Nvidia PC Processors Expected to Add 11% to Firm’s Value

February 24th, 2011 by Trefis Team
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Nvidia (NASDAQ:NVDA) competes with companies like AMD (NYSE:AMD) and Intel (NASDAQ:INTC) in the graphic processors business. The company also competes in mobile market with its mobile computing chips like Tegra. Our price estimate for Nvidia stands at $21.29 which is about 17% below the current market price. The company’s stock has been on a tremendous rise given some of the key announcements in recently concluded Consumer Electronics Show (CES) of 2011.

One of the announcements was the introduction of world’s first dual-core mobile computing chip Tegra 2. The superior processing power of Tegra 2 dual-core may set standards of performance in the mobile market and as a result, we expect mobile chip revenues for Nvidia to increase significantly in 2011. However another significant announcement from long-term perspective was Nvidia’s plan to enter PC processor business. We have now included this new business in our price model for Nvidia.

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PC Processors – 11% of Nvidia’s Value

Nvidia announced Project Denver at CES and will develop ARM-architecture based CPUs which will directly target x86 architecture’s turf. Nvidia plans to challenge Intel and AMD’s dominance in higher performance computing including notebooks, desktops and servers. These CPUs are expected to come to market in 2013. The chart below displays our assumptions regarding how much share can Nvidia gain.

Nvidia could also make its way further into gaming and high performance PCs. The company has used a parallel computing concept in its GPUs and could well use it to its advantage where high performance is required. Additionally, the company’s integration of GPU with its new CPUs will directly compete with Intel’s Sandy Bridge and AMD’s fusion processors, and we feel its technology is on par with these two larger competitors.

We have assumed Nvidia’s average CPU pricing similar to what we forecast for Intel. Additionally, we have assumed EBITDA margins of 30% for Nvidia’s PC CPU business. The rationale behind this selection is that Nvidia’s margins are likely to be less than that of Intel and of its own professional GPU business. Intel reigns supreme when it comes to PC processors and Nvidia is surely the king in the professional GPU business. To make a meaningful impact in this market, Nvidia may not be able to sustain the profit margins it does in its other businesses lines and be forced to compromise on price while offering high performance in order to secure a decent foothold in this market. The chart below depicts the margin forecast for Nvidia’s upcoming PC CPU business.

You can see the complete $21.29 Trefis price estimate for Nvidia’s stock here.