Microsoft takes Nvidia to arbitration over pricing of Xbox processors

Microsoft takes Nvidia to arbitration over pricing of Xbox processors
SANTA CLARA, Calif. -- Nvidia Corp. today said a dispute between itself and Microsoft Corp. over pricing of processor chip sets used in Xbox video game consoles has been taken to binding arbitration.

In a filing with the Securities and Exchange Commission (SEC), Nvidia said Microsoft wants to pay about $13 million less for Xbox media communication processors that were purchased in Nvidia's fiscal 2002 year, ended Jan. 27. Microsoft currently pays in advance for processor chip sets under its arrangement with Nvidia.

Nvidia said it has deferred revenue from the Xbox processors in the amount equal to the difference between the price being paid by Microsoft and the amount that the software giant is seeking. The exact amount per processor was not disclosed in the SEC filing.

Two years ago, the two companies entered into an agreement to develop and sell processors for use in the Xbox video game consoles. In February 2001, Xbox graphics processor units (GPUs) and media communications processors were released for production by Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), using 0.15-micron process technology. Commercial shipments began in July 2001, according to Nvidia's SEC filing.

Microsoft paid Nvidia $200 million in April 2000 for future processor shipments. The SEC filing said this advanced payment has been fully utilized by Microsoft through Nvidia's fiscal first quarter, ended April 28.

"We have been engaged with Microsoft in discussions related to pricing and volumes of the Xbox chip set," said Nvidia in the SEC filing.

The dispute was sent to arbitration last week at the request of Microsoft, which is seeking damages for alleged violations of the agreement between the two companies, and it wants a reduction in chip-set pricing. Microsoft also has asked the arbitration panel to require Nvidia to supply chip sets in whatever quantities it orders, according to the SEC filing.

Nvidia said it plans to continue to defer revenue from the Xbox agreement until the dispute is revolved.

Even with the revenues being deferred from the Xbox pact, Nvidia today said it expects to report record revenues of $570-to-$580 million in the fiscal first quarter and a net income of $79-to-$84 million in the just-ended fiscal quarter (see April 29 story).