Nvidia still faces tough shortage of its high-end graphics chips

Six months behind its rival, Nvidia is finally shipping its code-named Fermi graphics chips. But the graphics chip maker acknowledged today that it still has a shortage of Fermi parts.
The Fermi chips, formally named GeForce GTX 400 series, are made by Taiwan Semiconductor Manufacturing Co. using a 40-nanometer manufacturing process, which can make chips smaller, faster and cheaper than the older generation 55-nm manufacturing. But the manufacturing yield, or ratio of working chips as a percentage of total chips made, is still low. The yield is good enough for Nvidia to launch the GeForce GTX480, but not good enough to keep up with demand, said Jen-Hsun Huang, chief executive of Nvidia, speaking at an analyst meeting today at the company’s headquarters in Santa Clara, Calif.
“From a supply perspective, we wish we had more 40-nm capacity,” Huang said. “We are working with TSMC really closely. They are doing a fab job. Yields are improving. Capacities are improving. But we are finding it hard to keep up. Everyone is clamoring to have Fermis out the door. We are working really hard to get Fermis out the door.”
Advanced Micro Devices, Nvidia’s rival, launched its 40-nm high-end graphics chips in September, but it has also suffered from capacity shortages. It has been able to fill out its product lines with the new graphics chip design, from low-end graphics chips to high-end graphics chips. But AMD’s devices were easier to make than Nvidia’s which had more transistors and were more complex. Hence, AMD has been able to get more of its high-end chips from the factory. While Nvidia was unable to ship the high-end Fermi chips early, Huang said that the company shifted gears and shipped a lot of 40-nm low-end chips based on earlier designs.
The Fermi shortage and the delay of 40-nm chips has been a big ordeal for Nvidia, and it was a lesson that you can’t take manufacturing advances for granted, Huang said. Asked if Nvidia should diversify to other contract chip makers, Huang said that he was instead expecting for form a deeper alliance with TSMC, with Nvidia engineers dedicated to manufacturing issues, to make sure the next manufacturing transition that happens in about 18 months won’t be as tough. It remains to be seen if the 40-nm shortage will hurt Nvidia financially. During the past six months, Nvidia enjoyed a recovery because of strong PC sales related to the launch of Windows 7, as well as strong demand for computers in China.
Still, Nvidia is motivated to move to 100 percent 40-nm chips as soon as possible, since the gross profit margins on 55-nm chips are about 30 percent or so, while the gross profit margins on 40-nm chips are around 40 percent.