NVIDIA Beats on EPS, Outlook Bleak - Analyst Blog

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NVIDIA Corp . ( NVDA ) reported fourth quarter 2012 adjusted earnings per share of 21 cents, surpassing the Zacks Consensus Estimate of 19 cents. 

Revenues

The company reported total revenue of $953.2 million in the quarter, down 10.6% sequentially but up 7.5% from $886.4 million in the year-ago quarter.

The reported revenue was mostly in line with the company's pre-announcement in January. Nvidia forecasted that the quarter would be lackluster on weak performance of its Graphics Processing Unit (GPU) business arising from lower PC shipments. The lackluster PC shipment was driven mainly by higher component pricing, i.e. higher hard disk drive (HDD) pricing, which was due to supply chain disruption post the Thailand flood.

Apart from lower shipments, it was noted that some OEMs (original equipment manufactures) reduced the usage of graphic chips to mitigate the higher prices of HDDs. This apart, the Tegra 2 mobile business declined rapidly before the Tegra 3 processor could catch up with its production process.

Within business segments, the company's GPU business plummeted 3.6% sequentially owing to the impact of the disk drive shortage on the company's mainstream GPU desktop and notebook businesses.

Professiona l business declined 3.6% from the record level achieved in the sequentially preceding quarter.

The Consumer business also plunged 42.5% sequentially on the back of a sharp decline in the demand for the company's Tegra 2 products ahead of the ramp of Tegra 3, as well as the seasonal decline in game console revenues.

Operating Results

Gross margin on a GAAP basis was 51.4% versus 52.2% in the previous quarter and 48.1% in the year-ago quarter. Gross margin was also lower than the company's original expectations due to an additional charge in the quarter related to a patent dispute with Rambus.

On a non-GAAP basis, gross margin was 52.5%, which remained flat compared with the previous quarter, but was up from 48.3% in the year-ago quarter.

GAAP operating expense in the quarter stood at $367.7 million versus $359.6 million in the previous quarter and $246.6 million in the year-ago quarter.

The company reported a net income of $116.0 million or 19 cents per diluted share on a GAAP basis, compared with $178.3 million or 29 cents a share in the previous quarter and $171.6 million or 29 cents per share in the year-ago-quarter.

Excluding special one-time items but including stock-based compensation expenses, adjusted net income was $129.9 million or 21 cents per diluted share compared with $117.2 million or 19 cents per share in the year-earlier quarter.

Balance Sheet & Cash Flow

The company exited the quarter with cash, cash equivalents and marketable securities balance of $3.13 billion, up from $2.75 billion in the previous quarter. Balance for inventories during the quarter stood at $340.3 million, up from $319.6 million in the previous quarter.

Guidance

For the first quarter of fiscal 2013, revenue is expected to be between $900.0 million and $930.0 million. GAAP gross margin is expected to be 49.2%, plus or minus 1 percentage point; non-GAAP gross margin is expected to be 49.5%, plus or minus 1 percentage point. GAAP operating expenses are expected to be approximately $383.0 million; non-GAAP operating expenses are expected to be approximately $340.0 million.

Our Take

As expected NVIDIA delivered mediocre fourth quarter results with EPS surpassing our expectations, but revenue declining sequentially. Lower GPU demand resulting from reduced PC shipments, higher disk drive prices and decline in the Tegra 2 mobile business affected revenue growth during the quarter. 

The company expects to benefit from the integration of the new Tegra 3 into tablets; but production of the new tablets in the forthcoming quarters will not be as material.

Moreover, NVIDIA's performance may be tempered slightly by the economic slowdown in Europe. Again, advanced chips developed by Intel Corp. ( INTC ) and Advanced Micro Devices Inc. ( AMD ) may increase competition for the company.

Currently, NVIDIA holds a Zacks #4 Rank, implying a short-term Sell rating.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AMD , INTC , NVDA

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