Wednesday, February 14, 2007

Color on quarter: NVIDIA (NASDAQ:NVDA)

Several tier-1 firms comment on NVIDIA (NASDAQ:NVDA) after the co released its Q4 results last night:

- Goldman Sachs notes Nvidia continues to execute well, with sales and gross margins both coming in ahead of expectations. While a number of firm's checks had suggested results would disappoint, they believe weakness was offset due to the ramp of Nvidia's chipsets alongside AMD's processors at Dell. However, echoing management's own comments of caution into FQ1, they would remain on the sidelines near-term, given 1) checks suggesting excess inventory levels of motherboards in the channel and of graphics cards in retail, 2) an increasingly competitive environment in desktop GPUs, driven by AMD's aggressive pricing strategy and upcoming R600 launch, and 3) disappointing PS3 sales. That said, the firm likes the company's longer-term fundamentals, as new initiatives in handheld processors and general processing GPUs are likely to expand its addressable markets.

Maintains Neutral.

- JP Morgan says Nvidia reported F4Q07 EPS of $0.44, well above their $0.35 estimate (Consensus of $0.43 excludes options) due to lower taxes. Revenue of $878.9 million (up 7% QoQ) was above firm's $870.0 million estimate and the Consensus estimate of $865.5 million due to higher than expected chipset and memory shipments (combined 32% of F4Q07 revenue).

Gross margins grew 320 basis points QoQ to 43.9%, in line with JPM estimate due cost reduction and improved mix. They estimate F1Q08 gross margins should be roughly flat at 44.0%.

Cautious guidance consistent with preview, but Portal Player below expectations. NVDA guided for its revenues to decline 5% QoQ in F1Q08, below firm's estimate of up 2% QoQ due to weak orders for chipsets, an expected decline in memory and lower than expected revenues from Portal Player (guidance roughly $15.0 million below estimate).

The firm upgraded NVDA stock last week to Overweight. Despite near term channel weakness (which the stock has discounted, in their opinion), they believe NVDA should experience upside to gross margins in the coming year due to improved unit costs, gain additional market share in the fast-growing notebook segment and defend its position in desktop graphics chips.

They are trimming F08 revenue estimate from $3.7 billion to $3.6 billion, but are raising F08 EPS estimate from $1.30 to $1.34.

- Bear Stearns notes NVDA's GM remains on an upward trajectory - in the Jan-Q margins improved across the GPU, MCP and WMP businesses - and management sees further upside from current levels. As the firm previously indicated, margins should benefit from the transition to the GF8000 family of GPUs through FY08, as margins are higher by 1-2% compared to the GF7000 family of products. They also do not see any mix issues as NVIDIA's NB margins are similar to DT margins, and margins for its Intel chipsets are also expected to be similar to AMD chipsets.

Reits Outperform.

Notablecalls: While I have very little feel for NVDA at the moment, I do think the results provided a positive surprise to many. Not exactly a situation where I'd be all over the stock in the pre market but given the mostly positive commentary from the analyst community, the stock may see some buy interest.

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