nVidia Sales Plunge on Bad Fourth Quarter

That “can of whoop-ass” that nVidia CEO Jen-Hsun Huang promised to open up on Intel last year has just been returned to his office, postage due. The company was pounded today with downgrades after a severe downward revision of fourth quarter numbers.

nVidia today revised its revenue guidance for its fourth quarter of fiscal 2009 ending January 25, 2009 down by almost half. It said revenue would be 40 to 50 percent lower sequentially from the third quarter due to weakness in end-user demand and inventory reductions by nVidia’s channel partners in the global PC supply chain.

The company would not comment further, nor has any plans to say anything else between now and February 10, when it will release fourth quarter and year-end figures. Despite it all, nVidia (NASDAQ: NVDA) was actually up for the day, by $0.04 to $7.65.

Other chip companies have made pre-announcements, but Intel (NASDAQ: INTC), AMD (NYSE: AMD), and LSI have recently offered revised guidance in the range of 15 to 25 percent lower sequentially. Certainly their warnings were not this severe.

These downward estimates are leading to some rather dire predictions. FBR Capital Research cut its calendar 2009 revenue estimate from $3.05 billion to $1.93 billion and its 2009 earnings per share estimate from $0.40 to ($0.45).

BMO Capital Markets said in a research note “revenue may actually bounce back somewhat in the first quarter of 2010, assuming inventories have normalized. Nonetheless, these are challenging times for the PC and consumer electronics industry.”

Meanwhile, Friedman, Billings, Ramsey & Co. said in its own research note that while the revision was not surprising, “the magnitude of the sequential revenue decline is far worse than expected … Given this steep drop in revenues, we forecast nVidia to be unprofitable in the fourth quarter and the full year 2009.”

What makes nVidia’s warning especially bad is that the company’s fiscal quarters are one month behind the calendar quarter, notes Jon Peddie, president of Jon Peddie Research, who follows the graphics market. nVidia’s quarter ends at the end of January, not December.

All of the chip makers make their biggest push for sales in Q4 in the second half of the last month of the quarter, i.e. the last weeks of December. If nVidia’s numbers are falling off a cliff in a quarter spanning both Christmas and then January, it means Q1 will be equally as bad.

Next page: The canary can’t breathe

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“In this case, nVidia is the canary in the tunnel and they are saying ‘My God I can’t breathe’,” Peddie told InternetNews.com. “So they are the unfortunate foreteller of an ugly Q1.”

nVidia has had a particularly rough time. It was beat up all summer over defective chips in laptops, even though it doesn’t actually fabricate the chips, and AMD’s ATI division has come on strong with a very well-received new line of cards that have eaten into nVidia’s market share.

Some scary stuff

“Aside from all that, they are showing the channel is scared out of its mind, taking no more stuff, no more inventory until it’s all cleared out of there,” said Peddie. “Now the good news is when calendar Q3 rolls around, the channel will be empty, it will be back to school time, OEMs will start to ramp for holidays,” he said.

nVidia and ATI both have new chips due next year that use a 40 nanometer design. Currently, GPUs are at 55nm. Smaller die sizes mean faster and cooler cards, another reason to spur sales.

And then there’s the off chance that Windows 7 might help, too. “If Windows 7 proves to be as good as it’s showing in tests were doing, it could help break the logjam of people waiting on Vista and get them to say ‘let’s go’,” said Peddie.

He said dire predictions of a whole year lost are unreasonable. “These are the ups and downs tech goes through,” said Peddie. “I still have faith in nVidia and their management team and their technology. AMD and Intel have been beat up a lot worse in past years and both have come back. If you take one or two bad quarters and write a company off that’s been doing billions of dollars in business per year for years, that’s shortsighted analysis.”

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