July 28, 2010 / 8:45 PM / 9 years ago

UPDATE 2-Nvidia lowers sales outlook, shares fall

* Now sees Q2 rev $800-$820 mln

* Cites memory costs, weakness in Europe and China

* Shares fall 6.6 pct (Adds analysts comment, background; updates shares)

SAN FRANCISCO, July 28 (Reuters) - Chipmaker Nvidia Corp (NVDA.O) on Wednesday slashed its second-quarter sales outlook, citing increased costs for memory and economic weakness in Europe and China, and its shares fell 6.6 percent.

The company said it now expects revenue of $800 million to $820 million in the quarter ending Aug. 1, down from its May 13 estimate of $950 million to $970 million.

Analysts were expecting revenue of $951 million, according to Thomson Reuters I/B/E/S.

Wedbush Securities analyst Patrick Wang said Nvidia’s problems are specific to the graphics chip business and its product lines. He said demand has been weak for Nvidia’s new Fermi product.

“I don’t think they’re out of the woods yet. I think it will take another quarter or two of cleaning up, and I don’t think the stock starts working again until later this year,” Wang said.

Nvidia’s revenue shortfall came mainly in its consumer graphics chip business. The company dominates the higher-end graphics chip market along with rival ATI, which is owned by Advanced Micro Devices Inc AMD.N.

Nvidia said cost increases led to a greater-than-expected shift to lower-priced graphics chips, and personal computers running lower-end integrated graphics.

Nvidia has been attempting to shift its focus to high-performance computing and mobile chips for devices such as tablet computers, while maintaining a core business selling graphics chips.

On Monday, the International Trade Commission said Nvidia, and other companies infringed chip patents held by Rambus Inc, and issued an order barring the importation of any chip made with the infringing technology. [ID:nN26227132]

Rambus said it would appeal the decision.

Nvidia’s stock has fallen about 45 percent this year.

Shares of Santa Clara, California-based Nvidia closed at $10.13 and fell to $9.46 in extended trading. (Reporting by Gabriel Madway; Editing by Bernard Orr and Richard Chang)

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