NVIDIA Corporation (NVDA) is scheduled to announce its third quarter 2012 results on November 9, 2011, and we do not expect much change in analysts’ estimate for the given period.
Second Quarter Overview
The company reported revenues of $1.02 billion in the second quarter of 2012, up 5.7% from the previous quarter and up 25.4% from the prior-year quarter.
Within business segments, the company’s Graphic Processing Unit (GPU) business delivered strong performance in the second quarter driven by higher notebook product sales. Despite seasonal weakness in the PC market, the company generated record notebook GPU revenue.
The Professional business segment increased 4.2% from the prior quarter. Moreover, the company’s Quadro professional graphics business grew sequentially, as the company witnessed an improvement in enterprise IT spending. Moreover, the Consumer business rose 36.8% over the prior quarter primarily attributable to higher game console royalties.
Gross margin on a GAAP basis stood at 51.7%, up from 50.4% in the previous quarter and 16.6% in the year-ago quarter. GAAP operating expense in the quarter stood at $306.0 million versus $296.8 million in the previous quarter and $272.1 million in the year-ago quarter.
For the third quarter of fiscal 2012, the company expects revenue growth of 4.0% to 6.0% sequentially. The company expects to witness strong growth across all its business segments. However, NVIDIA is concerned about the ongoing decline from its discontinued MCP business.
Agreement of Analysts
Out of the 11 analysts providing estimates for the third quarter, only one analyst revised the estimate downward in the last thirty days, while none of the analysts revised it upward. Out of the 10 analysts providing estimates for fiscal 2012, one analyst revised their estimates downward in the last thirty days while no one moved in the opposite direction.
For fiscal 2013, one analyst made downward revisions while none of them moved upward in the last thirty days.
Some analysts are of the opinion that, Nvidia will likely deliver results in line with management guidance of 4.0% to 6.0%, as most of the market weakness in desktop GPUs will be offset by strong share gains in notebook GPUs.
Moreover, the analysts also stated that NVDA graphics chip market share plunged roughly 110 basis points sequentially to 53.0%, as gains in desktop market share were offset by declines in notebook market share. This apart, the analysts state that NVDA gained roughly 900 basis points in notebook market share during the June quarter due to the company’s higher market share in platforms using Intel’s new “Sandy Bridge” processor, which is ramping.
AMD market share grew 110 basis points sequentially to 47.0%. The analysts expect Nvidia’s market share to recover to 55.0% going forward due to higher orders for notebook graphics chips.
Magnitude of Estimate Revisions
Since the second quarter earnings release, the magnitude of revisions has been modest. Overall, estimates for the upcoming quarter remained unchanged over the last 90 days while the fourth quarter estimates moved down by a penny over the last 30 days to 26 cents.
For fiscal 2012, estimates have moved down from $1.04 to $1.00 over the last 90 days. However, estimates have remained unchanged over the last 30 days. For 2013, estimates have gone down from $1.24 to $1.16 over the last 90 days, while it reduced by 2 cents over the last 30 days.
Recommendation
The company reported decent second quarter results and is optimistic about its long-term growth with the gradual recovery in demand for graphic chips. The company has rolled out its first quad-core mobile processor and new GeForce products. Moreover, the recent acquisition of data chip manufacturer Icera will supplement its product portfolio, while the newly introduced NVIDIA PhysX technology will attract more gaming customers.
On the other hand, some analysts expect the company to regain its market share, which is expected to recover to 55.0%. However, NVIDIA’s performance may be tempered slightly by the economic slowdown in Europe and increased competition.
The company has Zacks #3 Rank, implying a short-term Hold rating.
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