Lawsuit alleges Nvidia hid chip defects

Investor complaint claims Nvidia's worth was reduced by $3 billion because of misrepresentations about failure rates of graphics chips.

Brooke Crothers
Brooke Crothers Former CNET contributor
Brooke Crothers writes about mobile computer systems, including laptops, tablets, smartphones: how they define the computing experience and the hardware that makes them tick. He has served as an editor at large at CNET News and a contributing reporter to The New York Times' Bits and Technology sections. His interest in things small began when living in Tokyo in a very small apartment for a very long time.
2 min read

A lawsuit filed Tuesday alleges Nvidia lost more than $3 billion in market value because it concealed defects in its graphics chips.

The complaint filed by New York-based Shalov Stone Bonner & Rocco alleges that Nvidia committed "securities fraud" due to "a series of misrepresentations and omissions that actively concealed and failed to disclose the unusually high failure rates of Nvidia's mobile video adapters."

The suit ties the alleged misrepresentations to Nvidia's loss of market capitalization since July when the company "belatedly" revealed the information about problems and "promptly" lost $3 billion in market capitalization. The class action covers the period between November 8, 2007, and July 2, 2008--when Nvidia allegedly failed to disclose problems.

On July 2, Nvidia announced that it would take a one-time charge of $150 million to $200 million to "cover anticipated warranty, repair, return, replacement and other costs and expenses, arising from a weak die/packaging material set in certain versions of its previous generation GPU and MCP products used in notebook systems." (GPU stands for graphics processing unit, and MCP for multichip package.)

Hewlett-Packard stated in July that it "initiated a customer program to address this issue in November 2007, and have notified registered customers who have notebook PC models that are included in this HP program."

Dell at that time also issued a statement and offered a workaround that involved updating the computer's BIOS (basic input/output system). Other PC makers have also offered BIOS workarounds that try to mitigate potential problems.

Dell characterized the problem as "weak die/packaging material set, which may fail with GPU temperature fluctuations. If your GPU fails, you may see intermittent symptoms," Dell said at that time.

Both companies listed more than a dozen laptop models potentially affected by the glitch.

The most oft-cited graphics chip models potentially affected by the problem are Nvidia's GeForce 8 series.

Symptoms include black screens, duplicate images, wireless networking complications, and the random appearance of lines, characters, and other on-screen interference, according to the complaint.

The lawsuit tries to draw a comparison with the infamous Intel chip flaw of 1994 that forced Intel to take a $475 million write down. That flaw, however, turned out to be extremely rare. The lawsuit contends that this kind of "disaster scenario" has "materialized" for Nvidia.

Filed in United States District Court for the Northern District of California, the lawsuit names as defendants Nvidia and the company's CEO and CFO during the Class Period.