NVDA - Sector: Technology - Industry: Semiconductors

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Investors bet on Nvidia's new mobile chips...

(Reuters) - Nvidia shares soared 15 percent on Wednesday, their biggest one-day rise in over two years, as investors bet the company's new chips would win it a major stake in future tablets and smartphones.

The rise in Nvidia's stock brought its gain since the company's debut last week of its new Tegra 2 dual-core mobile chips to about 50 percent.

Wedbush analyst Patrick Wang said the stock was "trading purely on momentum at this point."

He said he had been taking calls from clients to help them estimate how large an impact Nvidia's mobile chips could make on the market.

Nvidia's new chips, boasting powerful graphics processing horsepower, give it a lead but competition is expected to increase from Qualcomm and Texas Instruments.

"Look for all of Nvidia's competitors to come out and throw their hats in as well," Wang said. "You've got very large, powerful technology companies that are all going for the same market."

Micron Technology Inc shares rose 7.1 percent to $9.34 after investor relations vice president Kipp Bedard told investors at a Needham & Company conference that a downturn in prices for DRAM memory chips was turning around quickly.

Shares of Cisco, Dell and other technology heavyweights also rose ahead of bellwether Intel's kick-off of the technology sector's quarterly earnings season on Thursday.

Major technology companies are expected to keep up sales and profit growth in 2011, although concerns about economic growth in the United States and Europe could temper results.

PUSH INTO MOBILE

Nvidia, based in Santa Clara, California made its name designing high-end graphics chips for PCs.

But as competition increased with Advanced Micro Devices Inc and Intel expanding into its market, Nvidia's co-founder and Chief Executive Jen-Hsun Huang pushed into mobile, combining central processors based on ARM Holdings Plc architecture with Nvidia's own graphics technology.

Wednesday's stock rise was Nvidia's largest in a single session since October 2008, and its shares have doubled since October 2010.

Interest in Nvidia was high in the options market, as well, with more than 29,000 call options with a January strike price of $22.50 trading on Wednesday, according to Caitlin Duffy, equity options analyst at Interactive Brokers.

"The majority of the calls traded on the ask, indicating buyers are dominating volume at that strike today," said Duffy. Heavy activity was also seen at the $24 and $25 strike prices, she said. Nvidia's shares closed at $23.35.

Validating Nvidia's focus on graphics technology, Intel said earlier this week it would pay the company $1.5 billion to license its patents, settling a legal dispute.

And at last week's Consumer Electronics Show (CES), Nvidia said it was developing an ARM-based PC central processor, directly challenging Intel in its own traditional market.

At the CES trade show, Motorola, LG, Dell, Acer, Asus and Toshiba Corp announced or showed smartphones and tablets using Tegra chips.

Adding to upheaval in the chip industry, Advanced Micro Devices' chief executive, Dirk Meyer, left the company this week due in part to the company's lack of a mobile strategy.

"People are digesting the Intel settlement, digesting CES ... Their primary competitor (AMD) just got a lot weaker," said Alex Gauna, an analyst at JMP Securities. Micron makes NAND flash memory used in smartphone and tablets.

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Intel-NVIDIA Deal a Win-Win...

Intel Corp (NasdaqGS: INTC) and NVIDIA Corp (NasdaqGS: NVDA) have at last come to a settlement regarding the legal disputes between them. The two companies have released each other from all previous claims and agreed to cross license some technologies, the whole thing costing Intel $1.5 billion.

Intel had been the first to sue, claiming that NVIDIA needed a fresh license to continue manufacturing some of its products that were based on the Intel x-86 architecture. NVIDIA promptly countersued, bringing in many Intel strong-arming tactics, which alerted the anti-competitive watchdogs.

Considering the way things were developing and the ease with which Advanced Micro Devices (NYSE: AMD) was able to eke out $1.25 billion from Intel, we expected Intel to come out with an attractive offer. We remained positive about the company overall, since we did not really think that even a handsome amount would push its nose out of joint (Intel generated $3.5 billion of cash in the last reported quarter). On the other hand, we expected that any settlement would be highly beneficial for NVIDIA.

What we had not bargained for however was Intel managing to keep the deal overall favorable to itself and this is one of the things that pushed up the figure in our opinion. As things stand now, Intel gets to use NVIDIA graphics technology to develop its integrated graphics chips. NVIDIA will get to license some of Intel's technologies, with the exception of the x-86 architecture.

This is what makes the agreement a win-win for the two parties. On the one hand, Intel gets to keep its supremacy in x-86. A more important implication is that NVIDIA is defocusing the high performance computing segment, to which it has been targeting its general purpose graphics processing units (GPGPUs).

This could be a temporary breather for Intel, since graphics processing units enable faster information processing and the only reason they have not been widely adopted is that there are some challenges to implementation ("very high power consumption, programmer difficulties, vendor lock-in and backward compatibility" - Jon Stokes at Technica).

NVIDIA gains on a number of fronts – first, the company gets a promise of $1.5 billion in six annual installments commencing this month; second, it may continue to use important Intel technology in its products; third, even if it decides to step away from supercomputing, it will pick up a share when Intel uses its technology.

