In 2000, Nvidia snared the account to provide the graphics chip for Microsoft's Xbox game console, which has proved both a blessing and a curse.
The announcement leaked out prematurely because of a celebratory e-mail Chief Executive Jen-Hsun Huang sent to his staff, and that eventually prompted a Securities and Exchange Commission investigation into the company. Dealing with that was one of the first distractions for management.
Huang took a $200 million advance on revenue from Microsoft and used it to put more than 200 engineers on the Xbox chip.
The team missed its initial deadlines but still managed to send enough chips to enable Microsoft to ship 1.5 million consoles in the last six weeks of 2001.
Despite the strong launch, the Xbox faltered in Japan and Europe. And Xbox has only sold 8 million units globally so far, compared with Sony's PlayStation 2, which has crossed the 50 million mark.
Xbox chips account for about 20 percent of Nvidia's sales, although Nvidia has had to put some money in a reserve while it works through a legal arbitration with Microsoft over pricing.
The most difficult thing about the Xbox deal was that it forced the company to distract itself from its core market: graphics chips for desktop personal computers.
Given all the difficulties with the Xbox, Huang has to figure out how badly he wants to participate in the next version of the game machine.
Huang said the price dispute hasn't hurt Nvidia's relationship with Microsoft. But he added that his company can't afford huge distractions, particularly if Microsoft isn't willing to match the kind of multibillion-dollar investment that Sony is making in its next-generation PlayStation 3 console.
``We would be delighted to work with Microsoft on the next Xbox, but we are a company with many opportunities,'' Huang said.
Indeed, Nvidia has explored the possibility of working with Sony instead, although a deal is unlikely because Sony is already working with IBM, Toshiba and Rambus, and Sony is expected to do its own graphics chip for the new console.
Huang said he remains focused on the battle with ATI Technologies.
``After the way the first Xbox went, I would view Nvidia's involvement with the next Xbox as a negative,'' said Joe Osha, an analyst at Merrill Lynch, who does not own Nvidia stock and whose company does not have a banking relationship with Nvidia.
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