Despite Excellent Quarter, Nvidia Dips On Warning

Oh, to have Nvidia’s problems…

The graphics chip vendor reported another outstanding quarter, but due to a warning concerning supply it took a hit from investors. Revenue for the quarter ended July 29 climbed 36 percent to $935.3 million from last year’s $687.5 million.

The company reported a profit of $172.7 million, or 43 cents a share, up from $86.7 million, or 22 cents a share, in the year-ago second quarter. Excluding charges and one-time expenses, Nvidia  would have earned $198.1 million, or 51 cents a share. That’s well above the profit of 43 cents per share analysts were projecting, according to Thomson Financial.

Yet the stock dropped $2.14, or 4.6 percent on Friday in another see-saw day on Wall Street. What hurt the company were some cautious statements on a conference call with financial analysts by CEO Jen-Hsun Huang and CFO Marvin Burnett.

Huang said Nvidia’s manufacturing partners were operating at capacity, and Burnett added that part shortages could lead to some “product limitations” in the third quarter.

Graphics industry analyst Jon Peddie of Jon Peddie Associates thinks that’s just an excuse for profit-taking, since Nvidia’s stock has nearly doubled in the past year.

“That’s just Marv saying [to investors] don’t go crazy, we can’t keep up this type of growth,” he told Internetnews.com. “I read that as next quarter will be just fine, it just won’t be as good as this one.”

Peddie said Nvidia is “a rock solid company,” which can be attributed to its excellent execution. With the exception of the troubled FX 30 line in 2003, Nvidia rarely misses a deadline or performance bar.

And consumers know this. Desktop sales rose 37 percent year-over-year while notebook video processor sales grew 129 percent from the same quarter last year. The company now has 65 percent of the desktop stand-alone, non-integrated graphics market and 68 percent of the mobile market, according to Mercury Research.

Peddie thinks Nvidia can sustain its growth for a little while longer. It has expanded its graphics market by going after the handheld market where Texas Instruments and Freescale play, and the company introduced a new product type called Hybrid SLI. It works by offering a discrete graphics processor that works along with integrated graphics on the motherboard.

Normally the Hybrid SLI chip is asleep in a powered off state. When something graphics-intensive is run, like a game, the extra graphics processor wakes up and lends the graphics processing needed. This gives people with an integrated product an upgrade path should they need it.

Peddie is backing off earlier predictions that Vista would cause a pop in interest in graphics chips because Vista has proven a disappointment. “It’s not solving a problem anyone had,” he said.