Fourth, NVIDIA has already stated that it will be devoting development efforts on designs from ARM Holdings (NasdaqGS: ARMH) that are more commonly found in cell phones and mobile computing platforms. Since NVIDIA chips enable superior graphics required for gaming devices, development of technologies in the area makes more sense for the company.

Both Intel and NVIDIA carry Zacks #3 Rank, implying a short-term Hold recommendation.


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Decent 4Q for NVIDIA...

On Thursday February 17, 2011, 2:25 pm EST

NVIDIA Corp. (NasdaqGS: NVDA - News) reported fourth-quarter fiscal 2011 earnings per share of 23 cents, exceeding the Zacks Consensus Estimate of 21 cents.

Revenues

The company reported fourth quarter revenues of $886.4 million, up 5.0% from the prior quarter and down 9.8% from the comparable quarter in the prior year. The Graphic Processing Unit (GPU) business of the company moved up 5.5%, while MCP revenue fell significantly as the company entered the final phase of the business.

The Consumer business improved despite a seasonally down console business, as the company received benefit from strong Tegra segment growth. Moreover, the company witnessed strong growth in desktop and notebook segments.

On the other hand, the company's Professional business suffered slightly. The company witnessed a decline in Quadro sales, offset considerably by strong growth in Tesla.

Operating Results

Gross margin on a GAAP basis was 48.1%, up from 46.5% in the previous quarter and 44.7% in the year-earlier quarter. Gross margin on a non-GAAP basis was 48.1%, up from 46.5% in the previous quarter and 44.7% reported in the comparable quarter last year.

Gross margin of 48.1% was at the high end of the company's guided range, primarily as a result of richer GPU product mix than the company had expected at the beginning of the quarter.

GAAP operating expense in the quarter was around $246.6 million, down from $288.3 million in the prior quarter, and also down from $304.4 million in the year-ago quarter.

The company reported net income of $171.6 million, or $0.29 per diluted share on a GAAP basis, compared with $131.0 million, or $0.23 in the year-earlier period. Including the total pre-tax impact of non-GAAP adjustments net income in the quarter was $139.0 million, or $0.23 per diluted share, compared with $131.0 million, or $0.23 in the year-earlier quarter.

Balance Sheet & Cash Flow

The company exited the quarter with cash, cash equivalents and marketable securities balance of $2.83 billion, up from $1.98 billion in the previous quarter, while the balance for inventories stood at $345.5 million, down from $377.8 million.

Guidance

For the first quarter of fiscal 2012, the company expects revenues to be up approximately 6.0% to 8.0% sequentially. GAAP gross margin is expected to range from 48.5% to 49.5%. GAAP operating expenses are expected to be approximately $327.0 million. The tax rate is expected to be in the range of 16.0% to 18.0%.

The company reported decent fourth-quarter numbers, but is optimistic about its long-term growth with the gradual recovery in demand for graphic chips. Moreover, the company rolled out the first quad-core mobile processor. The company will also receive $1.5 billion in a licensing agreement with Intel Corp. (NasdaqGS: INTL - News) that spans over six years.

However, the company's performance may be slightly tempered by cyclical weakness, economic slowdown in Europe and increased competition.

The company has a short-term Zacks #1 Rank (Strong Buy).


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U.S. stocks gain on Philly Fed, Nvidia, energy...

Joe Terranova kicked off CNBC's "Fast Money" show talking about the hot chip stocks, especially Nvidia(NVDA), which bounced back dramatically on a glowing report about the potential revenue stream of its 1.5 GHz quad-core Tegra mobile chip. He advised investors to stay with names like Nvidia and Lam Research(LRCX) and raise their stops.

U.S. companies giving upbeat forecasts included Nvidia Corp
Tegra Mobile Chip Revenue To Be 'Easily Over' $100M In 1Q

Day's Range: 22.61 - 26.01
52wk Range: 8.65 - 26.17
Volume: 86,752,225
Avg Vol (3m): 25,652,200
Market Cap: 14.92B
P/E (ttm): 69.78
EPS (ttm): 0.37
Div & Yield: N/A (N/A)

Technicals
Close Above the 13-day EMA
Most Actives
Percentage Gainer

Last Price Quote is:
7.94%above 13-day EMA
24.01%above 50-day EMA
RS Rating: 96
 
Tegra revs!!!
Buy and hold...

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Pulled back to support at the 50-day MA at 20.75

Day's Range: 20.53 - 21.10
52wk Range: 8.65 - 26.17
Volume: 23,996,807
Avg Vol (3m): 28,816,500
Market Cap: 12.11B
P/E (ttm): 48.27
EPS (ttm): 0.43
Div & Yield: N/A (N/A

Technicals
Most Actives

Last Price Quote is:
-7.76%below 13-day EMA
-2.18%below 50-day EMA
RS Rating: 93 




NVIDIA Corp. (NasdaqGS: NVDA) is a worldwide leader in visual computing technologies. The company reported decent fourth-quarter numbers, but is optimistic about its long-term growth with the gradual recovery in demand for graphic chips.

Moreover, the company rolled out the first quad-core mobile processor. The company also received $1.5 billion in a licensing agreement with Intel Corp. that spans for six years.

The stock has traded in a trailing twelve month P/E of 36.3x, and going forward we expect it to trade around this multiple. We upgrade NVDA to Outperform and set a price target of $28.00, representing a P/E of 27.1x our 2012 EPS estimate.