Nvidia cuts 360 jobs

By Suzanne Deffree, Managing Editor, News -- 9/19/2008

Recent events and the harsh economic situation are seemingly taking a toll on Nvidia Corp as the company Thursday announced 360 job cuts.

The 6.5% workforce reduction will be implemented by the end of the GPU maker's fiscal Q3 2009, closing October 26, and comes after Nvidia in early July announced a weak die/packaging material set in certain versions of its previous generation GPU and MCP products used in notebook systems. That product failure issue lead to a stockholder class action suit, as well as a separate labor group protest at the company's Nvision event in August. The issue also forced Nvidia to record a $196 million charge in its fiscal Q2 2009, ended July 27.

On the layoffs, the Santa Clara, Calif-based company said it expects to record pre-tax charges of approximately $7 million to $10 million primarily for severance and related expenses.

"Our action today is difficult, but necessary considering current business realities," said Jen-Hsun Huang (pictured), president and CEO of Nvidia, in a statement. "We are taking fast action to enhance our competitive position and restore our financial performance."

Nvidia in the July quarter saw revenues from its desktop chips -- the company's biggest money maker -- down 40% sequentially with units down 20% and ASP down 25% sequentially. While notebook GPU revenues were up 8% quarter over quarter, analysts expect Nvidia's notebook GPU revenue growth to slow to 26% year over year in calendar year 2008 and to 7% in calendar year 2009, versus 113% in calendar year 2007. Among the reasons for the slide in sales and projected GPU market share losses are increased competition from AMD's ATI portfolio and coming competition from Intel's Larrabee.

For more on Nvidia, see: Embedded x86: Laying odds on Nvidia's eventual demise Labor group protests Nvidia Nvidia cuts estimate, expects up to $200M charge on product issue Nvidia faces securities fraud suit on product failures

Nvidia claimed the job cuts are being made to allow it to continue investment in strategic growth areas. "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 Huang.

Wall Street was positive on the workforce reduction and is steadily driving Nvidia's stock, NVDA, up in morning trading. As of 9:45 am eastern, the stock had already climbed 3.76% to $11.30 from its previous close of $10.89.

"The company expects to reduce operating expenses by $7 to $8 million per quarter post layoffs," Tim Luke, a Lehman Brothers semiconductor market analyst, said in a research note this morning.  "While we believe that Nvidia remains committed to R&D and SG&A [selling, general and administrative expense] investments to distance itself again from AMD and to defend against Intel's looming Larrabee challenge in late 2009/2010, we are encouraged by management’s focus on reducing costs in a challenging market environment."

© 2009, Reed Business Information, a division of Reed Elsevier Inc. All Rights Reserved.