Weighing NVIDIA's Pros Against the Cons

The last time I wrote on NVIDIA (Nasdaq: NVDA  ) , I told you about the various headwinds the company is facing. However, going by the general sentiment among readers, it seems NVIDIA is a stock on which they are ready to spend their dollars. Thus, it makes sense to put the company through a SWOT analysis.

Strengths

  • Product mix: The manufacturer of graphics processing units (GPUs) for PCs shifted its attention to the mobile computing boom seamlessly, which has certainly increased its addressable market.
  • Innovation: The company never sits back after designing a chip; it comes up with a more efficient design not long after a successful release. This has helped NVIDIA to provide better solutions to customers, thereby retaining existing ones and adding more in the process.
  • Numbers: NVIDIA witnessed steady top line growth. Gross margin has been consistently rising, and cash from operations has been pretty solid over the past few quarters.

Weaknesses

  • Absence of a top-selling device: The Tegra mobile chips which NVIDIA manufactures have not found their way into a best-seller, like the iPhone. And as far as tablets are concerned, NVIDIA powers mostly Android-based devices, which are yet to gather steam.
  • GPU slowdown: The GPU business, which makes up half of the company's revenue, experienced some hiccups in the previous quarter. The Thailand floods affected this businesses manufacturing and delivery, and its effects could be felt in the upcoming quarters. Again, low demand of PCs because of the advent of mobile devices will probably hurt NVIDIA's core business.

Opportunities

  • More from mobile: The Tegra family of processors can work wonders for NVIDIA in its quest for mobile glory. This business has grown rapidly and the company expects it to grow another 50% this year. Its processors will be featured in the upcoming HTC smartphones and might also find a way inside the Samsung Galaxy S3. There are a lot of possibilities in the smartphone and tablet space, and if NVIDIA gets it right here, it could turn out to be a winner.
  • GPU has some fuel left: PCs might be on the decline but they still find takers in emerging markets such as China (the largest PC market) and India. There is tremendous room for growth in these markets. Again, the company provides solutions for enterprise computing (such as supercomputers) across industries. This is an area where NVIDIA leads the charge.

Threats

  • Competition: There's tough competition from companies such as Texas Instruments, Qualcomm, and Samsung. Qualcomm leads the space, and its Snapdragon processor is the chip of choice for Windows Phone 7 devices.
  • Business from existing customer Samsung is expected to lessen, for it has now become more of a competitor.

The way I see it, NVIDIA has a lot of potential to unlock. The present situation might be a bit precarious after a poor quarter, but with its strengths and opportunities, who knows whether NVIDIA can stage a turnaround.

To stay right on top of developments at NVIDIA, add it to your Watchlist.

Fool contributor Harsh Chauhan does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of NVIDIA. Motley Fool newsletter services have recommended writing puts on 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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  • Report this Comment On March 12, 2012, at 4:59 PM, Reginhild wrote:

    Some of the latest on the innovation mentioned above:

    NVIDIA is interesting in that they continue to expand into new fields where others are not looking. They are the original inventors of the GPU and seem to be integrating it everywhere. 3 of the top 5 supercomputers in the world rely on NVIDIA GPUs to achieve their tremendous computing power.

    Now, the latest from NVIDIA is support for making the next supercomputers 1000 times faster and more energy efficient than current ones. The most amazing thing is that the basis is NVIDIA's Tegra 3 processor used in mobile phones and tablets. Currently, the Barcelona Supercomputer Center is working the first build.

    NVIDIA has also released development kits known as project CARMA for others to work toward this goal. The CARMA kit includes a Tegra 3 processor combined with a NVIDIA Quadro 1000m GPU (96 CUDA cores) and 2GB SOC memory and 2GB GPU memory.

    It is interesting to see NVIDIA as the new groundbreaker in supercomputing where you might expect someone like IBM to be leading.

    In the consumer world with tablets and cell phones, you can see NVIDIA power with applications that are designed to take full advantage of the Tegra 3's four CPU cores and 12 GPU cores. When applications are designed to take advantage of the cores, nothing else on the market can compete (yes, Apple has some answering to do with their recent claim).

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