Nvidia’s GPU & Mobile Businesses Suffer Slightly in Q4

February 17th, 2012 by Trefis Team
-36.40%
Downside
146
Market
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Trefis
NVDA: NVIDIA logo
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NVIDIA

As expected, Nvidia’s (NASDAQ:NVDA) GPU business suffered in Q4 of fiscal 2012 as a result of hard drive shortage. Its earnings release showed that the shortage not only led to reduced PC shipments, it also encouraged PC makers to exclude GPUs from some of their shipments due to hike in hard drive prices. Microprocessor designers Intel (NASDAQ:INTC) and AMD (NYSE:AMD) have also felt slight impact of this shortage. Furthermore, Nvidia’s Tegra 2 business suffered some sequential decline. This decline was higher than expected as smartphone and tablet manufacturers held back to include the next generation quad-core mobile processors Tegra 3.

See our complete analysis for Nvidia

What To Expect Next?

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The hard drive shortage will continue to impact PC market in 2012, at least for first couple of quarters. This implies that growth of Nvidia’s discrete notebook & desktop GPU revenues will continue to suffer. The company expects to gain share in discrete GPU market with several notebook design wins for Intel’s Ivy Bridge chip launch. However we feel that this may not be adequate enough to compensate for the negative effect of hard drive shortage. Moreover history suggests that AMD  and Nvidia have competed against each other in GPU market intensely and therefore, it is unlikely that any of them will significantly gain share over the other and sustain it over a long period of time.  Thus, we believe that it is the overall PC market and GPU attach rates which will primarily govern revenue growth for Nvidia’s GPU business.

Furthermore, the company expects 50% growth in its Tegra related revenues which will cross half billion mark next year. Tegra 3 is will spur the shipment growth of these chips and Nvidia is likely to gain some share in smartphone and tablet processor market.

What Is The Significance?

We estimate that discrete GPU business (excluding professional graphics) constitutes close to 30% to Nvidia’s value whereas mobile computing business, which includes Tegra product along with chips for gaming consoles and other portable devices, constitutes about 13% to Nvidia’s estimate stock value.

As the server and workstation market refreshes with Intel’s new server chips, Nvidia will push out its professional GPUs in the market and therefore expects another stellar year. This business constitutes about 30% to company’s value.

We are in the process of updating our pricing model for Nvidia in light of recent earnings release.

Our price estimate for Nvidia stands at $20.91, implying a premium of about 30% to the market price.

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