NVidia faces lawsuit over defective chips

Company sued by investors over allegations of covering up flaws

Investors are suing nVidia over claims that it hid flaws in its manufacturing processes

Graphics card manufacturer nVidia is being sued by investors over claims that it hid a problem in its manufacturing processes that caused unusually high failure rates in its products.

The company admitted in July that a packaging flaw in some of its chips, and an underestimation of their thermal capabilities, led to unusually high rates of failure.

The problem is in the thermal stress caused when the chip powers up and then powers down. The difference in temperature caused the solder attaching the chips to crack and fail.

NVidia released a patch to cause cooling fans to run more often, although this caused other problems such as reduced battery life on laptops and increasing fan noise.

The suit alleges that nVidia was aware of the problem long before the admission, and that its decision to keep quiet about it caused people to invest without full knowledge.

Shares in nVidia fell by 31 per cent on the announcement of the flaw and the decision to set aside $200m from its earnings to help pay for the problem.

According to the filing the problem was known about at least eight months before the announcement, when HP issued a patch of its own to try and lessen the failure rate of the chips.

"Nevertheless, for at least eight months, defendants concealed from nVidia investors these defects and their obvious impact on the company's financial condition and future business prospects," the lawsuit states.

The case is strengthened by an admission by a senior nVidia executive that the flaw was known about almost a year before the announcement.

Michael Hara, the company's vice president of investor relations, told a Citigroup Technology Conference this September that the company began work on the flaw in August 2007.

“We have … been working on this problem with customers for well over a year, going all the way back to August last year," he said

The suit seeks class action status, damages and costs.