UPDATE 3-Nvidia profit beats but revenue disappoints some

Wed Feb 17, 2010 7:09pm EST

* Sees Q1 rev flat from Q4

* Sees Q1 gross margin 44-45 pct vs Q4 44.7 pct

* Shares down 4.7 pct in after-hours trade (Recasts, updates share price, adds CFO comment and product updates; adds byline)

By Ian Sherr

SAN FRANCISCO, Feb 17 (Reuters) - Nvidia Corp (NVDA.O) on Wednesday reported a quarterly profit that beat forecasts on strong demand for PCs using its graphics chips, though revenue was slightly below Wall Street's most bullish expectations.

The chipmaker said revenue more than doubled to $982.5 million in its fiscal fourth quarter ended Jan. 1. While that was above the average estimate of $957.2 million, some had expected revenue to surpass $1 billion.

Nvidia shares fell 4.7 percent in post-session trades, after gaining nearly 30 percent in the past three months.

"The whisper had them making up to $1 billion in revenue," said Wedbush Morgan analyst Patrick Wang.

He said one of Nvidia's segments may have declined faster than expected, though overall margins were high.

"The chipset revenue decline is probably driving a lot of the disappointment there," Wang said, referring to chips on a board that connect a computer's microprocessing brain to other parts of the computer.

The company posted net income of $131.1 million, or 23 cents a share, compared with a loss of $147.7 million, or 27 cents a share, a year ago.

Excluding items, Nvidia earned 23 cents a share, ahead of the average analyst estimate of 20 cents a share, according to Thomson Reuters I/B/E/S.

THE TRANSITION CONTINUES

For months, Nvidia has been discontinuing investment in parts of its business due to a lawsuit with Intel Corp (INTC.O) [ID:nN13201671].

It is shifting its focus to high-performance computing and mobile chips for devices such as tablet computers, while maintaining a core business selling graphics chips designed for games, high-definition video and advanced photo editing.

As the chipset business slows, Nvidia Chief Financial Officer David White said one of the company's new products was its lower-power, mobile graphics-focused chip software called Optimus.

The company hopes decreased power needs its new chip software will spur adoption of its graphics-focused products for high-definition movies and games. Nvidia said it expects the first notebooks using Optimus should appear in April.

"Our plan has been that through Optimus and other tools, to shift from chipsets in the notebook segment to discrete units, and we're doing anything we can to eliminate any of the negatives that have historically prevented that from happening," White told Reuters.

White expects the company's chipset business to stay roughly flat this year, with no significant falloff until next year.

And for its core graphics chip business, Nvidia Chief Executive Jen-Hsun Huang told investors on a conference call that advanced software such as Microsoft Corp's (MSFT.O) Windows 7 is helping spur demand.

Nvidia forecast revenue for the current quarter to be flat from the fourth quarter, and gross margin between 44 percent and 45 percent, compared to the fourth quarter's 44.7 percent.

Shares of Santa Clara-based Nvidia closed up 0.96 percent at $17.84 on the Nasdaq and fell to $17.01 in extended trading. (Reporting by Ian Sherr; Editing by David Gregorio)

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