A day after it sharply reined in second-quarter earnings expectations, saying revenue could see a sequential drop of up to 30%, graphics chipmaker

Nvidia

(NVDA) - Get Report

was getting pummeled. The stock closed down $5.15, or 31.8%, to $11.07.

Though shares are starting to look cheap, according to some analysts, the near-term outlook remains fairly brutish. For at least the next quarter or so, Nvidia is likely to suffer from the same nasty combination of pricing pressure and anemic demand that's weighed on higher-profile chipmakers such as

Intel

(INTC) - Get Report

and

Advanced Micro Devices

(AMD) - Get Report

.

Currently, Nvidia's business "is weak both in unit terms and in ASP

average selling price terms," summed up Merrill Lynch analyst Joseph Osha in a research note in which he cut '03 and '04 earnings estimates. He estimates that both unit shipments and prices slumped 14% in the July quarter, fueling a 28% sequential decline in revenue.

Merrill Lynch intends to seek banking fees from Nvidia within the next three months.

ASPs have dropped as Nvidia's sales have shifted toward cheaper, low-end systems during the last few months.

Making matters worse, the graphics chip outfit has been losing market share. According to figures released earlier this week from market research firm Mercury, in the second quarter Nvidia surrendered 5 points of market share to rival Intel, which has been ramping up its integrated graphics business. Nvidia has also been fighting pricing pressure from rival

ATI

(ATYT)

.

In light of those trends, Morgan Stanley analyst Mark Edelstone estimates Nvidia's gross margins will drop to about 29% in the July quarter, from almost 36% in the April quarter. "At the moment, we assume that Nvidia will strive to remain price competitive, and as a result, there is potential for more aggressive pricing adjustments in the next several quarters," he wrote. Morgan Stanley expects to receive banking fees from Nvidia in the next three months.

Still, at current levels, analysts cautiously suggest the company's shares don't look like a bad value. "Despite the challenges that the company faces and the fact that the stock has performed so poorly to date, we think the risk/return profile merits buying the stock at current levels," wrote Osha, questioning whether a downgrade would make sense with the stock expected to lose still more ground.

He predicted the stock would likely open at around $14 Wednesday morning, after closing yesterday at $16.22. In fact, by midafternoon Wednesday, shares were changing hands for several dollars less than that.

But despite what turned out to be a correct prediction of a selloff, Osha hedged his comments in his research note -- as analysts are inclined to do these days amid the persistent gloom surrounding PC-related stocks. His buy recommendation on Nvidia so far "has not worked out well," he acknowledged.

The stock has lost about three quarters of its value so far this year.