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NVIDIA Gets Washed Out

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The floods in Thailand last year continue to wreak havoc on technology companies stateside.

First, Intel (Nasdaq: INTC  ) cut its revenue guidance last month for that same reason, since its processors go hand-in-hand with the hard-disk drives (HDD) that got stricken with a sudden case of scarcity. It trimmed its fourth quarter revenue estimate from $14.7 billion to $13.7 billion, give or take $300 million. When Chipzilla reported last week, it ended up clearing $13.9 billion.

Rival Advanced Micro Devices (NYSE: AMD  ) just reported last night, with sales of $1.7 billion, while CEO Rory Read said the company was also hit by the HDD shortages.

Next up: NVIDIA (Nasdaq: NVDA  ) .

The chipmaker just revised its fourth-quarter sales guidance, also citing the HDD deficiencies plaguing the industry. The top-line projection shrank from just over $1 billion to $950 million. The shortages have hurt NVIDIA's GPU business, as shipments to PC OEMs were hit, and the resulting rise in HDD prices crimped OEM's ability to add in a GPU.

On top of that, the company saw demand for its Tegra 2 mobile processor fall more than expected, although some decline is inevitable as NVIDIA ramps up its quad-core Tegra 3 chip.

While NVIDIA's ARM Holdings (Nasdaq: ARMH  ) -based Tegra mobile chips should be growth drivers in the future, they currently comprise a smaller chunk of sales. The company's consumer and professional graphics segments combined accounted for 82% of sales last quarter, although its mobile business is putting up the most growth, jumping 268% last quarter.

NVIDIA and Intel continue to escalate their frenemy relationship. While Intel CPUs and NVIDIA discrete GPUs were always complementary, Intel integrated graphics partly diminished the need for a separate GPU. Intel's new Medfield Atom chip is gunning for mobile, an arena where Tegra is a major contender. Microsoft Windows 8 will support ARM chips, where Tegra will inevitably win some main brain spots.

Who has escaped the Thai floods relatively unscathed? Apple (Nasdaq: AAPL  ) . Thanks to Cupertino's general practice of locking down supply, CEO Tim Cook said, "I don't predict Apple having a material supply issue during the quarter, but we will pay more for drives during the quarter."

While the HDD shortages have presented a speed bump for tech players, this too shall pass. NVIDIA's long-term story is still intact.

The mobile revolution is also set to become "The Next Trillion-Dollar Revolution." There are lots of companies that are set to cash in on it, but one in particular has excellent prospects. The company is one of a few players that will help power the mobile devices of the future, and it also has exposure to the explosive growth in China. I've given it an "outperform" CAPScall. Get access to this 100% free report to find out what company I'm talking about.

Fool contributor Evan Niu has sold bullish put spreads on NVIDIA. He owns shares of Apple and ARM Holdings, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Intel, Apple, and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, NVIDIA, Apple, and Intel; creating a bull call spread position in Apple; creating a bull call spread position in Microsoft; and writing puts in NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Evan Niu
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Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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