UPDATE 2-Nvidia shares down on product transition concerns

Feb 18 (Reuters) - Shares of Nvidia Corp fell about 9
percent on Thursday on investors' concerns about upcoming
product transitions away from the company's chipset business.

Several analysts, however, noted that the share drop could
be a good entry point for investors and raised their price
targets on the stock.

"We advise clients to buy on this negative reaction,
noting that revenues, gross margins and earnings per share all
have noticeable upside, both cyclically and secularly,"
Citigroup analyst Glen Yeung wrote in a note.

On Wednesday, the graphics chipmaker posted a
better-than-expected fourth-quarter profit but revenue came in
slightly below Wall Street's most bullish expectations.

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 a result, its chipset business, or collections of chips
on a board that connect a computer's microprocessing brain to
other parts of the computer, fell 19 percent from the last
quarter.

"The chipset revenue decline is probably driving a lot of
the disappointment there," said Wedbush Morgan analyst Patrick
Wang.

In an early morning note to investors, he reiterated his
"neutral" rating on the stock based both on increased
competition from arch-foe Advanced Micro Devices's ATI, and
chipset revenue declines.

He noted that although "legacy chipset sales essentially
disappeared," they are expected to pick up in the fiscal first
quarter.

Nvidia Chief Financial Officer David White told Reuters he
expects the company's chipset business to be roughly flat this
year, with no significant falloff until next year.

However, JMP Securities analyst Alex Gauna said in a note
to clients that flat guidance for the April quarter is likely
to prove overly conservative owing to the ramp of new products
and the likelihood of share gains with the spring PC refresh
cycle.

INVENTORIES AND TECHNOLOGY

Investors were also concerned about Nvidia's inventories,
which analysts noted had increased by more than $53 million
from the previous quarter to $330.67 million. But, that's still
down 38.5 percent from the same time last year.

Nvidia should see revenue pick up pace as this inventory,
mostly back-end related, moves through testing, Citigroup's
Yeung wrote in a note.

However, analysts seem bullish about the company's growth
trajectory and the increased focus on the new products.

Nvidia has the potential for further gross margin expansion
due to the ramp of new products, JMP Securities analyst Alex
Gauna wrote in a note.

"If macroeconomic conditions continue to improve, these
milestones now put the company on a clear path back towards
achieving and perhaps surpassing peak earnings power in the
2011 timeframe," Gauna wrote.

Nvidia's gross margins could approach 50 percent, helped by
its new products and substantial growth in workstations, Yeung
added.

Shares of the company fell 6.5 percent to $16.67 in
afternoon trade on Nasdaq. They touched a low of $16.21 earlier
in the session.

See below for price target and rating changes by various
brokerages on Nvidia shares:

Brokerage Price Target ($) Rating

New Old

Canaccord Adams 21 17 Buy

Citigroup 23 21 Buy

JMP Securities 22 21 Market outperform

S&P Equity 18 16 Hold

UBS 18 16.5 Neutral
(Reporting by Saqib Iqbal Ahmed in Bangalore; Editing by
Unnikrishnan Nair and Saumyadeb Chakrabarty)