(By Balaseshan) Oppenheimer & Co. analyst Jason Rechel downgraded rating of NVIDIA Corp. (NASDAQ: NVDA) to "perform" from "outperform".
Rechel said NVDA stood out in a tough 2012, executing well on core GPU share gains, despite challenged 28nm supply. Key Tegra wins in smartphone/tablet further bolstered top-line momentum.
NVDA has executed well during 2012, sequentially growing 13%/15% in 2Q/3Q, respectively, while peers Intel Corp. (NASDAQ: INTC) and Advanced Micro Devices Inc. (NYSE: AMD) languished, the analyst noted.
NVDA captured about 20% core GPU share from AMD on INTC's Ivy Bridge platforms and is likely to continue to benefit in 2013. The analyst estimates NVDA's current GPU share at a dominant 65%.
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Tegra had a record 2012 and appears on track for sustained growth with smartphone/tablet, the WoARM opportunity and rising auto penetration. Rechel models Tegra at $530 million in 2012, growing to $670 million/$820 million in 2013/14.
Despite this momentum, Tegra makes up only 18% of the analyst's calendar 2014 revenue—insufficient to offset core GPU (about 60% of sales) headwinds. 28nm supply has improved, freeing NVDA of constraint entering 2013.
Earlyadoption 28nm coupled with Kepler (and lack of AMD competition) has helped push NVDA's average selling prices / gross margin higher. With Ivy Bridge just about 50% of NB shipments today, Rechel expects gross margin to remain elevated through 2013 as mix improves.
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Still, Rechel believes most of its GPU share gains are now reflected in estimates. The absence of share gains leaves NVDA increasingly exposed to secularly declining PC units. He is stepping aside until non-PC growth drivers become more meaningful.
Share gains, Tegra success, and improving Kepler mix/GM tailwind are now reflected in consensus estimates, in the analyst's view. Tepid PC sales and slower than expected tablet (Surface) sell-through however, lead to trimming estimates.
The brokerage reduced its 2014 EPS estimate to $0.88 from $0.94 and its 2015 estimate to $0.94 from $1.03. Oppenheimer also cut its calendar 2013 EPS forecast to $1.10 from $1.15 and its calendar 2014 forecast to $1.15 from $1.25.
NVDA is trading down 1.66% at $11.89 on Wednesday.