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Nvidia warns of revenue slump

The graphics chip maker lowers financial forecasts for its second quarter, blaming an ongoing slump in PC sales.

David Becker Staff Writer, CNET News.com
David Becker
covers games and gadgets.
David Becker
2 min read

Graphics chip maker Nvidia lowered financial forecasts for its second quarter, blaming an ongoing slump in PC sales.

The company said it now expects to report revenue of $410 million to $430 million for the quarter, which ended July 28, and break-even earnings. The company previously said it expected revenue to grow 1 percent to 3 percent from the $582.9 million it reported for the first quarter, when earnings came in at 47 cents a share.

The dramatic sequential decline in earnings is partly due to write-offs for excess inventory, the company said in a statement. Nvidia plans to announce second-quarter results Aug. 15.

In the past few years, Nvidia has risen from the lower ranks of the chip industry to become the leading designer of PC graphics chip. The company is facing renewed competition from rival ATI, however, as well as uncertainty over how much it will gain from its contract to supply graphics processors for Microsoft's Xbox video game console.

CEO Jen-Hsun Huang said in a conference call with financial analysts that the inventory write-offs were due partly to Xbox chips that became obsolete when Microsoft changed security codes for the console to thwart hackers. "We had just built up too much of the original inventory," he said.

The company also wound up with an excess of nForce products--integrated chipsets that combine a PC chipset with a low-end graphics processor--after Intel dumped a load of Celeron processors on the market. That changed demand for low-end PCs, in turn dampening demand for systems that use nForce in conjunction with Advanced Micro Device's Athlon processor. "We were expecting several high-profile Athlon-based PC ramps in the quarter that didn't happen," Huang said.

Nvidia shares were hammered in after-hours trading Tuesday on the Island ECN, dropping to $12.44 from a closing price of $16.22.