Looking to nVidia for Signs of Chip Turnaround

Graphics chip maker nVidia will report its fiscal first-quarter sales figures tomorrow after the close of the market, and how the company does could be further sign of economic recovery. Or lack thereof.

nVidia (NASDAQ: NVDA)’s fiscal fourth quarter ran from November to January, placing it at what’s presently seen as the absolute nadir for spending during the economic slowdown — hence its atrocious numbers for the quarter.

Likewise, its first quarter is February through April, putting nVidia also in the position of being able to reinforce early signs of a recovery in the battered semiconductor sector.

Both Intel (NASDAQ: INTC) and AMD (NYSE: AMD) reported that their first quarters started very slow, picked up in February and continued to improve in March. This was also confirmed by the Semiconductor Industry Association (SIA).

So nVidia may be poised for a better Q1 than the rest, since it got all the pain out of the way last quarter. Selling more graphics processors and chipsets would indicate an increase in demand for add-in cards and motherboards, a sign of increased buying across the industry.

FBR Capital Markets sent out a research note on Wednesday stating it believes nVidia’s revenue will be up 5 percent sequentially from Q4, better than the 3 percent rise to $503 million that Wall Street analysts are projecting.

Second-quarter revenue could fare even better, growing by double-digit percentages over Q1, it also said. The Street estimates the company will pull in $529 million in revenue for Q2, but FBR believes it will surpass that.

nVidia still has a long way to go before it returns to early 2008 levels of revenue: The company’s third quarter in 2008 saw sales of more than $1 billion. Not surprisingly, FBR does not see nVidia returning to profitability until next year, and the firm was downgraded on Tuesday by Wedbush Morgan from Buy to Hold.

But another good sign is the fabs are back in business. Unlike Intel, nVidia doesn’t make its own chips. It farms out the work to Asian chip makers like TSMC, which have seen their facilities sit idle in recent months. Not lately.

“Our latest foundry production checks continue to improve (weekly it seems) across nVidia’s multiple fab partners. nVidia’s 2Q wafer production could grow by +75% QOQ [quarter-over-quarter] off a low base, better than our month-ago checks of +50% growth,” the report stated.

nVidia has three businesses, the main business being graphics processors, along with its motherboard chipsets and handheld processors. The Ion processor only has one design win, the Acer AspireRevo, but the company is promising more to come.

On the chipset side, business has picked up on both AMD and Intel’s platforms. nVidia had been in the AMD market long before entering the Intel market. AMD’s market share has picked up in recent months thanks to its new products, the Phenom II on the desktop and the “Shanghai” Opteron server processors.

According to a recent Mercury Research report, AMD’s global CPU market share has risen from 17 percent in the fourth quarter of 2008 to 20.9 percent in the first quarter of 2009. That would benefit a chipset licensee like nVidia, but the company has also cozied up to Intel, even as the two hurls bombs at each other.

“One of the things nVidia has been doing lately is changing their mix to favor Intel-based systems and that is working to their favor,” said Mercury Research President Dean McCarron. “Most of their growth is coming from the Intel side.”

In theory, the move to put memory controllers and now graphics controllers on the CPU should kill the chipset market, but nVidia believes one remains, which has led to some legal exchanges between it and Intel.

News Around the Web