The IT Nerd

Many people think that reading the 10Q documents (AKA: their annual report) of major corporations is as dry as toast. But you can sometimes find some interesting tidbits in them. Take Nvidia for example. In their annual report, I note the following items. You might recall that Nvidia had set aside $150 – $200 million to deal with graphics chips that were failing at a obscene rate. Nvidia has spent $43.6 million so far according to their annual report. But the telling point is in this paragraph:

In September, October and November 2008, several putative class action lawsuits were filed against us, asserting various claims related to the impacted MCP and GPU products. Such lawsuits could result in the diversion of management’s time and attention away from business operations, which could harm our business. In addition, the costs of defense and any damages resulting from this litigation, a ruling against us, or a settlement of the litigation could adversely affect our cash flow and financial results.

Translation: If the people who filed these lawsuits win, we’re screwed.

That sort of implies that this whole graphics chips mess is a lot bigger than they are admitting to publicly. It’s hard to tell as the 10Q really dances around the issue to a great degree. But perhaps now is a good time for them to start repairing the damage that this circus has caused by manning up and dealing with it? It may be cheaper for them in the long run.

Imagine for a second that you’re Nvidia. You’ve had issues with your chips which have led to lawsuits. Now it gets worse for you as you release your Q4 and full year numbers:

For the fourth quarter of fiscal 2009, revenue was $481.1 million compared to $1.2 billion for the fourth quarter of fiscal 2008, a decrease of 60 percent. For the twelve months ended January 25, 2009, revenue was $3.4 billion compared to $4.1 billion for the twelve months ended January 27, 2008, a decrease of 16 percent.

I’ll let you read the the gory details in the press release. But the bottom line is that Nvidia is in some amount of trouble. They did try to look at the bright side though:

“The environment is clearly difficult and uncertain. Our first priority is to set an operating expense level that balances cash conservation while allowing us to continue to invest in initiatives that are of great importance to the market and in which we believe we have industry leadership. We have initiatives in all areas to reduce operating expenses,” said Jen-Hsun Huang, president and CEO of NVIDIA. “Although fiscal 2009 was extremely difficult, it was one of our best years of innovation. We made many important advances in graphics processing with PhysX and 3D Vision, GPU computing with CUDA and Tesla, and mobile computing with ION and Tegra. I am pleased with the excellent achievements we made in each of these important areas.”

Okay, when a company that lost money says that “it was one of our best years of innovation,” it’s like a movie studio saying that a movie that didn’t make any money is “critically acclaimed.”  It’s simply spin and nothing more.

Needless to say, investors are heading to the exits as the stock is down 12% as I type this.

This press release popped up today announcing the Quadro FX 5800 Video Card which they say is “the most powerful professional graphics card in graphics history.” If you excuse the marketing BS, they may have a point:

The Quadro FX 5800 graphics card offers unprecedented performance and scalability to rapidly visualize and interpret massive datasets that until now were unattainable on a workstation graphics board. Offering up to 240 CUDA(TM) programmable parallel cores and the industries first 4GB of graphics memory, the Quadro FX 5800 graphics card is ideally suited for oil and gas exploration, medical imaging, styling and design, and scientific visualization.

Screw all of that. This card is powerful enough to run Crysis and get decent performance. If it does that, it should be a hit with gamers everywhere.

Nvidia’s employees are likely mass e-mailing their resumes at the moment as this announcement from the graphics chip company has the bad news that 360 people or 6.5% of their workforce is about to be cut:

“Our action today is difficult, but necessary considering current business realities. Despite our reduction, we will continue to invest in selective high-growth opportunities like our revolutionary CUDA parallel computing technology and our Tegra mobile single-chip computer,” said Jen-Hsun Huang, president and CEO of NVIDIA. “We are taking fast action to enhance our competitive position and restore our financial performance. All of us at NVIDIA are determined to emerge from these challenges an even stronger company.”

So if you are an employee working on a Cuda or Tegra related project, you are probably safe. If you’re not, sucks to be you. Of course, all of this assumes that their current legal troubles that are related to their graphics chip defect issues don’t sink them first.

