Earnings Preview: NVIDIA

NVIDIA (NASDAQ:NVDA) is expected to report Q4 earnings after market close Tuesday, February 10, with a conference call scheduled for 5:00 pm ET.

Guidance

The consensus estimate is loss (9c) for EPS and $489.4M for revenue, according to First Call. On January 13, NVIDIA lowered its Q4 revenue forecast, citing weakness in the end-user. Wedbush expects NVIDIA to report Q4 revenues within its negatively pre-announced range of down -40% to -50% sequentially and in-line to slightly ahead of its estimates of $485.8M. While unit shipments have been tepid and attach rates on the decline,

Analyst Views

Wedbush believes these headwinds are well understood by investors and priced into shares. The firm thinks gross margins will be in focus and expect a decline into the sub-40's level once again. Specifically, Wedbush is modeling Q4 margins of 38.0% on unfavorable mix and significantly weaker sales. Wedbush does expect margins to recover throughout 2009 on an improving demand profile and further bolstered by new product introductions. The firm also looks for an inventory write-off in the vicinity of $100M – note that inventories were +21% QoQ in F3Q. Going forward, Wedbush believes NVIDIA will issue conservative guidance of flattish revenues, even off the suppressed Q4 levels, as mix shift, low discrete attach rates, and macro weakness weigh on the company. Wedbush is modeling Q1 revenues of $482M, below consensus of $541.8M, but likely in-line with whisper expectations. With the 3GSM trade show around the corner on Feb. 16-19, Wedbush looks for positive industry commentary about the Tegra handsets. Further, the firm remains optimistic with regards to Ion, particularly with end-users looking for an enhanced multimedia and graphical experience with sub-notebooks and sub-desktops.