(By Mani) Graphics chip maker Nvidia, Inc. (NASDAQ:NVDA) offers attractive risk-reward with the recent share pullback, and is set for an emerging lead role for the Windows-on-ARM camp, while its Kepler GPU product cycle is witnessing resilient attach rates.
At the recently concluded Computex, Nvidia was the sole Windows on ARM processor supplier to demo an OEM branded tablet from Asus, which would solidify its non-Apple tablet leadership position in the ARM camp.
"While we expect a modest 3 pct decline in 2012 discrete graphics attach rates, our checks show likely resilience resulting from the use of Nvidia's Kepler discrete graphics family in larger screen ultrabooks, limiting downside risk of sharper attach rate declines," UBS analyst Uche Orji said in a note to clients.
California-based Nvidia remains dominant Professional Solutions business, which enabled the company to continue to invest in its Tegra apps processors. The professional solutions business accounts for 70 percent of Nvidia's operating profit and should continue its growth trajectory, driven by graphics with Adobe CS6 and cloud initiatives that could expand its market for gaming and enterprise graphics.
Meanwhile, Nvidia should need to boost its market share in growing markets as Kepler GPU share gains could offset the threat of weaker than expected PC demand in 2012. However, the positive development 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.
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.
Meanwhile, the company's total available market (TAM) on the consumer front grew 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.
On the gross margin front, supply is improving as yields are trending far better than the 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.