Thursday, February 10, 2011

Nvidia Corp. (NASDAQ: NVDA): Q4 Earnings Preview 2010

Nvidia Corp. (NASDAQ: NVDA) is scheduled to release its fourth-quarter earnings after the market close on Wednesday, February 16, 2011. Analysts, on average, currently expect the company to report earnings of 21 cents a share on revenue of $894.42 million. In the year ago quarter, the company reported earnings of 23 cents per share on revenue of $982.49 million.

Nvidia Corporation provides visual computing technologies that generate interactive graphics on workstations, personal computers, game consoles, and mobile devices. NVIDIA serves the entertainment and consumer market with its GeForce graphics products, the professional design and visualization market with its Quadro graphics products, the computing market with its Tesla computing solutions products, and the mobile computing market with its Tegra system-on-a-chip products. 

In the preceding third quarter, the Santa Clara, California based company's net income was $84.9 million, or 15 cents a share, compared with a profit of  $107.6 million, or 19 cents a share, in the year-ago quarter. Revenue decreased to $843.9 million from $903.2 million. Analysts, on average, expected the company to report earnings of 14 cents per share on revenue of $844.04 million.

At its last earnings call in November, the chip designer said that it expects fourth-quarter revenue to grow sequentially by 3% to 5%, which translates to a range of roughly $869.2 million to $886.10 million. The GAAP gross margin is expected to be flat. Operating expenses on a GAAP basis are expected to be approximately $300.0 million.

Given robust growth in the core GeForce and Quadro businesses, it appears that NVIDIA has been regaining market share.

Meanwhile, the company has continued to introduce new products at regular intervals. Nvidia stands to benefit from growing demand for handheld devices like smartphones and tablets. The company's Tegra product, designed to serve the fast growing tablet PC market, is already gaining traction among manufacturers. At the Consumer Electronics Show in Las Vegas in early January, the Tegra chips appeared in several new tablets and smartphones running Google's (NASDAQ: GOOG) Android operating system, giving the company a lead against competitors like Qualcomm (NASDAQ: QCOM) and Texas Instruments (NYSE: TXN). Recently, Nvidia announced a strategic partnership with San Mateo-based Glu Mobile Inc. (NASDAQ:GLUU) aimed at developing games that showcase the Android software and Tegra 2 mobile computer chip on tablet devices and mobile phones.

Early in January, said it will begin designing central processors for personal computers, pushing back against growing pressure from Intel (NASDAQ: INTC) and Advanced Micro Devices (NYSE: AMD). Nvidia said the processors will be integrated on the same chip as its graphic processor. The company, which is developing the product under the code name "Project Denver," said it had obtained the rights to develop the CPU using ARM Holdings (NASDAQ: ARMH). The move comes as Intel Corp expands into Nvidia territory with its latest chips, which closely integrate central and graphics processing.

Last month, Nvidia announced that the company has signed a new cross-licensing agreement which gives Intel the right to use Nvidia technologies until March 31, 2017. In order to license the technology, Intel will have to pay 1.5 billion dollars in licensing fees, paid in five annual installments of around $300 million each. The existing agreement is to expire March 31, 2011. Pursuant to U.S. GAAP, a portion of the proceeds will be accounted for and attributed to the settlement of prior legal claims. This amount, which NVIDIA anticipates to be less than $100 million, will be included in the company’s fourth-quarter results. The balance of the licensing fees will be accounted for on a straight-line basis over the six-year term of the agreement. Accordingly it is anticipated that this would amount annually to approximately $233 million of operating income and an increase in net income of $0.29 per diluted share, on a full year basis.

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