PC Market Growth Slows in Q1, Risk For Nvidia?

May 26th, 2011 by Trefis Team
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According to PC market estimates released by Gartner, a market research firm, the market for PCs slowed down significantly in Q1 of 2011. [1] This was not just a seasonal decline, it was indicative of much more than that. A decline of about 1.1% was observed compared to the same quarter a year ago. And more alarmingly, this was first year-over-year decline observed in the last 6 quarters. While companies like Intel (NASDAQ:INTC) and AMD (NYSE:AMD) are also affected, here we look more specifically at the impact on Nvidia (NASDAQ:NVDA), in light of its recent earnings.

Our price estimate for Nvidia stands at $21.25, implying a premium to the market price.

Risk Arises from Consumer Side

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Gartner states that hype for media tablets has impacted demand for consumer PCs. According to one Gartner analyst, even low prices for consumer PCs could not fuel growth and the attention has turned towards other type of electronics like media tablets. [1] On the other hand, a steady growth in the professional PC sector has been driven by the enterprise upgrade cycle. [1] So what are the implications for Nvidia?

Professional Graphics – Low Risk

Stable professional PC demand means that Nvidia’s risk is low as far as professional GPU sales are concerned, which in fact witnessed year-over-year growth. This is the most valuable division for Nvidia, accounting for about 34% of its stock value. You can modify the forecast below to see how change in demand for professional GPUs can impact Nvidia’s price estimate.

Consumer Graphics – Medium Risk

Slowdown in PC growth could impact Nvidia’s discrete desktop and notebook GPU businesses. These two businesses combined contribute about 20% to Nvidia’s stock value. In addition to softness in the PC market, Nvidia is slowly closing down its integrated graphics business which will be replaced by hybrid CPUs (CPU and GPU) from Intel and AMD. Despite these negative factors, Nvidia is looking to leverage its partnership with Intel to push more discrete GPUs into notebooks powered by the Sandy Bridge platform. This is likely to mitigate the risk to some extent. The interactive chart below illustrates how increased usage of discrete GPUs in notebooks can impact Nvidia’s stock value.

See our complete analysis for Nvidia’s stock here

Notes:
  1. Gartner Says Worldwide PC Shipments in First Quarter of 2011 Suffer First Year-Over-Year Decline in Six Quarters, Gartner Press Release, Apr 13 2011 [↩] [↩] [↩]