Nvidia's (
NVDA
) profits margins from its mobile and gaming console computing
chips business has started to pick up after seeing steep declines
during 2006-08 due to lower royalty income from Sony's PS3 (powered
by Nvidia's GeForce chips) and the overall sluggish economy leading
to lower consumer spending. As Nvidia gears up for Tegra 2
processor, which it recently showcased at Consumer Electronics Show
(CES) 2011, and given the unprecedented growth in smartphones and
tablets, we expect Nvidia's margins to benefit tremendously.Nvidia
competes with Qualcomm (
QCOM
), Texas Instruments (
TXN
), Infineon (
IFNNY
), and Broadcom (
BRCM
) in mobile and gaming console chips market.
While we expect Nvidia's EBITDA margin from mobile and gaming
console chips will reach just over 32% by the end of Trefis
forecast period, Trefis members expect that the margin will cross
36% translating to small upside potential from our forecast. Since
mobile & game console chips constitute only around 9% of
Nvidia's stock, on the basis on our estimates, any change to the
margins from this business segment will have minimal impact on its
stock price.
Nvidia Ramps Production of Tegra Processor Chips
Nvidia is focusing on improving the production as well as
introducing newer versions of its Tegra line of graphics chips.
Increased volumes and a focus on a single line of products will
yield improved utilization levels, which is in turn expected to
increase profit margins higher.
Nvidia recently showcased Tegra 2 super chip at CES 2011 at Las
Vegas. Tegra 2 will power a range of new generation smartphones and
tablets. Few of these include LG Optimus super phone,
Motorola Xoom for Verizon, T-Mobile G-Slate with Google by LG, Dell
Streak 7 for T-Mobile, Acer ICONIA as well as tablets by Asus and
Toshiba. Tegra 2 offers the world's first mobile dual-core CPU with
up to 2x faster browsing, hardware accelerated Flash, and
console-quality gaming with an ultra-low power (ULP) Nvidia GeForce
GPU.
Unprecedented Growth in Smartphones, Tablets
The year 2010 has seen tremendous growth in tablets, TVs,
smartphones and other web connected devices. We expect the growth
momentum to continue in the future years as well. As a result of
growth in these devices, demand is rising for better graphics and
audio/video output. We expect Nvidia to be a key beneficiary of
this growth, which should boost its margins.
Trefis Community Forecast
Trefis members expect mobile & game console computing chips
adjusted EBITDA margin will increase from near 17% in 2010 to over
36% by the end of the Trefis forecast period, compared to the
baseline Trefis estimate of an increase from 13% to just over 32%
during the same period.
Our
complete analysis for nVIDIA's stock is here
.
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a free iPad.