600 is code-named the NV31. "We believe that TSMC has had difficulty manufacturing the NV31 at competitive 0.13-micron yields because it utilizes a 4x1 architecture at a clock speed of 350MHz," McConnell said in the report.
This could be an isolated event for TSMC, however. "We polled five leading TSMC customers to investigate the 0.13-micron yields at TSMC," according to the report. "All five companies commented that 0.13-micron yields were satisfactory and they remain committed to TSMC."
At the same time, TSMC continues to make the bulk of devices for Nvidia. But reports also surfaced that Nvidia has shifted the NV31 production from TSMC to its other foundry partner--IBM Corp.'s Microelectronics Division.
Another analyst believes the problems may reside at Nvidia--not TSMC. "The low yields on Nvidia's GPUs are largely due to its 'exotic' designs. Nvidia is known for its aggressive designs, but it is extremely weak in communicating its ideas to the foundries," according to one analyst. "The bottom line is that Nvidia's devices are driving everyone crazy in the foundry business."
There other issues at Nvidia, including weak sales of its nForce 2. This integrated graphics chip set is geared for PCs, based on processors from Advanced Micro Devices Inc.
"Considering the plight of the white-box market (65 percent of Nvidia's revenue) and rampant speculation of nForce 2 sales declines stemming from AMD's market share losses in Q2, we believe that Nvidia's revenue guidance of $455 million to $460 million is a healthy sign for PC-component sell-through in a seasonally tepid summer," according to the report from Pacific Crest Securities.
Still, Pacific Crest lowered its forecast at Nvidia for the remainder of the year. Originally, the company was supposed to earn $0.14 a share on sales of $465 million for its second fiscal quarter. Now, it is projected to earn $0.11 on sales of $460 million in the period, according to Pacific Crest.
Nvidia was supposed to earn $0.19 a share on sales of $490 million for its third fiscal quarter. Now, it is projected to earn $0.18 on sales of $485 million in the period, according to Pacific Crest.
The company was supposed to earn $0.21 a share on sales of $505 million for its fourth fiscal quarter. Now, it is projected to earn $0.20 on sales of $500 million in the period, according to Pacific Crest.