Earnings Preview: Nvidia

Nvidia (NVDA) is expected to report Q2 earnings Tuesday after the close with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is 12c for EPS and $908.38M for revenue, according to First Call. On July 2, Nvidia lowered its Q2 revenue guidance to a range of $875M to $950M. Nvidia also said its gross margins would be lower than it previously expected. The company explained that the gloomier outlook was caused by end market weakness, the delayed ramp of its next generation MCP, and the reduced prices of its GPU products. Nvidia added that it would take a $150M to $200M charge in Q2 to cover costs associated with a weak die/packaging material in certain versions of its previous generation GPU and MCP products.

Analyst Views

Wedbush is modeling slightly higher than consensus for Q2, calling for EPS of 12c on revenues of $913M, or down 21% sequentially. Wedbush said that margins are expected to be challenging this year due to the competitive nature and higher than expected availability of Advanced Micro Device's (AMD) RV770 product family. Wedbush expects pricing to remain tough through the balance of the year resulting in lower revenues and margin pressure. As such, it is modeling gross margins of 38.5% in Q2, down 640bp QoQ, and FY08 of 40.9%. Wedbush does not potentially expect margins to meaningfully recover until mid-C09, with the arrival of Nvidia's next-generation GPU architecture (NV70).

Looking forward: Wedbush thinks Q3 guidance could disappoint. The firm expects management to provide Q3 revenue guidance to be lower than seasonal as the company deals with (1) headwinds on desktop GPU, (2) modest inventory builds, and (3) ongoing share loss. Consensus for Q3 is 22c on $1.01B in revenue.