Nvidia sees strong Q1 as mobile chip takes off

SAN FRANCISCO Wed Feb 16, 2011 6:45pm EST

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SAN FRANCISCO (Reuters) - Nvidia Corp (NVDA.O) forecast quarterly revenue above expectations and said revenue of its Tegra 2 mobile chips were accelerating.

Sales of Nvidia's new mobile chips in the current quarter will become larger than revenue from its dwindling chipset business and grow over the year as a next-generation processor also hits the market, executives said.

Nvidia's shares lost ground in after hours trade as some investors focused on the company's rising operating expenses.

Snubbed for years as a one-trick pony in video game graphics, Nvidia is now applying its technology to powering mobile devices, and the recent appearance of its chips in new smartphones and tablets made by Motorola Mobility Holdings Inc (MMI.N), LG Electronics (066570.KS) and Dell Inc DELL.O have won the company admirers on Wall Street.

The mobile and graphics chip maker said quarterly sales would rise 6 to 8 percent from the fourth quarter, implying revenue of $940 million to $957 million in the first quarter. Analysts on average had forecast $889 million.

It also estimated a record gross margin of 48.5 to 49.5 percent this quarter ending April, slightly above the average forecast for just under 48 percent.

Nvidia has given Wall Street one of its best comeback stories in years and has been rewarded with a hefty share rally of more than 50 percent since the start of 2011.

Its Tegra 2 chips made a splash in January at the Consumer Electronics Show. On Wednesday, the company said it expected its newest processor, codenamed Kal-El and currently being sampled by customers, to appear in more smartphones and tablets later this year.

During the fourth quarter, Intel agreed to pay Nvidia $1.5 billion over five years to license its graphics technology, settling a legal dispute over chipsets, which are groups of integrated circuits that connect to the microprocessor in a PC.

Nvidia said operating expenses would grow 33 percent in the current quarter compared to the past quarter as it hires more engineers to support its new products, and also because of higher stock-based compensation expenses following the rally in its shares.

"Operating expenses seems to be growing faster than revenues and incremental gross margins are not strong, if we remove the impact from Intel payment," said Gleacher & Company analyst Doug Freedman.

Revenues from Nvidia's consumer products group, including early sales of Tegra, rose 33 percent sequentially to $69 million in the fourth quarter.

The company, long known for designing high-performance graphics cards favored by gamers, reported GAAP net earnings of $172 million, or 29 cents a share, for the quarter ended January 30, compared with a net profit of $131 million, or 23 cents a share, in the year-ago period.

Excluding the impact of the licensing deal with Intel Corp (INTC.O), its earnings per share rose to 23 cents, above the 16 cents expected on average according to Thomson Reuters I/B/E/S.

Revenue for the fiscal fourth quarter was $886 million, down 9.8 percent from the year-ago period.

Shares of Santa Clara-based Nvidia fell to $22.85 in after-hours trade after a brief rally of almost 3 percent. It closed at $23.38 on Nasdaq.

(Reporting by Noel Randewich; Editing by Richard Chang, Bernard Orr)

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