nVidia Sees Light at the End of Sales Cave-In

Last month, graphics processor maker nVidia warned sales for its fourth quarter, which ended in January, would be off by 40 to 50 percent. The company, however, was wrong.

Sales were off by 60 percent.

The chipmaker, which holds about 60 percent of the market for graphics cards, said things had been great up until October. Then things got bad in November, worse in December, and recovered to just bad in January. That’s how CFO Marvin Burkett described it on a conference call with financial analysts following the release of the firm’s numbers.

For the three months ended Jan. 25, the company lost $147.7 million, or 27 cents per share, a huge reversal from the profit of $257 million, or 42 cents per share, in the same period a year earlier.

There were a few one-time charges, such as restructuring and canceling a planned expansion to a new campus, but even without those charges, the company would have swung to a loss of 18 cents per share. Analysts had been expecting a loss of 9 cents per share on sales of $491.4 million, according to a poll by Thomson Reuters.

Revenue was just $481.1 million, down from $1.2 billion in the year-prior quarter. The huge plunge in Q4 erased all of 2008’s profits and the company reported a GAAP net loss of $30.0 million, or $0.05 per share. In its 2007 fiscal year, it enjoyed net income of $797.6 million, or $1.31 per diluted share.

There was no way to sugarcoat a 60 percent plunge in revenues, and Burkett and CEO Jen-Hsun Huang didn’t even try. Instead, the focus was on product successes. Huang noted that the company is trying to find a balance of cash reserves, which are a comfortable $1.2 billion with expenses. The company is trying to reduce those operating expenses by $35 million by the end of the second quarter.

He noted that the company had regained performance leadership after a serious challenge from AMD (NYSE: AMD), shipped the Tesla line of computation-intensive supercomputing and systems, introduced Ion for netbooks and the Tegra chip, which can do duty in both netbooks and mobile Internet devices.

But the problems all came at the end of the year. GPU sales fell 47 percent, professional products were down 44 percent and its chipset business fell 51 percent. “There were no safe havens,” Burkett said.

Notebooks have been a bright spot for Intel, but not necessarily for nVidia. Its discrete graphics chips are in mid-range to high-end laptops, but those weren’t selling. Burkett said notebook product sales fell 63 percent, reflecting the buying trend toward low end systems with integrated graphics.

Burkett said it was “almost impossible to give a reasonable and competent forecast” for Q1, but he did have some projections. Sales should begin to rise if only because inventories have run out. The channel went from three months of inventory to one month.

So if nothing else, the channel will have to start restocking soon. The company does not see any further declines, but it can’t say how much revenue will increase. “We have a good sense that inventory levels are depleting quickly. That’s how we get a sense of where we are,” Huang said.

Huang added that he is “confident of areas of growth in the second half of the year,” but would not say what that means — such as whether it means the company will snag design wins for Tegra, Tesla and Ion. There are rumors that Tegra will be used in a Microsoft smartphone designed to compete with the iPhone, but that’s all they are.

Huang would only says that Tegra will ship and contribute revenue, Tesla will ramp up and Ion will “contribute greatly” to nVidia’s growth going forward.

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