Analysts cut estimates for Nvidia
7/27/2010 12:57 PM EDT
SAN JOSE, Calif. – It’s a double-whammy for Nvidia Corp.
After a legal setback, analysts have cut their estimates for the graphics chip maker. The legal issues are not the problem for Nvidia, but rather the company is seeing lackluster performance for its chips.
As reported, Nvidia said a ruling issued Monday (July 26) by the U.S. International Trade Commission finding that some of its products violate patents held by Rambus Inc. would have "no impact" on customers. The ITC issued a cease-and-desist order to bar the importation and sale of certain chips made by Nvidia after finding that the devices violate patents three held by Rambus.
''We do not believe the ruling will have a material adverse impact on Nvidia’s results,’’ said analyst Doug Freedman of Gleacher & Co., in a report.
''Today we are lowering our estimates to reflect our conviction that FQ2 estimates are at risk (consensus at $958 million/$0.21) and that the company faces an uphill battle in the near- to-medium-term to win the favor of gamers and investors alike,’’ he said.
''Nvidia has been adversely impacted by: 1) sluggish traction for Tegra (roughly 1 year behind revenue plan on lack of infrastructure in software creating an air pocket before the Tegra 2 & 3 wins ramp); 2) less than stellar reviews on the launch of Fermi (particularly the GTX480 and 470, though reviews for the GTX460 are more favorable); and 3) rising operating expenses to support newer initiatives (operating expenses up 19 percent year-over-year, up 9 percent quarter-over-quarter,’’ he said.
The Tegra processor was designed to power the new generation of tablets, slates, mobile Internet devices (MIDs), e-readers, automotive safety and entertainment solutions, and Internet TV boxes. So far, though, the Tegra has been a disappointment. Meanwhile, The codenamed “Fermi” GPU device is geared for technical and enterprise computing. It also sells for the Quadro and Tesla GPUs.
''It is possible that Nvidia misses its July quarter revenue guidance, which calls for revenues to decline 3-5 percent sequentially. For revenues, we think Nvidia's 2Q revenues will fall by 5-7 percent sequentially, a bit worse than guidance,’’ said Craig Berger, an analyst with FBR, in a report.
Berger also believes there are issues at the company. ''First, Nvidia ceased developing new chipsets (including Ion), with about 20 percent of revenues likely to go away in coming years (about $0.35 per year EPS impact),’’ he said.
''Management suggests that growth in 40-nm GPUs, Quadro, Tesla, and Tegra will more than offset the chipset revenue shrinkage. Second, 40-nm supply has improved considerably as Nvidia saw upside yields late in 1Q. While likely a net positive, inventories and accounts receivables both spiked, which bears may point to as evidence of channel stuffing (and management's refusal to say how much channel inventories grew could add further fuel here),’’ he said.
''Third, some worry that Nvidia is losing GPU share to AMD in notebook PCs. Fourth, many investors we speak with think management over-hypes its Tegra, Tesla, and Fermi growth opportunities, thus negatively affecting its Street credibility. Fifth, if channel inventories continue to grow (not likely now), 3Q could be a sub-seasonal sequential growth quarter as inventory replenishment ceases, contrary to some expectations,’’ he added.
Nvidia recently reported revenue of $1.0 billion for the first quarter of fiscal 2011 ended May 2, up 2 percent from the prior quarter and up 51 percent from $664.2 million in the same period a year earlier. On a GAAP basis, the company recorded net income of $137.6 million, or $0.23 per diluted share, for the first quarter of fiscal 2011. That compares with $131.1 million, or $0.23 per diluted share, in the previous quarter and a net loss of $201.3 million, or $0.37 per share, in the same period a year earlier.