Skip to main content

Was Nvidia Stuffing Its Distribution Channel With 'Anything That Wasn't Nailed Down?'

Also, the plot thickens at Delta and Sabratek.

Tuesday's trash:

Too graphic?:

The last time this column

mentioned graphics chip maker


(NVDA) - Get Free Report

, the issue was whether



purchase of Nvidia customer,

Diamond Multimedia


, would put a crimp in Nvidia's sales.

The S3/Diamond deal came on the heels of




acquisition of

STB Systems

, another Nvidia customer. Nvidia's response: No big deal. And judging by the 46% jump in Nvidia's stock since then, investors apparently agreed. Easy to understand why, based on last week's report of a 543% increase in revs for Nvidia, with an equally impressive spike in earnings.

Until you take a little closer look at the numbers.

Remember what this column said recently about how quality of earnings is more important than quantity of earnings? Nvidia is a classic.

According to a post-earnings report by

Hambrecht & Quist

analyst David Wehner, at quarter's end Nvidia had 15 days of inventory on hand, "far below the company's target of 30 to 45 days." Days outstanding of receivables, meanwhile, were 59 days, "higher than the company's target of 45 days, indicating a heavily back-end-loaded quarter due to new products shipping in the last several weeks."

Hello! Sharply lower inventories and higher receivables? Last time I heard a company explain away high receivables to late shipments of new products was by

Cabletron Systems

(CS) - Get Free Report

-- just before its earnings, and stock, blew up!

Wehner didn't appear alarmed by the numbers. (Can ya' blame him? His firm is one of Nvidia's underwriters.) But short-sellers are having a field day with them, and one went so far as to tell me it smacked of a company stuffing the distribution channel with merchandise. "This is a heads-you-win, tails-you-win situation," the short-seller says. "The head of the coin shows that days receivables were too high, which means they stuffed the channel. The tail is that they shipped everything off the loading dock that wasn't nailed down."

This short's own analysis, using Wehner's published figures, is that if Nvidia's inventory and receivables had been in line with the company's own targets, earnings would've been more like 12 cents per share, not 19 cents, as reported, which actually beat Wall Street estimates by a penny.

Nvidia officials couldn't be reached.

Delta ... looking more like a disaster?:

The plot continues to thicken at

Delta Financial


, the subject of two items here. Last week this column

pointed out how the subprime lender had failed to issue a press release about how, out of the blue, it had disclosed in an


filing that it had reached a new "global settlement" with not only the New York attorney general, but -- oh, by the way -- also with the

U.S. Justice Department

and New York's banking department. (The company had announced the attorney general settlement a few weeks earlier, but Delta never mentioned it was also under scrutiny by the Justice and banking departments.) The company hailed the agreement as good news, because it puts to rest charges of questionable lending practices.

Apparently Delta's financial VP Marty Cohen spoke too soon: Late last week the New York attorney general decided that instead of joining in the "global" settlement, it would sue Delta. According to

The New York Times

, the Attorney General said it didn't believe Delta would ever live up to a court order to stop making bad loans. In a news release, Delta responded that that Attorney General's action was "unfortunate." Yesterday Delta slipped 1, or 16%, to close at 5 3/8.

How low can it go?:

Can't help but wonder when it comes to




no stranger to this column -- which blew up


yesterday, plunging another 57% to 2 3/4 after it released another barrage of bad news. Reminds me of a conversation I had a few weeks back with CEO Shan Padda, who asked me what he could do to get rid of the short-sellers. "Perform," I said. Apparently that wasn't an option. Yesterday the company disclosed he's stepping down.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.