NVIDIA Pre-earnings Analysis: Cautiously Confident

| About: NVIDIA Corporation (NVDA)

Two offering their views on NVIDIA (NASDAQ:NVDA) ahead of earnings due February 13th.

Bear Stearns remains comfortable with their Jan-Q and Apr-Q estimates heading into earnings. They are looking for Jan-Q revenues of $862M (+5.0% Q/Q), gross margins of 43.9% (up 100 bps), both in line with guidance, and EPS of $0.43. The firm believes there could be slight upside to Jan-Q margins due to an improved GPU product mix.

The firm believes NVIDIA faced some headwinds in the earlier part of the quarter as its channel customers backed away from orders, due to an inventory build in the prior quarter and due to incrementally weaker overall desktop builds. This weakness in the early part of the quarter was primarily in the white box segment, while demand remained strong on the OEM side. Both of these issues were clearly temporary, and firm believes NVIDIA saw a solid rebound in late December and January as customers resumed normal ordering and replenished their inventory. Firm believes notebook builds ahead of the Santa Rosa platform launch also positively impacted NVIDIA's notebook GPU sales in January. In addition, their checks indicate an improvement in NVIDIA's desktop GPU product mix last quarter.

Deutsche Bank notes that NVDA's guidance was for revenues to be up 5% Q/Q (i.e. $862m) and gross margins of 43.6% (up 100bps Q/Q). Given the weak desktop build (still the primary driver for discrete graphics) in C4Q, meeting the revenue guidance will be a challenge (DB at $865m; Street at $866m). However, firm believes business has picked up in 2H-Jan, and there is likely some upside to gross margins. Overall, they expect EPS to be in-line or slightly weaker than DB's $0.35 (including $0.07 ESO impact) and Street's $0.43 (excluding ESO).

The firm's current expectation for F1Q (April Qtr) is for revenues to be +1.8% to $881m (Street at $851m). Given weak PC datapoints, they expect NVDA's 1Q guidance to be tepid (closer to the Street than DB).

The firm believes Vista-related PC demand has not yet kicked-in. GF8800 is cleaning up the plate at the high-end, and we are yet to see a competitive response from AMD/ATI. Despite AMD/ATI's intention to launch its flagship R600 in C1Q07, the firm's checks indicate that many system builders haven't yet seen samples and so they do not expect any impact to NVDA's April Qtr.

Note that both firms' (as most of the Street's) numbers do not include impact of PortalPlayer Inc. (NASDAQ:PLAY) acquisition.

Notablecalls: The street is used to see NVDA beating and guiding up on revenues, so Deutsche's cautious view on Jan-Q revenue is somewhat alarming. Not actionable though.

NVIDIA 09 02 2007

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Tagged: , Semiconductor - Specialized, Earnings
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