Nvidia sees mobile chips boosting Q1 revs

SAN FRANCISCO Wed Feb 16, 2011 7:43pm EST

SAN FRANCISCO (Reuters) - Nvidia Corp (NVDA.O) forecast quarterly revenue above expectations as sales of its cutting-edge processors for smartphones and tablets accelerate this year.

Revenue of Nvidia's new Tegra 2 mobile chips, which have recently appeared in upcoming devices made by Motorola (MMI.N), LG Electronics (066570.KS) and Dell Inc DELL.O, will grow through 2011 as a next-generation processor also hits the market, executives said.

Snubbed for years as a one-trick pony in video game graphics, Nvidia is now applying its technology to powering devices in the red-hot mobile market led by Apple (AAPL.O), and it has won admirers on Wall Street.

The company, whose core business is designing graphics processors for PCs, 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, code-named Kal-El and currently being sampled by customers, to appear in more smartphones and tablets later this year. It said it would introduce improved mobile processors -- all code-named after superheroes -- about once a year.

"We're beginning to sample to strategic partners and based on competition and announcements we believe we are at least a year ahead of them," Nvidia chief executive Jen-Hsun Huang told analysts on a conference call.

But high-profile mobile gadgets with Nvidia's processors, like Motorola's Xoom tablet, have yet to hit store shelves and go head to head against Apple's trend-setting products.

"How does the Xoom at $800 beat the iPad at $600? ... I don't think you can make a high-conviction call one way or the other until we see what consumer adoption looks like," said Gleacher & Company analyst Doug Freedman.

ROYALTIES

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 develop its new products, and also because of higher stock-based compensation expenses following the rally in its shares.

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.

Nvidia said it expects sales of graphics processors for notebooks to grow in the first quarter as manufacturers include its chips in PCs they are building with Intel's new Sandy Bridge central processors.

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

Shares of Santa Clara-based Nvidia were at $23.22 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 and Sofina Mirza-Reid)

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