Quanta sues AMD over 'faulty chips' used in notebook devices

Taiwanese manufacturer Quanta has filed a lawsuit against chip maker AMD claiming it was provided with faulty chips.

In a lawsuit filed in the District of San Jose, Quanta – the world's largest contract manufacturer of notebooks – claimed that chips it used to make laptops for NEC malfunctioned.

"AMD and its ATI Technologies unit sold chips that didn't meet heat tolerances and were unfit for particular purposes," Bloomberg quoted the court filings as saying.

Quanta claims that it has taken a hit to revenue and profits and is seeking damages for breach of warranty, negligent misrepresentation, civil fraud and interference with a contract.

In response, AMD dismissed the complaint to be without merit and stated that it relates to a chip that it no longer sells.

"Quanta has itself acknowledged to AMD that it used the identical chip in large volumes in a different computer platform that it manufactured for NEC without such issues," AMD said in a widely reported statement.

Giorgio Nebuloni, senior research director at IDC told V3 that Quanta's decision to bring this complaint to court could be a power play as Quanta looks to raise its profile.

"Quanta had revenues exceeding $50bn in the first three quarters of 2011, approximately half of HP's and slightly more than Dell's, and it is looking to leverage negotiating power for itself and its own clients," he said.

"It is hard to foresee the outcome at this stage, but the last thing AMD needs now is a long legal battle, so it might reach an agreement before or during the initial trial phases, if it goes that far," he said.

The lawsuit could not come at a worse time for AMD as it continues to struggle in its pursuit of Intel and had to cut its workforce at the end of 2011.

AMD axed 1,200 employees in November and terminated a number of deals with outside contractors to cut costs. The firm's plan to save $118m over 2012 could be significantly affected if it is forced to pay out damages to Quanta.