Nvidia's sinking sales spur $150M charge, cost cutting

Graphics chip supplier to buy underwater stock options and trim costs throughout the company amid big decline in revenue.

Updated at 12:20 p.m. PST with additional information about salary cuts.

Nvidia is buying up underwater stock options from employees and cutting salaries across the company amid a steep revenue falloff.

On Tuesday, the graphics chip supplier posted a fourth-quarter loss of just under $148 million and a 60 percent drop in revenue as demand for its graphics chips dried up.

"November fell off a cliff," said CEO Jen-Hsun Huang, addressing the decrease in demand, during an earnings conference call Tuesday. Chief Financial Officer Marvin Burkett added that "December was worse."

In the aftermath of its earnings report, Nvidia's stock fell over $1, or more than 12 percent, on Wednesday. Shares closed at $8.15 on Wednesday.

In response to an extended decline in its stock price, Nvidia said this week it will take up to a $150 million charge in the first quarter to buy underwater stock options from employees, not including board directors and certain executive officers. The offer commenced Wednesday and will expire on March 11.

"As of January 25, 2009, there were approximately 33 million eligible options. If all these options are tendered and accepted in the offer, the aggregate cash purchase price for these options would be approximately $92 million," Nvidia said in a statement.

Nvidia is also instituting company-wide salary cuts. "The executives of our company took the largest and most significant cutbacks," said Huang in the earnings conference call on Tuesday. But he added that it affects "almost all of our employees," is "broadbased and it's everywhere."

On Thursday, senior vice president Dan Vivoli, in a phone interview, said that executives "don't get any of their variable this year" which, in some cases, is a large part of their pay. There will be a broader pay cut too. "We decided to do a five percent across-the-board pay cut," Vivoli added.

Analysts don't expect much improvement in the coming quarters. "Growth catalysts include Tegra (ships 2H09), Telsa (ramping) and Ion (shipping), though we do not expect these to meaningfully contribute to revenue and gross margin upside for several quarters out," said Doug Freedman of Broadpoint.AmTech in a research note.

In September Nvidia said it was cutting its workforce 6.5 percent.

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