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Analysts cautiously optimistic about Nvidia

by on09 April 2009


Low margins, chipset licensing main concerns

JP Morgan
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.

More here.
Last modified on 09 April 2009
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