Publish date:

Profit Jumps at Nvidia

The company blows past earnings estimates.

Updated from 5:08 p.m. EST

Nvidia

(NVDA) - Get NVIDIA Corporation Report

fattened its top and bottom lines in the fourth quarter, thanks to healthy demand for chipsets, notebook processors and professional workstations.

But despite new product introductions, an acquisition and the long-awaited launch of

Microsoft's

(MSFT) - Get Microsoft Corporation (MSFT) Report

Vista operating system, Nvidia suggested it will not be able to outrun the seasonal slowdown in the PC and graphics chip industry in its current quarter.

"Although we're enthusiastic about Vista's impact on our business, we'll be cautious in the first quarter," said CFO Marvin Burkett, adding that the company does not see any significant industry growth drivers to offset seasonality.

Shares of Nvidia were off 26 cents at $33.74 in extended trading Tuesday.

The cautious outlook upstaged a solid conclusion to Nvidia's fiscal 2007 year. In the three months ended Jan. 29, Nvidia said sales totaled $878.9 million, up 39% year over year and ahead of Wall Street expectations.

Nvidia earned $163.5 million in net income, or 41 cents a share, vs. $97.4 million, or 26 cents a share, at this time last year.

Excluding stock option compensation charges and $13.4 million in in-process research and development charges stemming from its acquisition of PortalPlayer, Nvidia said it earned $205.6 million, or 53 cents a share.

Analysts polled by Thomson Financial were expecting EPS of 43 cents, excluding stock compensation charges, although it was unclear whether other charges figured into expectations.

The company's gross margin was 43.9%, slightly ahead of its expectations, and close to the long-term target of 45%. While average selling prices of desktop PC graphics chips declined slightly quarter over quarter, strong sales of notebook chips helped Nvidia increase its gross margin in all major business segments during the fourth quarter.

Nvidia launched its GeForce 8800 graphics chip in November, putting it well ahead of rival

ATI

TheStreet Recommends

, which is expected to field its answer sometime in the current quarter.

But Nvidia's head start has not really helped it that much, says Stifel Nicolaus analyst Blake Fischer, as there's scant games and other applications currently available that take advantage of the chip's most advanced features. Stifel Nicolaus makes a market in Nvidia shares.

According to Nvidia, fourth quarter-sales growth was primarily the result of strength in the company's business supplying chipsets, which were up 89% year over year. Graphics chips for notebook PCs surged 120% year over year.

Nvidia closed its

acquisition of PortalPlayer in early January, adding $1 million of revenue to Nvidia's top line. In the current quarter, PortalPlayer is expected to contribute about $10 million.

Nvidia CEO Jen-Hsun Huang said the acquisition opens the door to the company's largest new market opportunity, as Nvidia develops integrated application processors for cell-phone handsets.

Huang said the two companies' engineering teams and product roadmaps have already been merged, putting the company on track to release a chip by year's end that will bolster the ability of cell phones to handle video and other multimedia applications.

"My sense is that we're going to be right in the epicenter of a lot of exciting new devices pretty soon," said Huang, who acknowledged that the company will be competing against the likes of

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

,

Samsung

and

Marvell Technology

(MRVL) - Get Marvell Technology Group Ltd. Report

.

In the current quarter, Nvidia said sales will be down roughly 5%, with flat to slightly improving gross margins. Analysts were looking for sales to decline 1.8% sequentially.