Updated from Feb. 14

Nvidia ( NVDA) plunged in premarket trading after the one-time investor darling disclosed an SEC inquiry into accounting practices.

The maker of PC video cards was down about 7.5% on Instinet at $57.71 after it said Thursday that it was conducting an internal review after receiving an SEC inquiry into how the company timed the recognition of reserves and whether it improperly shifted $3.6 million of costs among quarters in fiscal 2001.

The inquiry, which also involves prosecutors in San Francisco, follows an already-known SEC investigation into trading at the company by non-executives. The company has shelved a planned stock offering until after the review and said the audit committee of its board had opened its own investigation into the matter with the help of its accountant, KPMG, and law firm.

Word of the probe eclipsed a strong earnings report. Stoked by strong sales of Microsoft's Xbox gaming console, the company reported fourth-quarter fiscal year 2002 results after the bell Thursday, crushing Wall Street estimates with a 35% sequential jump in revenue and a 129% leap over sales from the same quarter of fiscal 2001.

Nvidia turned in $499.9 million in revenue in the quarter ended Jan. 27, 2002, compared to an analysts consensus of $445 million, as reported by Multex.com. The company's gross margin declined 0.6% in the quarter, but Nvidia was still able to finish its fourth quarter with $73 million in earnings as calculated by generally accepted accounting principles, good for 41 cents a share. Excluding one-time charges such as acquisition-related items, the chipmaker turned in 43 cents a share pro forma profit, besting Street projections of 34 cents a share. The company also raised its guidance for the current year.

To give you an idea of Nvidia's growth in fiscal 2002, last year in the fourth quarter of fiscal 2001, the company reaped only $218.2 million in revenue and $31.1 million in GAAP profits, working out to 38 cents a share. Full-year fiscal 2002 figures were $1.37 billion in revenue, growing 86% from $735.3 million in fiscal 2001 revenue.

Management lamented the decrease in its gross margin, promising to reverse the trend by increasing the efficiency of chip production for the Xbox. "We were supply-constrained in Q4," said Christine Hoberg. Business from the Microsoft gaming console made up 17% of Nvidia's revenue in the quarter. The company has several customers that each account over 5% of its revenue.

The company upped the fiscal year 2003 guidance it gave a quarter ago, predicting 70% to 80% revenue growth for the full year to a range of $2.3 billion to $2.5 billion from prior estimates of $1.7 billion to $1.75 billion. The chipmaker expects to earn $1.70 to $1.75 a share during the year, a 40-cent-a-share hike over previous company estimates and well above Wall Street estimates.

In the coming quarter, Nvidia said revenue will grow 7% to 8%, to between $535 million and $540 million.

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