Shares of chip maker Nvidia (NVDA) are up 33 cents, or 2%, at $14.80 after a report of better-than-expected fiscal Q3 revenue and earnings last night, and a forecast for revenue to match estimates this quarter.
As in prior quarters, the focus today seems to be less on the graphics processing unit (GPU) business that is the traditional focus of the company, and more on the “Tegra” application processor that the company is selling for tablets and smartphones. CEO Jen-Hsun Huang last night told analysts the company had been caught flat-footed by Amazon.com’s (AMZN) introduction of a tablet computer based on Google’s (GOOG) “Android” software, and so the company had missed getting that contract.
But in a call I had with Huang following the report, he said “we’re calling on them,” meaning Amazon, saying that he had put a whole team of people on the Amazon account to try and win future business.
Today, analysts tossed the Tegra matter back and forth along with the rest of the report:
Hans Mosesmann, Raymond James: Reiterates a Strong Buy rating, while cutting his price target to $28 from $40 to reflect a lower fiscal ’13 EPS estimate. Mosesmann cut his fiscal 2012, that is, the year ending in January, estimate for revenue to $4.11 billion from $4.15 billion, while maintaining a $1.02 EPS estimate. For 2013, his estimate goes from $4.9 billion to $4.7 billion, to “reflect a more realistic consumer spending environment,” and his EPS estimate goes from $1.62 to $1.33, more or less in line with consensus now, to reflect higher operating expenses. He liked the “lean inventories” in the quarter and the company’s ability to avoid the worst effects of the looming hard-drive shortage in the PC industry, and design win “momentum” for Tegra 3. “As usual, there appeared to be confusion on the call related to Tegra (up over 10% q/q) given what we suspect is a cognitive bias against NVIDIA, which is now the dominant non-Apple tablet vendor (two-thirds of non-Apple market) and emerging player in smartphones. Basically, the quad-core Tegra3 has much more design win traction vs. Tegra2 last year, and management still expects ~$1 billion in sales from Tegra in calendar 2012.�In our view, the most intriguing part of the call was the commentary on the Denver 64-bit project. NVIDIA seeks to expand the ARM architecture beyond where ARM would likely not go itself. So, NVIDIA is not just playing around the edges of Intel’s core computing markets as some are doing in data center. NVIDIA is going straight at them.” Mosesmann notes, too, that GPU design wins for laptops based on Intel’s (INTC) “Ivy Bridge” processor are proceeding more quickly than they did for the prior roll-out, “Sandy Bridge.”
Romit Shah, Nomura Equity Research: Reiterates a Neutral rating on the shares, but raises his price target to $16 from $15. The “bear case on Nvidia is weakening,” he thinks, as the company “executed well in a tough environment [�] despite share loss and a product cycle transition in mobile, Tegra sales are holding firm in the January quarter.”
Daniel Berenbaum, MKM Partners: Maintains a Neutral rating and a “fair value estimate” of $13. Despite the headline beat, the commentary on the call following the report regarding Tegra was “mixed,” he writes. “NVDA lost a key customer (MMI) and the design win in AMZN�s Kindle Fire to TXN�s OMAP product, and NVDA is notably absent from many newer high- end smartphones � to us, this is further confirmation that the ARM-based apps processor market is over-crowded. Combined with what we see as slowing growth in the core graphics business (despite management commentary and some recent evidence that GPU attach rates have held steady), we expect continued multiple compression.” Berenbaum also doesn’t believe the market for PC-based video game graphics is as big a deal as management contends. Berenbaum cut his estimate for fiscal 2013 to $4.5 billion from $4.8 billion, and cut his EPS estimate to $1.11 from $1.24.
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