Nvidia Corporation (NVDA), designer of graphics processing units for mobile, PC, professional, and HPC use, is set to report earnings on August 9, 2012. I am bullish ahead of the latest earnings report and expect the company to at the very least hit the midpoint of its guided targets for the following reasons:
1. Graphics Business Should Be Booming: Interestingly enough, there was a subtle point that I got from the conference call of Nvidia's rival, Advanced Micro Devices (AMD). Despite a poor showing in its core x86/APU business, the company reported in-line results on the discrete graphics front. This is especially encouraging for NVIDIA, which has traditionally held a market share advantage over AMD in the discrete space.
Further, this quarter saw the resolution of the supply issues surrounding the 28nm "Kepler" products (a quick scan of Newegg.com shows that GTX 680 and GTX 670 products are now in ample supply), which should help the company maintain or gain share at the high end. Future lower end "Kepler" products should help NVIDIA maintain positive momentum in sales and market share, while simultaneously leveraging "Kepler" dies that could not pass qualification as high-end parts for additional revenue and gross margin improvement.
2. Tegra Business Should Be Healthy: In the quarter, a number of very important design wins for the company's "Tegra 3" SoC were announced: the Google (GOOG) Nexus 7 tablet and the upcoming Microsoft (MSFT) Surface tablet running Windows 8 RT. There are further rumors that Amazon (AMZN) will be utilizing "Tegra 3" in the upcoming revision of its Kindle Fire tablet. These high profile design wins underscore the viability of Nvidia's mobile business.
Further, Nvidia has managed to build its Tegra 3 on the 40nm process which, at first, seemed to be a competitive disadvantage, but with the 28nm shortage still rampant in the industry, an available chip on a proven process will secure the design wins much more readily than a scarcely available chip on a more cutting edge process.
3. Tesla Business Is Looking Good: As HPC applications continue to require massive amounts of raw compute power, high performance compute accelerators such as Nvidia's "Tesla" should see significant traction, and as the company releases its next iterations of the product lineup based on its "Kepler" architecture (there will be two flavors: one based on the consumer version of Kepler and one based on an entirely beefed-up version of the chip that supports much faster double-precision compute speeds), sales should see a significant ramp.
A potential headwind here will be the release of Intel's (INTC) Many Integrated Cores architecture codenamed "Knights Corner" by the end of the year. Performance characteristics look good for Intel's solution on paper, but it remains to be seen how well it performs in the real world. Nvidia's advantage here is that developers are already comfortable developing for its platform.
Conclusion: In short, I expect the company to meet or exceed analyst expectations - which stand at an average of $0.14/share. The company has guided to $990M to $1.05B for sales. Further, I expect guidance to be strong as mainstream "Kepler" products roll out, coupled with strengthening "Tegra 3" adoption.
