"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.
|
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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