Earnings Preview: Nvidia

Nvidia (NVDA) is expected to report Q3 earnings after market close Thursday Nov. 6, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 12c for EPS and $890M for revenue, according to First Call. The only guidance provided by the company was for revenue to be slightly up QoQ from $892.7M.

Analyst Views

Citigroup estimates Nvidia to report Q3 revenues of $877M, below guidance for a slight sequential increase in sales. The firm said, according to third party research, Nvidia lost ~6% discrete notebook share in C3Q08 to competitors Advanced Micro Devices (AMD) and Intel (INTC). Given the weakness in PCs, especially in October, that has stunted the discretionary GPU market, and in combination with continued share loss, Citigroup expects Nvidia to guide well below consensus for Q4. Citigroup is modeling Q4 revenues of $777M vs consensus $909.08M, illustrating their concerns. The firm does not anticipate significant new ASP degradation.

While Citigroup sees risk to Nvidia's Q4 consensus revenue, gross margins ought to remain resilient, reflecting the move to 55nm production. The firm believes Apple's (AAPL) Oct. 14 announcement that it will use Nvidia GPU and chipsets across several product lines validates Nvidia's GPUs.

Thomas Weisel expect NVIDIA to report Q3 revenue roughly in-line with consensus. Weisel believes that while the company was tracking below guidance throughout the quarter, Nvidia made significant concessions to channel partners in the final days of October, pulling in from the January quarter. Weisel thinks Q4 guidance is likely to disappoint. The firm expects Nvidia could guide significantly below consensus, more in-line with its Street-low estimates. Weisel believes aggressive pricing moves in late Q3 would adversely impact top-line and margins for Q4, which, coupled with channel weakness and share loss, could amplify an already difficult quarter for the PC food chain this year. Weisel had recommended investors wait until after the company's earnings call to participate in the stock.

Key issues for the conference call: Forward guidance, commentary on headwinds on desktop GPU, commentary on inventory builds, commentary on speculation of a take-out that circulated in the market during the quarter, and market share standing.