Can NVIDIA Earnings And Mobile Chip Sales Help This Tech Stock Beat The Competition?

Chris Lau, Kapitall: NVIDIA earnings didn't disappoint, but are they doing enough to compete against other chip suppliers?

NVIDIA ( NVDA ) seems to be having a hard time holding on to its gains. After reporting quarterly earnings, shares rallied from a $14.50 low to break past $16 throughout November. With revenue guidance below consensus and earnings meeting expectations, is it a worthwhile time for investors missing the rally to review the semiconductor company?

Latest results
  • NVIDIA earnings included $0.20 per share on revenue of $1.05 billion.
  • The company forecast revenue for the current quarter to be the same (at $1.05 billion).
  • It also raised its dividend and increased its buyback plan by $1 billion to $1.29 billion in total.
  • Sales for system on a chip Tegra were strong at $111.2 million.
  • But GPU sales dropped 2% to $876.8 million.

NVIDIA’s plan to offset weakness in its PC division with stronger mobile chip sales seems to be working. The focus on Tegra 4 and Shield is picking up, although competition remains a concern.

Qualcomm (QCOM) remains a fierce competitor. Its Snapdragon 800 is a quadcore processor at 2.2GHz. The chip was selected by Nokia (NOK) to power the Lumia 2520. By comparison, NVIDIA’s Tegra 4 is 1.7GHz. Microsoft (MSFT) chose Tegra 4 to power the Surface 2, although strong sales for any Windows-based tablets have yet to play out.

Read more on Tech from Kapitall: Stocks to Watch As Xbox One Goes Live and Microsoft Looks to Replace Steve Ballmer

In the GPU market, AMD (AMD) is adding pressure for NVIDIA. Its Kaveri hardware platform was demonstrated at an APU13 keynote, in which AMD showed that its performance was twice as fast in frame rates than the Intel (INTC) and NVIDIA combo. AMD was comparing its A10-7850K against an Intel Core i7 4470K CPU with an NVIDIA GeForce GT630 GPU.

Analysis

Since NVIDIA is broadening its revenue stream into mobile, its primary competitive challenge is with Qualcomm. Growth could accelerate in mobile, after NVIDIA gained certification for the Tegra 4i and Tegra 5. The 4i has an LTE-Advanced modem, and uses less power than the Tegra 4. 

NVIDIA tegra 4i - NVDA - smartphone processor

Qualcomm may still hold an advantage over NVIDIA, since Qualcomm integrates the LTE, whereas NVIDIA has yet to do so even with Tegra 5. For shareholders, this may not be an issue because NVIDIA is consistently exceeding consensus estimates. Until the Tegra 4i and 5 are released, shares may remain steady, supported by buybacks and a dividend increase.

 

(Written by Chris Lau, a Kapitall contributor. All data sourced from Zacks Investment Research.  Disclosure: Author has a long position in AMD.)

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