Bloomberg News

Nvidia Forecasts First-Quarter Sales That Miss Analyst Estimates

February 14, 2013

Nvidia Corp. (NVDA:US), a maker of graphics processors, gave a forecast for fiscal first-quarter sales that fell short of analysts’ estimates amid weak demand for personal- computer parts and stiff competition in new markets.

Sales in the period ending in April will be about $940 million, plus or minus 2 percent, Nvidia said yesterday in a statement. That indicates revenue of $921.2 million to $958.8 million, compared with an average analyst projection of $1.07 billion, according to data (NVDA:US) compiled by Bloomberg.

PC makers, facing lackluster demand as consumers opt for mobile devices, are scaling back orders for components, including Nvidia’s chips that speed up graphics for gamers and designers. The company’s attempt to move into the faster-growing market for phones and tablets with its Tegra processor is also running into tougher competition from companies such as Qualcomm Inc., according to Craig Ellis, an analyst at B. Riley & Co.

“On the Tegra side, there’s an increasingly difficult competitive and customer situation,” said Ellis, who is based in San Francisco. He has a neutral rating (NVDA:US) on Nvidia’s stock. In addition, he said the company’s latest computer-graphics design, Kepler, isn’t winning orders from rival Advanced Micro Devices Inc. as fast as it was when it was introduced last year.

Nvidia shares (NVDA:US) slipped to $12.20 in extended trading after the earnings report. They had fallen less than 1 percent to $12.37 at yesterday’s close in New York, and have dropped 23 percent in the past year.

Branching Out

In the fourth quarter, which ended Jan. 27, net income rose to $174 million, or 28 cents a share, from $116 million, or 19 cents, a year earlier, Santa Clara, California-based Nvidia said. Sales climbed 16 percent to $1.1 billion. Analysts on average had estimated earnings of 24 cents on sales of $1.1 billion, according to data compiled by Bloomberg (NVDA:US).

Under Chief Executive Officer Jen-Hsun Huang, Nvidia has branched out into processors that run mobile phones and tablets, trying to lessen its dependence on PCs -- a market that is poised for a second straight annual decline in 2013. The company is also facing a threat from Intel Corp. and AMD, which are building the function performed by graphics chips into general microprocessors, potentially shrinking the market available to Nvidia’s stand-alone parts.

PC shipments will decline in the first quarter, pulling down (NVDA:US) demand for chips used in add-in graphics cards, Huang said in an interview yesterday. While orders for Tegra 3 (NVDA:US) chips for mobile gadgets are tapering off, the company has more design wins for its replacement, Tegra 4, which will begin to show up in devices in the second quarter, he said.

‘Down Seasonally’

“The PC is going to be down seasonally and we’re going to be down consistent with that,” Huang said. “Tegra 3 is going to decline as the market waits for Tegra 4.”

Nvidia won orders for Microsoft Corp.’s Surface and other tablets last year with Tegra, boosting its presence outside PCs. The company unveiled Tegra 4 in January.

For the current period, Nvidia forecast gross margin (NVDA:US), or the percentage of sales remaining after deducting the cost of production, of 52.9 percent.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net


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