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Nvidia (NVDA) : Positioning In Growing Markets Should Drive Share Gains And EPS

 May 25, 2012 12:05 PM

(By Mani) Graphics chip maker Nvidia, Inc. (NASDAQ:NVDA) should need to boost its market share in growing markets as Kepler GPU share gains could offset threat of weaker than expected PC demand in 2012.

California-based company held its analyst day on May 24. While the company did not introduce financial targets, the key takeaway is that past investments are beginning to materialize in the form of rapidly emerging customer engagements which could result in market-share gains across each respective segment.

"We believe NVDA's opportunity is more about market-share gains vs. market growth. The company stands to gain market share, which could offset minor macro weakness," RBC Capital Markets analyst Doug Freedman wrote in a note to clients.

[Related -NVIDIA Corporation (NVDA) Q3 Earnings Preview: Can We See Another Beat?]

On the Enterprise side, Nvidia is seeking to establish and rapidly grow its presence with a VGX solution, essentially a VDI accelerator, optimal in supporting the rising demand for graphics applications.

On the consumer side, the company highlighted opportunity in total available market (TAM) growth from 100 million to 1.2 billion users, as a result of movement to gaming-as-a-service, supported by GeForce Grid, in which virtualization capabilities allow for a console-free low-latency remote display experience.

In addition, Nvidia announced that its Icera 410 LTE multimode data modem chipset for tablets and clamshell devices has been tested and validated for operation on the AT&T 4G LTE network.

[Related -Nvidia Corporation: Ramping Tegra 4 In 2H May Compress Current Gross Margins]

AT&T qualification tests help ensure that product manufacturers can confidently select chipsets that integrate with connected devices and can quickly achieve final product qualification.

Icera 410, which is the first Icera modem to implement 4G LTE in NVIDIA's software defined radio baseband processor, delivers faster web browsing, video streaming and multiplayer gaming to tablets and clamshell devices. Nvidia claims, together with its multimode radio transceiver, the chipset offers 4G LTE at category 2 data rates (up to 50 Mbps) as well as 4G HSPA+, 3G and 2G compatibility.

"We were encouraged by this morning's announcement that the NVDA's i410 baseband was certified on ATT (only data-only multimode LTE baseband qualified at ATT other than Qualcomm)," Freedman added.

Nvidia acquired Icera in June 2011 and currently offers the two main processors used in smartphones namely the applications processor, in the form of the NVIDIA Tegra super chip, and the baseband processor, based on Icera technology. Nvidia, which launched last year the world's first quad-core processor for super phones and tablets, Tegra 3, is betting high on the chip.

Meanwhile, Tegra roadmap suggests strong push into sub-$300 market in late-2012 to 2013, with

Tegra+Icera Integration to service the Smartphone, Superphone and Tablet market in 2013. Each successive mobile processor is expected to address a larger TAM.

On the gross margin front, supply is improving as yields are trending far better versus prior 40nm generation. The early yield issues at Nvidia could position the company for a faster recovery than most suspect.

"The nature of wafer-based pricing through this dynamic should result in an uplift to gross margins should yields exceed targets," said Freedman, who has an "outperform" rating and $19 price target on Nvidia shares.

For the first quarter, Nvidia's profit fell 55 percent on lower revenues and higher operating expenses. Looking ahead to the second quarter, Nvidia forecasts revenue of between $990 million and $1.05 billion. Analysts currently expect revenue for the quarter of $1.01 billion.

Shares of Nvidia have fallen 34 percent in the last year. They have been trading between $11.47 and $20.05 over the past 52-weeks.

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