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Analyst: Victor Sula, Ph.D. Initial Report December 29th, 2008


NVDA daily

11 10 9 8 7 6 5 volume


40 20








Share Statistics


2006 2007 %Chg

(12/23/08) Symbol


Revenues, $ Mn.

Current Price


Gross margin

Low/ High 52 weeks

$5.75-36.40 Operating margin

Average Volume (3m) 17,893,500

Net margin

3,068 4,098


9m 9m %Chg 2007 2008




42.4% 45.6% 3.2 b.p. 45.6% 35.1% -10.5 b.p. 14.8% 20.4% 5.6 b.p. 19.9% 3.5% -16.4 b.p.14.6% 19.5% 4.9 b.p. 18.7% 4.0% -14.7 b.p.

Market Capitalization $4.54 Bn Shares Outstanding

537.06 Mn

EPS, $







Source: Yahoo Finance, Analyst Estimates

Background NVIDIA Corporation (NVDA) is a multinational corporation engaged in visual computing technologies, offering programmable graphics processor technologies worldwide. Its products are designed to generate realistic, interactive graphics on consumer and professional computing devices. NVDA designs various graphic processing unit product families that support PCs, personal digital assistants, cellular phones, video game consoles and other digital consumer electronics devices. These product families are transforming visually-rich and computationally-intensive applications such as video games, film production, broadcasting, industrial design, financial modeling, space exploration and medical imaging. The Company operates in four segments: Graphic Processing Unit (GPU), Media and Communications Processor (MCP), Professional Solutions Business (PSB), and Consumer Products Business (CPB). The GPU segment comprises products that support desktop and notebook personal computNVIDIA Corporation (NASDAQ: NVDA)


Analyst: Victor Sula, Ph.D. Initial Report December December 29 29th, th, 2008

ers, and plus memory products. MCP product group comprises NVIDIA nForce products that operate as a single-chip or chipset that provide system functions, such as high speed storage and network communications. The PSB segment offers professional workstation products and other professional graphics products, including high-performance computing products. The CPB segment provides mobile brands and products that support handheld personal media players, personal digital assistants, cellular phones and other handheld devices. This segment also licenses video game consoles and other digital consumer electronics devices. NVDA sells its products under the brand names, NVIDIA GeForce®, NVIDIA Tesla(tm), NVIDIA GoForce®, NVIDIA Quadro® and NVIDIA nForce®. The Company markets its products to original equipment manufacturers, original design manufacturers, add-in-card manufacturers, system builders and consumer electronics companies. Its graphics chips, especially the flagship GeForce line, are used by major PC makers, such as Apple, Dell, Gateway and Hewlett-Packard, as well as in add-in boards and motherboards produced by ASUSTeK Computer and other companies. The Company reports its operations under six geographic regions, getting about three-quarters of its sales in Asia. NVDA was incorporated in April 1993 and is headquartered in Santa Clara, Calif.

Highlights Solid market share in the global market of graphics adapters NVDA is a major player in the graphics processor technologies. It has a significant market share in desktop, notebook PCs and professional workstation GPU segments. According to figures released by Jon Peddie Research, in the third quarter of 2008, more than 111 million graphics adapters (both standalone and integrated) were shipped, from which 30.9 million or 27.8% belonged to NVIDIA Corporation, the later being surpassed only by Intel with 49.4% of shipments. NVDA maintains its second place position on the desktop market with 32.6% share. In the notebook graphics adapter market NVIDIA GPU shipments represented 21.8%, whereas Intel held the lead with 56.2%. The Company recently lost some of its share, mainly due to gains made by the chip maker’s main graphics card rival, Advanced Micro Devices (AMD) which released its ATI Radeon R700 series of graphics cards, including the Radeon HD 4870 X2. However, NVDA expects to recapture soon its market share with the ramp of 55nm process for graphics processors, including the release of GeForce GTX 295 card with two 55nm GT200 GPUs. NVIDIA also expects its GeForce 9300M and 9400M chipsets for desktop PCs to see major growth in the next quarters, cutting into Intel’s share of the integrated graphics market. Strong revenue stream Annual revenue for the fiscal year ended January 2008 was a record $4.10 billion, compared to revenue of $3.07 billion for the fiscal year ended January 2007, an increase of 34%. This improvement was primarily due to increased sales of desktop GPU products and notebook GPU products which accounted for 62% of the Company’s total revenues in fiscal 2008. The net income for the fiscal year ended January 2008 was $797.6 million, compared to the net income of $448.8 million, for the fiscal year ended January 2007, a net income increase of 78%.



Analyst: Victor Sula, Ph.D. Initial Report December December 29 29th, th, 2008

Revenue, $ Mn

Source: SEC filings; FY ending January 31.

The weaker PC market is most likely to affect chipmakers even more than they have originally expected. NVIDIA is also affected by the market downturn and is expected to see a worse-than-expected on-year revenues drop in the 2009 fiscal year. The revenue is expected to rebound in fiscal 2010 driven by new, more competitive PC graphics products, continuing dominance in high-end professional graphics, and new products.

Gross Margin, %

Source: SEC filings; FY ending January 31.

