There's an air of desperation around NVIDIA
Simply put, the company's endured a roller-coaster ride over the past month. It began when analysts at Needham downgraded NVIDIA all the way from a strong buy to a hold, sending investors scrambling for the exits.
Needham cited a host of problems with Fermi, NVIDIA's ambitious rearchitecting of its graphics-card line, including claims that yields for the cards were running around 20%-30%. (Semiconductor devices like NVIDIA's are made on giant wafers that get cut up into many chips. The percent of resulting chips that work properly is referred to as yield.)
Even with only two or three of every 10 chips working, NVIDIA's high-performance cards should be profitable, but their price will offer rival Advanced Micro Devices
Make no mistake: Right now, Fermi is struggling. After long delays getting the first run of cards out, rumors of a poor ramp (substantiated by Needham) to mass volume, and lukewarm performance reviews, it's hard to get excited about the product. It's also difficult to argue against anyone claiming that NVIDIA's margins will face substantial pressure if low yields force the company to continue selling an older line of cards against more competitive graphics offerings from AMD.
Throw in the success of Intel's
Even worse for NVIDIA, broad rumors of oversupply across the semiconductor industry and a queasy broader market have conspired to knock nearly 20% off the company's share price since mid-April. Ouch.
However, the chipmaker's news isn't all bad. At its recent financial analyst meeting, NVIDIA updated guidance on its Tesla lineup of cards, which are geared toward revolutionizing the supercomputing market. While Tesla revenue for 2010 should only total $26.6 million -- peanuts relative to the company's top line -- that's still a 280% jump from 2009. While it may not matter much now, Tesla makes long-term investors far happier about the company's direction.
In addition, investors sick of rumors of Tegra wins and hankering for tangible successes have to be pleased that Microsoft
In even more happy news, Adobe
Notice a trend here? They're all long-term developments that are playing out well beyond last quarter. So if you're expecting earnings to soothe any fears tomorrow, don’t hold your breath. In the near-term, the company will be driven by sales of consumer-level graphics cards, and a rising semiconductor tide that's lifted all boats.
In the long term, I still like NVIDIA's ambitions and competitive position in the professional and supercomputing graphics card markets. Also, NVIDIA's core gaming "enthusiast" market is holding up much stronger than broader desktop PC sales projections would indicate.
I called NVIDIA the "Best Stock of 2010" late last year, and while I am very concerned about Fermi's rockiness out of the gate, the company's long-term growth potential remains. Despite the stock's bumpy ride, I'm hanging on.
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