SAN FRANCISCO (Market-Watch) -- Shares of Nvidia Corp. plunged 25% in late trading Wednesday after the chip giant said it expects lower second-quarter revenue and gross margin as it reeled from weak demand and heightened competition.
The graphics chipmaker (NVDA: -3.8%) also said it expects to report a one-time charge from $150 million to $200 million because of a production glitch due to a weak die/packaging material set in some of its products in notebook systems.
Nvidia said it expects quarterly sales of $875 million to $950 million, lower than the company's previous forecast. The company said the changes in revenue and gross margin estimates were due to "end-market weakness around the world."
The company also blamed a delay in the ramp of its next generation media communications processor and pricing pressure "to respond to competitive products."
Nvidia did not elaborate. But analyst Roger Kay of Endpoint Technologies Associates said the company was obviously referring to Advanced Micro Devices ( -3.7%) whose 2006 acquisition of ATI Technologies turned the semiconductor giant into a stronger competitor in the graphics chips arena.
AMD has struggled with the financial burden of the merger, but has recently rolled out new products in a bid to challenge Nvidia.
Kay said while Nvidia has stressed performance, ATI-based products emphasize price and efficiency.
"ATI said they were going to be very aggressive to make up for Nvidia's ability to claim the highest single part performance in the latest round of products," Kay said. "Nvidia went with a monolith while ATI chose a smaller footprint that emphasized energy efficiency."
Regarding the production glitch, Nvidia said it was due to a faulty material that has led to system failures "at higher than normal rates."
The company said it has "initiated discussions with its supply chain regarding this material set issue and the company will also seek to access insurance coverage for this matter.
In a statement, company CEO Jen-Hsun Huang said, "This has been a challenging experience for us. However, the lessons we've learned will help us build far more robust products in the future, and become a more valuable system design partner to our customers."