) is set to offer convertible senior notes worth $1.3 billion,
due on 2018, to qualified institutional buyers. The senior note
bears interest of 1% per annum that is to be paid semi-annually
on Jun 1 and Dec 1 every year.
NVIDIA plans to use the net proceeds from the issuance to
primarily fund its capital return initiative though buybacks and
dividends announced in the last reported quarter. At the end of
the third quarter of fiscal 2014, the company authorized a stock
repurchase plan worth $1.286 billion ending in Jan 2016.
The company also intended to increase shareholders' value
through stock repurchases and quarterly dividend payments and
expects to distribute $1 billion in 2015. Moreover, NVIDIA
increased its quarterly dividend payment by 13% and set Dec 13,
2013 as the payment date.
Moreover, NVIDIA intends to use the proceeds for certain
convertible note hedge transactions which is expected to reduce
the dilution effect when the notes are converted to shares.
Although the company has a strong balance sheet with cash, cash
equivalents and marketable securities of $3.03 billion and
long-term liabilities worth $387.8 million, this issuance will
further increase its liabilities.
Nonetheless, we believe that NVIDIA is gaining strength in
gaming and high-end notebook GPUs. Moreover, NVIDIA's Tegra
segment performed robustly due to the shipment of Tegra 4
processors to 15 mobile device manufacturers including
), Asus, Toshiba and Acer to name a few. The company expects the
Tegra processors to generate incremental revenues, going forward,
due to their acceptability and demand.
However, the continuous decline in PC sales does not help
NVIDIA's GPU business. Competition from the likes of
) and QUALCOMM and higher operating expenses are also expected to
hurt profitability in the near term.
Currently, NVIDIA carries a Zacks Rank #3 (Hold).
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