NVIDIA recently turned in quarterly results that looked good, yet at the end of the day the stock kept falling. A little digging revealed NVIDIA had a bad miss on gross margins. “NVDA reports Q1 gross margin of 28.6% vs. 35.5% street expectation”. Thank you Briefing.com.

The next day brought confirmation: the company had been negatively assessed by many analysts over gross margins. You can’t blame the analysts. Gross margins is the single most important metric by which tech companies are evaluated.

A Bellwether of Semiconductors

When Cisco (CSCO) reports earnings, it is one of the first companies to offer insight into how the calendar quarter is progressing for the economy, since its fiscal quarter is one month behind the calendar quarter.

The same might be said of nVidia (NVDA), except that nVidia is more specific to semiconductors. Many semiconductor companies reported a quarter that ended in December, then nVidia’s financial results included January. When nVidia issued a warning last month, it was a heads-up that January was shaping up to be a bad month too for the industry.

As early as August of last year, Jen-Hsun Huang, NVIDIA's (NVDA) CEO, said of netbooks, "that's just not our target. I mean, there are a lot of things that are not our targets and that just happens to be one of the things that is not our target" (Earnings Call Transcript).

That was then. This is now. Since that time, the recession has turned global, netbooks are thriving like tubeworms at the bottom of the Atlantic, and NVIDIA's CEO is singing a different tune. NVIDIA recently announced plans for Ion, which is Intel's (INTC) Atom processor combined with NVIDIA graphics, for netbooks. The buzz surrounding Ion is reminiscent of the first Centrino.

A financial analyst recently asked Intel’s (INTC) CEO what certain aspects of the quarter would have been like had the world economy not cratered. Paul Otellini, with pain in his voice, shot back: “That’s just like asking Mrs. Lincoln what the play was like." (See conference call transcript).

The quarter was bad. How bad? It was “only the second time in 20 years that our fourth quarter revenues were below the third quarter”. However, in the year 2000, revenue came in less than one percent below Q3. This time it was 19% below! Q4 is supposed to be Intel’s strongest quarter.

It’s a good thing NVIDIA (NVDA) does more than just desktop GPU discrete graphics these days. If NVIDIA had never expanded beyond the desktop, the company would really be in a world of hurt. NVIDIA’s revenue share, for example, in high-end GPUs went from 80% to 30% from the second to third quarter (NVIDIA Corporation at Credit Suisse Group Technology Conference Presentation, December 2, 2008)!

High-end desktop graphics has traditionally been a high-margin business, with cards commanding $400-600 in prices. Not anymore. AMD recently released chips intended for the $200 and $300 markets, the Radeon HD 4870 and 4850. However, the $300 chip was good enough to take on NVIDIA’s $400 offering, and ATI’s $200 GPU NVIDIA’s $300 GPU. “ATI now had a $300 card that was competitive with NVIDIA’s brand new $400 GTX 260“.

Many would say today that Advanced Micro Devices (AMD) has surpassed NVIDIA (NVDA) in graphics performance. The question is, however, is it right to compare the performance of two GPUs with a single GPU? For that is what is being compared. AMD puts two GPUs on one card to trump NVIDIA’s single-card. So there are two different ways of looking at this: single card vs. single GPU.

Fighting NVIDIA’s single GPUs with two GPUs can only go on for so long. For one thing, NVIDIA can put two GPUs on one card too. And NVIDIA’s multi-GPU SLI scales a lot better than ATI’s Crossfire.

The high-tech companies of the S&P 500 last quarter turned in “the best performance of any sector in the market“.

Yet the sector that performed the best in this case has also of late been one of the hardest hit. The tech-heavy Nasdaq (QQQQ) has tumbled almost 14% since the first of the year, almost twice as much as the S&P 500 (SPY) (about 8.5%) or the Dow (DIA) (about 7%).

There’s a new CFO in town at Intel (INTC). The preceding CFO has moved on to become Chief Operating Officer. The former Assistant CFO is now the CFO. The new Chief Financial Officer received baptism by fire in an earnings conference Tuesday (Jan. 15, ‘08).