Surprise! A lawsuit has been filed over Nvidia’s defective graphics chips. According to Infoworld:

“The lawsuit [Warning: PDF] charged that Nvidia CEO Jen-Hsun Huang and CFO Marvin Burkett knew as early as November 2007 about a flaw that exists in the packaging used with some of the company’s graphics chips that caused them to fail at unusually high rates.”

The lawsuit also alleges that Nvidia has violated U.S. Securities laws as well. Nvidia publicly acknowledged the flaw on July 2, when it announced plans to take a one-time charge of up to $200 million to cover warranty costs related to the problem. That announcement caused Nvidia’s stock price to fall by 31%  to $12.98 and reduced the company’s market capitalization by $3 billion. The lawsuit seeks class-action status against Nvidia and unspecified damages.

Sucks to be Nvidia, but I have to admit that Nvidia had it coming given the way they handled this whole mess.

Apparently there’s lots going on in the land of Nvidia this week. Not only did they deny having any plans for an x86 CPU, and deny that there’s anything wrong with the graphic chipsets, but now it The Register claims that they’re changing how their graphic processors are made. The Register claims to have uncovered what are called Product Change Notificatons which seem to indicate that Nvidia is quietly altering the manufacturing process of their graphic processors so that they can address their quality issues without anybody noticing. The gory details can be found here and here if you care to look for yourself.

I’ll say this one more time for those who haven’t been paying attention. If Nvidia has issues with their graphics processors, it’s time for them to come clean. Even if they don’t it would be a good idea to say something for no other reaons than to make this go away (or at least to reduce the chatter about it). Right now the company has a really bad rep based on speculation and their silence on the issue. I for one plan on recommending and buying ATI for no other reason that all of this might be accurate. One can assume that others feel this way as well. That is really bad news if you’re an Nvidia stockholder.

Then again, the costs of coming clean might be too high for them. In which case we can expect to see them disappering shortly.

Either way, this problem is going to get solved shortly one would suspect.

You’ll recall that when this rumor first appeared, I said that Nvidia wasn’t going to come out with an x86 CPU for a variety of reasons. Now here’s the official word from Nvidia themselves:

But speaking to PC Pro, Chris Malachowsky, another co-founder and senior vice president, was unequivocal.

“That’s not our business,” he insisted. “It’s not our business to build a CPU. We’re a visual computing company, and I think the reason we’ve survived the other 35 companies who were making graphics at the start is that we’ve stayed focused.”

He also pointed out that such a move would expose the company to fierce competition. “Are we likely to build a CPU and take out Intel?” he asked.”I don’t think so, given their thirty-year head start and billions and billions of dollars invested in it. I think staying focused is our best strategy.”

So there you go. It’s not happening. End of rumor!

Of course the ongoing circus with their defective graphics chipsets that they deny are defective might be another reason why they wouldn’t get involved making an x86 CPU. But that’s just likely accurate speculation on my part.

You knew this was coming. Nvidia has denied that there’s anything wrong with their GPUs. You know, the ones that have been failing right left and center much to everybody’s frustration?:

“NVIDIA flatly denied it, saying that only a small batch of parts delivered to HP was affected by the problem.”

Oh really? Then explain this Nvidia:

“Of course, now other notebook manufacturers like Dell and ASUS are also affected. In fact, practically all notebooks using these GPUs are affected by the problem.”

They don’t of course (or at least they haven’t yet). Of course they do the only thing they can which is blame someone else for the issue. Then only thing is, that doesn’t come off well either:

“As much as NVIDIA would like to lay the blame on TSMC (the guys who actually fabricated the GPUs for them), the fabrication process is NOT the cause of the problem. After all, TSMC makes a lot of other chips for other companies using the same process. You do not see their other clients facing the same problem. Obviously, the problem lies closer to home.”

I’ve said it before. Nvidia needs to get a clue and deal with this straight up. Their stonewalling and denials have made me not consider them as an option the next time I need a graphics card or if I am buying a pre-built computer. I know others who feel the same way. In the end, dealing with it will cost less than just denying that the issue exists.