Low margins, chipset licensing main concerns
believes Nvidia will beat its Q1 revenue and earnings
estimates due to strength in the chipset segment, stabilizing channel
graphics inventories and strong workstation graphics revenues.
Analysts are, however, concerned about Nvidia's long standing dispute
over Intel chipset licensing. Intel is still challenging Nvidia's right
to offer chipsets for Intel's new series of CPUs with integrated memory
controllers, such as its flagship Core i7 Nehalem based CPU. High
inventories and a larger share of low margin entry-level chipsets are
expected to impact Nvidia's margins in the chipset segment. Chipset
sales currently account for about 20 percent of Nvidia's revenue, and
analysts expect margins to drop from 40 to 38 percent. Long term
sustainability of such margins and revenues is questionable unless
Nvidia resolves its dispute with Intel.
Graphics sales, which accounted for 74 percent of total Nvidia sales in
Q4 2009, are expected to stay flat in Q2. High inventories, caused by
withering demand and strong competition in the GPU market are expected
to maul Nvidia's graphics margins. Margins and demand are expected to
improve towards the end of the year, when Nvidia refreshes its GPU
lineup. Both Nvidia and ATI are expected to transition to 40nm later
this year, starting in Q2 with ATI's RV740 desktop GPU.
Analysts Nvidia's strong presence in the workstation graphics market as
one of the bright spots in overall performance. In spite of AMD's recent
efforts to aggressively enter this high-margin niche market, Nvidia is
still dominant. Workstation graphics accounted
for 23 percent of Nvidia's Q4 revenue.
JP Morgan is neutral on Nvidia, but could become more positive when
margins bottom out, or if demand starts to pick up faster than expected. In layman's terms, there is much to go wrong, especially concerning the chipset licensing issue, but there is also a lot of opportunities, and Nvidia is slowly trying to establish a foothold in new market segments, such as netbooks with its Ion platform.