Zacks_Analysts' Blog : Soft GPU Biz to Spoil NVIDIA's 4Q - Analyst Blog

Ace chip maker Nvidia Corp. (NVDA) is set to deliver a weak fourth quarter owing to softness in its Graphics Processing Unit (GPU) business arising from lower PC shipments. Weaker GPU business has also affected another tech behemoth and arch rival Advanced Micro Devices Inc.’s (AMD) fourth quarter results.

Advanced Micro reported a 9.9% decline in GPU business during the quarter and also guided an 8.0% (+/- 3%) sequential decrease in revenues for the upcoming quarter.

Major PC makers, such as Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL) reported lower PC shipments due to shortages of hard disk drives (HDDs). Company officials are of the opinion that disk drive shortage resulting from the flooding in Thailand is having a higher-than-expected impact on the mainstream GPU segment.

Apart from lower shipments, it was noted that some OEMs (original equipment manufactures) are not using graphic chips to mitigate the higher prices of HDDs. Avoidance of graphic chips are allowing the OEMs to keep the prices of PCs in a marketable range.

Nvidia now expects fourth quarter 2012 revenue to be $950.0 million (+/- 1.0%), compared with the original expectation of $1,066.0 million (+/- 2.0%). The guidance reflects 10% to 12% sequential decline.

Nvidia also stated that it does not expect the Tegra 2 mobile chip business to perform well, due to a higher-than-expected sales decline. However, the company remains positive about the newly-launched quad-core Tegra 3 chip (the world's first quad-core processor for smart phones and tablets), which is the successor to Tegra 2.

In its last quarter, Nvidia posted a marginal sequential growth in its GPU business, driven mostly by Desktop GPU revenue growth but offset by Chipset revenue and Notebook GPU revenue decline.

Overall, Nvidia’s last quarter was decent with year-over-year revenue and earnings growth. The quarter’s earnings per share were 5 cents above the Zacks Consensus Estimate.

Though lackluster PC shipment (research firm Gartner estimated that HDD shortage will significantly impact PC shipments in the first half of 2012 and will likely continue throughout the year) and increased competition are concerns, we believe that higher demand for smart phones and notebooks could provide an impetus for revenue growth.

Currently, NVIDIA holds a Zacks #3 Rank, implying a short-term Hold rating.