The Company’s gross margins have slightly declined during the last quarters of fiscal year 2009. The decline of 2009 gross margin in the second quarter 2009 reflects a $196.0 million non-recurring charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and associated costs arising from a weak die/ packaging material set in certain versions of its previous generation MCP and GPU products used in notebook systems. Excluding the impact of warranty charge, the gross margin would have reached 38.8% for the second quarter of 2009. The decline in gross margin for the third quarter of 2009 reflects the impact of average sales price NVIDIA Corporation (NASDAQ: NVDA)


Analyst: Victor Sula, Ph.D. Initial Report December 29 th, 2008

regression the Company experienced in desktop GPU products as a result of increased competition. Over the long term the NVDA expects gross margin to be relatively flat to slightly up. Apple adopted NVDA’s chipsets for its MacBook notebooks In 2008 Apple migrated away from Intel’s chipsets to an NVIDIA-based portfolio to included integrated and discrete graphics solutions. NVDA launched the GeForce 9400M mGPU along with Apple for their new lineup of Mac notebooks. The GeForce 9400M is the industry’s first processor to integrate three complex chips - the northbridge, the IO/network processor, and GeForce GPU into a single chip. Meanwhile, Apple has seen the single largest jump in notebook market share of all top manufacturers in North America. According to DisplaySearch, Apple is picking up notebook market share faster than any of its competitors in North America, up from 6.6% to 10.6% in the second quarter of 2008. NVDA has also announced that its GeForce 9400mGPU would be available for Atom-based netbooks. The Company said the chips would offer considerably better performance for netbooks than Intel’s 945 chipset. Entering into the supercomputing space During the fiscal year 2008, the Company introduced NVIDIA Tesla, a new family of GPU computing products that delivers processing capabilities for high-performance computing applications. The Company is now developing Tesla-based “personal supercomputers” in partnership with PC makers including Dell and Lenovo. According to the Company, the systems can process data as much as 250 times faster than standard PCs, with 960 processing cores in four GPUs. In the second quarter of fiscal year 2009, NVIDIA launched the Tesla C1060 computing processor and the S1070 computing system, which is among the first teraflop processors and has a 1U system with up to four teraflops of performance. For 2009 chip sales are expected to decline According to the market research firm Gartner, the preliminary 2008 market share results showed the chip industry’s 2008 revenue reaching $261.9 billion, a 4.4% decline from 2007. In 2009, the chip industry will see backto-back yearly declines for the first time in its history, with global chip revenue expected to decline 16.3%, to $219.2 billion, hit by the sweeping economic downturn. The semiconductor industry is expected to bounce back in 2010 and 2011, with worldwide semiconductor revenue reaching $251.2 billion in 2010, a 14.6% increase from 2009, and in 2011 revenue reaching $274.9 billion, a 9.4% increase from the previous year.

Investment sentiment NVIDIA has become a major supplier of integrated circuits used for personal-computer motherboard chipsets, graphics processing units, and video-game consoles. The Company has a significant market share providing a quarter of worldwide GPU shipments. The Company reported a solid history of growth over the past few years, reaching the $4 billion revenue milestone in the fiscal year 2008. The revenue is likely to decrease in fiscal year 2009 due to the negative impact of global financial crises and intense competition from its direct rival AMD, but we are expecting a recovery in fiscal year 2010 driven by the launch of new and competitive products and global recovery from crises. NVIDIA Corporation (NASDAQ: NVDA)


Analyst: Victor Sula, Ph.D. Initial Report December 29th, 2008

Compariative analysis Company Name 12/23/08 Company Name 12/23/08 Intel Corporation Advanced Micro Devices Inc. Sun Microsystems Inc Qualcomm, Inc. Texas Instruments Inc. Broadcom Corp


Price per Mrkt. Cap. Share, $ $ Mn 14.07 1.19 3.80 34.18 14.26 16.57

79,314 1,356 3,050 56,484 19,524 8,821

Median NVIDIA Corporation




P/E 2008 2009

P/S 2008 2009

11.17 n/m 4.69 15.97 7.31 11.27

9.20 n/m 3.52 13.95 6.63 10.76

1.98 0.22 0.22 5.41 1.42 1.97

1.85 0.20 0.22 4.80 1.35 1.75









Source: Yahoo Finance!

NVDA is trading with significant discount to peer group forward P/S and P/E multiples and deserves better trading given its leading position within the market. During the last quarters NVDA has taking strong steps to expand its offering beyond the graphics market. The entrance into high performance computing segment is likely to add additional revenue streams and enhance the company’s positions within the PC chipset market. We rate NVDA as a Buy.



Analyst: Victor Sula, Ph.D. Initial Report December 29 th, 2008

Disclaimer DO NOT BASE ANY INVESTMENT DECISION UPON ANY MATERIALS FOUND ON THIS REPORT. We are not registered as a securities broker-dealer or an investment adviser either with the U.S. Securities and Exchange Commission (the “SEC”) or with any state securities regulatory authority. We are neither licensed nor qualified to provide investment advice. The information contained in our report should be viewed as commercial advertisement and is not intended to be investment advice. The report is not provided to any particular individual with a view toward their individual circumstances. The information contained in our report is not an offer to buy or sell securities. We distribute opinions, comments and information free of charge exclusively to individuals who wish to receive them. Our newsletter and website have been prepared for informational purposes only and are not intended to be used as a complete source of information on any particular company. An individual should never invest in the securities of any of the companies profiled based solely on information contained in our report. Individuals should assume that all information contained in the report about profiled companies is not trustworthy unless verified by their own independent research. Any individual who chooses to invest in any securities should do so with caution. Investing in securities is speculative and carries a high degree of risk; you may lose some or all of the money that is invested. Always research your own investments and consult with a registered investment advisor or licensed stock broker before investing. Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements. We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable. To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information). We encourage you to invest carefully and read investment information available at the websites of the SEC at and FINRA at http://www. All decisions are made solely by the analyst and independent of outside parties or influence. I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report. Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.



Analyst: Victor Sula, Ph.D. Initial Report  

NVIDIA has become a major supplier of integrated circuits used for personal-computer motherboard chipsets, graphics processing units, and vi...

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