Nvidia's Q2: Initial Notes

One can’t help but notice a major revenue upside ($664M vs. $514M consensus) along with a major inventory reduction. The revenue upside didn’t show up much on the bottom line, which was only ahead of consensus by 2 cents.

The call focused beyond GPU market share and talked about the increasing adoption of PhyX technology to develop the market for Nvidia (NVDA) products into mobile and gaming markets. It touted that GPU computing will be incorporated into the OS with the next releases of MacOS and Windows.

Describes Tesla as a "greenfield opportunity" for themselves in a multi-billion dollar market. Also touted the Aspire ION based machine as being a game changer for consumers in affordable machine performance. Expected to be part of every major PC company offering before year's end.

Moves on to Tegra for the portable and smartphone space where they claim many design wins that will emerge. Claims that Tegra gets them into another market with a TAM on the order of $10B.

Desktop sales were up strongly Q/Q and it now appears that Q4 suffered as inventory was worked down and revenues in Q1 start to look more like run-rate levels based on consistent inventory levels.

Gross margins were lower than expected due to business mix (-4pts) and the sell-off of older 65nm parts.

Balance sheet metrics were good. A/R was down 18 days to 42 DSO. Inventory levels dropped from 145 days to 64 days. Cash was up sequentially despite the payouts for the options repricing.

For Q2 the company sees revenues up 5% or so sequentially and gross margins to be up; puts the number around $697M versus current consensus of $536M.

Lots of questions around 65nm versus 40nm ramp and 55nm. ION is on 55nm. Suggestion is that about 25% of production will be 40nm by end of year.

Pricing is described as "aggressive" but relatively stable.

With respect to ION the numbers suggest about $100M of revenues in the quarter with a little over 50% of that being Apple (AAPL).

Interesting to consider the strategy of giving away Tegra-based devices as part of a communication plan. The ARPU can be attractive relative to a $200 device.

Says they would be disappointed not to do $50M in Tegra revenue this year and should exit the year at something like a $100M run rate.

In summary, the company report increases revenues by $320M for this year and outlines the evolving success of several new initiatives into mainstream computing. We certainly liked it but we are long Nvidia stock in our fund.

For us this was a quarterly report very much "on the path" based on our longer-term thesis.

Disclosure: long

Comments

[thevoice@vo...:]

In these economic times 30 percent margins and beating the street by 150 million is good. Upgrades and downgrades make the brokers money not investors. If the stock nears $8 I will be selling puts to keep
the premium.

May 08 12:53 PM