Semtech Says Customer Claims Chip Malfunction

Semtech Corp., a maker of semiconductors for major technology companies, said a customer claims it has suffered $42 million in damages because faulty chips caused some products to fail, and the damages could reach more than $115 million.

Camarillo-based Semtech said its tests indicate the chips do not malfunction and it is in talks aimed at resolving the dispute. A company spokesman couldn’t be reached for comment.

Semtech said the customer, whose identity was not disclosed, is expected to account for about 1% of its sales this quarter. Semtech provides chips to such companies as Cisco Systems Inc., Dell Computer Corp. and Intel Corp.

Semtech also reported second-quarter net income of $11.1 million, or 14 cents a share, contrasted with a year-ago net loss of $5.1 million, or 7 cents, that included one-time charges of $1 million. Sales jumped 28% to $40.5 million.

Semtech shares fell as much as 14% to $16.25 in extended trading on the news, after closing down 98 cents at $18.92 on Nasdaq.