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Thursday, February 14, 2008

Nvidia (NVDA) 4Q:08 Results

Nvidia, the market leader in graphics chips, roughly hit consensus numbers. Revenues were slightly better, gross margins were slightly lower and operating expenses were higher. A lower tax rate (8 vs the 13 est) allowed them to beat consensus estimates. This is a lower quality quarter than the company has been putting together of late. Two quarters ago they were bursting at the seams with upside, this quarter is technically a miss as they would have missed consensus without the lowered tax rate. The company guided next quarter slightly down but less than seasonal and said seasonality is typically down 5%, so the range becomes down 1-4%.

Nvidia has been taking share from AMD (who bought ATI last year). The AMD integration has been sloppy at best -- product delays are now a given at AMD. Nvidia has retained the best gaming chip title (in part due to AMD's missteps) and consequently attracts a significant share of the add-in market on top of their growing dominance of the integrated graphics chipset market.

This was unquestionably a sloppy quarter. The easy share has been taken. Sequential growth is flattening out after a couple of years of very strong growth. The stock trades at roughly 18* this year's estimates and roughly 16* next year's number. For perspective, Intel trades at say 15*08 and 14*09. So Nvidia has a slight premium to Intel. Nvidia also isn't as screwed up as Intel is. I think Nvidia is fairly valued at $24-25 in the present environment and I'd be a seller around $30. The downward spiral in the stock of late makes me think it can move to the top of that range just because numbers aren't really coming down here.

More concerning perhaps is that Nvidia missed numbers and chose to play games with the tax rate to make it look like they didn't. That smacks of poor character and bears further scrutiny. I'll be going over their 10Qs in the near future.

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