"And so it was that, on the day before Independence Day, NVIDIA (Nasdaq: NVDA ) investors declared their independence from any chance of profiting on their stock this year."
Was I right or was I wrong when I penned these words last month, just days after NVIDIA's explosive news of a double-digit sales shortfall combined with a nine-figure earnings writedown? We'll find out tomorrow, when this Motley Fool Stock Advisor recommendation files its fiscal Q2 2009 report after close of trading.
What analysts say:
- Buy, sell, or waffle? Twenty-seven analysts give NVIDIA 15 buy ratings and a dozen holds.
- Revenue. They expect to see sales slip 3% to $908 million.
- Earnings. Profits are predicted to plummet 65% to $0.12 per share.
What management says:
In case you missed the news that torpedoed NVIDIA last month, here's a rundown: NVIDIA is taking a $150 million to $200 million charge "to cover anticipated customer warranty ... and other ... costs ... arising from a weak die/packaging material set in certain ... MCP and GPU products used in notebook systems." This charge will exacerbate gross margin and sales weakness blamed on "end-market weakness," "delayed ramp of a next generation MCP," and price competition. NVIDIA's latest Q2 sales estimates bracket analysts' estimates, ranging from $875 million to $950 million.
What management does:
All of which adds up to the inescapable conclusion: Tomorrow's news is going to be a big change from what we've come to expect from NVIDIA. Quarter after quarter, the company had been widening its margins, until last quarter, when they slipped only a little. Tomorrow, they could slip a lot.
|
Margins
|
1/07
|
4/07
|
7/07
|
10/07
|
1/08
|
4/08
|
|
Gross
|
42.4%
|
43.1%
|
43.8%
|
45.2%
|
45.6%
|
45.5%
|
|
Operating
|
14.8%
|
15.3%
|
16.7%
|
18.9%
|
20.4%
|
20.4%
|
|
Net
|
14.6%
|
15.1%
|
16.5%
|
18.7%
|
19.5%
|
19.1%
|
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Yet even if things turn out as badly as feared, make sure to view the news in context. NVIDIA remains profitable even as archrival AMD (NYSE: AMD ) is not. It lags Intel (Nasdaq: INTC ) by only a few percentage points' worth of gross margins, while its own 20% margins (while they last) are objectively enormous.
And NVIDIA's market presence is widespread. You'll find NVIDIA chips in computers from Apple (Nasdaq: AAPL ) , Sony (NYSE: SNE ) , Dell (Nasdaq: DELL ) , and Hewlett-Packard (NYSE: HPQ ) . Sure, NVIDIA's short-term troubles are disappointing, but unless management tells us tomorrow that its long-term prospects have been ruined, this stock cannot help but rise again. Eventually.
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