Feb 18 (Reuters) - Shares of Nvidia Corp fell about 9
percent on Thursday on investors' concerns about upcoming
product transitions away from the company's chipset business. Several analysts, however, noted that the share drop could
be a good entry point for investors and raised their price
targets on the stock. "We advise clients to buy on this negative reaction,
noting that revenues, gross margins and earnings per share all
have noticeable upside, both cyclically and secularly,"
Citigroup analyst Glen Yeung wrote in a note. On Wednesday, the graphics chipmaker posted a
better-than-expected fourth-quarter profit but revenue came in
slightly below Wall Street's most bullish expectations. For months, Nvidia has been discontinuing investment in
parts of its business due to a lawsuit with Intel Corp (INTC.O)
[ID:nN13201671]. It is shifting its focus to high-performance computing and
mobile chips for devices such as tablet computers, while
maintaining a core business selling graphics chips designed for
games, high-definition video and advanced photo editing. As a result, its chipset business, or collections of chips
on a board that connect a computer's microprocessing brain to
other parts of the computer, fell 19 percent from the last
quarter. "The chipset revenue decline is probably driving a lot of
the disappointment there," said Wedbush Morgan analyst Patrick
Wang. In an early morning note to investors, he reiterated his
"neutral" rating on the stock based both on increased
competition from arch-foe Advanced Micro Devices's ATI, and
chipset revenue declines. He noted that although "legacy chipset sales essentially
disappeared," they are expected to pick up in the fiscal first
quarter. Nvidia Chief Financial Officer David White told Reuters he
expects the company's chipset business to be roughly flat this
year, with no significant falloff until next year. However, JMP Securities analyst Alex Gauna said in a note
to clients that flat guidance for the April quarter is likely
to prove overly conservative owing to the ramp of new products
and the likelihood of share gains with the spring PC refresh
cycle. INVENTORIES AND TECHNOLOGY Investors were also concerned about Nvidia's inventories,
which analysts noted had increased by more than $53 million
from the previous quarter to $330.67 million. But, that's still
down 38.5 percent from the same time last year. Nvidia should see revenue pick up pace as this inventory,
mostly back-end related, moves through testing, Citigroup's
Yeung wrote in a note. However, analysts seem bullish about the company's growth
trajectory and the increased focus on the new products. Nvidia has the potential for further gross margin expansion
due to the ramp of new products, JMP Securities analyst Alex
Gauna wrote in a note. "If macroeconomic conditions continue to improve, these
milestones now put the company on a clear path back towards
achieving and perhaps surpassing peak earnings power in the
2011 timeframe," Gauna wrote. Nvidia's gross margins could approach 50 percent, helped by
its new products and substantial growth in workstations, Yeung
added. Shares of the company fell 6.5 percent to $16.67 in
afternoon trade on Nasdaq. They touched a low of $16.21 earlier
in the session. See below for price target and rating changes by various
brokerages on Nvidia shares:Brokerage Price Target ($) Rating New OldCanaccord Adams 21 17 BuyCitigroup 23 21 BuyJMP Securities 22 21 Market outperformS&P Equity 18 16 HoldUBS 18 16.5 Neutral
I have given up trying to figure out Nvidia. This stock blows away earnings beats revenue estimates, but not the walk up whisper revenue from the analysts so it's sold off. So many concerns....chipsets etc. Yet new products are in the pipeline, profitable, and well received.
I guess I have come to the conclusion that there is something inherently wrong with how Nvidia is perceived and it is nothing more than a trading vehicle for traders/WS for at least 6 more months. I do feel that Jen-Hsung could correct this by wining and dining WS but that would be totally out of character for the company. Too bad!!!!! Also WS is actually talking about a top on the semiconductor cycle coming soon. This is completely laughable.
Happy Trading everyone!
"there is something inherently wrong with how Nvidia is perceived "
Many analysts have pigeonholed them into a PC only company based on supporting x86. And with that assessment, INtel doing everything they can to commoditize GPUs, and forcing NVidia out of the chipset business. I've talked to many a broker at length about this, and they too are stuck in this model of thinking. What is most astonishing is that these folks that control so much $$ actually know so little about this market space.
Also, Until TEGRA 2 devices actually hit the store shelves, not much is going to change with the above. So far, it appears 2H 2010. WIth CES, MWC, and other visible forecasts, it just hasn't sunk in.
WHen Fermi actually hits the shelves, HUGE revenue increases are also on the horizon as the professional markets return. Not just QUADRO revenues, but all 'new' TESLA revenues now that ECC will open up new high-end markets NVidia wasn't allowed to compete in before.
My guess, your guess, is as good as any who can predict when the 'old school' perceptions will be modified to include the new markets.
With the announcements yesterday, you can find whatever info you were looking for, good or bad, depending on what filter you use. Too bad many are overly cautious.
I think that whatever viewpoint you have can be found in the article.
Bottom line: With the product transitions to 40nm, and the unsuredness that goes with that,
NVidia is currently at a high risk, but a potentially very high reward.
Place your bets...
fyi, I am long
The true period of uncertainly was Oct 2009 to Dec 2009.
To me, the clouds involved in product transition have been lifted for the most part. You never see an absolute blue sky when the future pipeline is so FULL. There are bound to be the fast movers as well as the slower ones. If an investor doesn't have the ability to see the whole picture, then he/she is at the mercy of the analysts and those who lie.