Nvidia: Why I Refuse to Believe the Worst Is Over

There have been a lot of road-kills in the graphics business [Chips & Technologies, S3, Cirrus Logic (CRUS) , Tseng Labs come to mind], which is always cyclical, and "owned" by a player or two. For now, nVidia (NVDA) is one of the big two, and will continue to be - till the next major breakthrough in graphics processing creates a new winner [or a new old winner].

I had an opportunity to listen to nVidia's mea culpa conference call - after the earnings announcement that fell short, but wasn't as bad as expected. While this is fine and dandy, it just seems too "perfect" to me, and I refuse to believe that the long-term effects of this admitted snafu will last only one quarter. Why am I being pessimistic?

• NVDA came in closer to the low-end of its own guidance of $875M to $950M in revenues [I'd have thought that it had an excellent idea by mid-July as to what it would probably announce].
• I believe in the cockroach theory. If you see a roach, there are a hundred below the floor-boards that you do not see.
• In the semiconductor industry, even the best systems cannot stop the "propagation" of a mistake into other areas.
• nVidia's cycle-time - from when it starts designing a chip, to getting it fully qualified at Microsoft (MSFT) [to work with the OS and the graphics API] - to the time the company recognizes revenue from the product is anywhere from twelve to eighteen months [though occasionally, I have heard the company venture smaller numbers (which is possible for re-designs and incremental improvements)].
  e. The announcement of a stock buy-back means nothing. Implementation thereof is key [see Linear Tech in my previous article].
   

Let me be very clear that I believe in Jen-Hsun Huang and his resilience. In fact, NVDA has been through bankruptcy protection once and emerged triumphant [which very few semiconductor companies have done in the past].

Disclosure: None

Comments

[Randy Fay:]

Your post indicates your opinion is based on nothing more than a hunch. Please examine the fundamentals of NVDA. You would find them actually pretty solid.

2008 Aug 13 09:08 AM

[Potash:]

more computers in China , India , Brazil and other areas more Graphic cars Nvda sells .. Nvda stock will be back to 40$ in 2-3 years

2008 Aug 13 10:08 AM

[Check:]

Nvidia's executives did not have a concrete plan to decrease
expenses. They said it was everyones responsibity inside (and outside) the company to reduce expenses and indicated that due to pricing presures, the only way to acheive gross margin targets was via expense reduction. Yet they hired 195 new employees. With no
plan and increase head count, I don't see how they will be successful.

2008 Aug 14 01:29 PM

[principle:]

Nvidia is in trouble because they are technologically behind AMD, who is on a comeback in a big way. Its a cycle, it will take Nvidia a few years to recover and to just be back to $18. AMD is lowering costs and pumping out better products in the price points. Nvidia is going to have to announce cost cutting plans that will drop the stock, and that stock buy back plan, well they havent finished the last buy back plan, and I dont see them running themselves into debt to buy their stock back.

2008 Aug 15 07:59 PM