May 12, 2011 / 8:29 PM / 9 years ago

Nvidia beats Street but stock sags on PC worries

SAN FRANCISCO (Reuters) - Nvidia Corp (NVDA.O) gave a rosy outlook for its mobile chip business, but its stock was pulled down by concerns about growing competition in its core PC graphics market.

Nvidia has jumped into mobile computing this year, with its chips appearing in tablets and phones made by Samsung Electronics Co Ltd (005930.KS), Motorola Mobility Inc (MMI.N) and LG Electronics Inc (066570.KS).

Santa Clara, California-based Nvidia grew its mobile business more than some analysts expected in the first quarter, even with stiff competition from Apple Inc’s (AAPL.O) iPad 2.

But Nvidia shares fell 3.17 percent in extended trading, erasing a gain in the normal session as investors remained concerned the company’s graphics chip market is under pressure.

Rivals Advanced Micro Devices Inc AMD.N and Intel Corp (INTC.O) both launched central processors with integrated graphics this year, which might erode demand for Nvidia’s low-end chips, and tablets are also affecting demand for PCs.

“The GPU business is unlikely to ever get back to prior levels,” said Auriga analyst Daniel Berenbaum.

Rushing to build its mobile business, Nvidia said tablets and phones with an upcoming quad-core mobile processor, code-named Kal-El, will go on sale later this year.

“We have quite a large number of Project Kal-El design wins for tablets and phones. Simultaneously, we’re doing refreshes of Tegra 2 superphones, while we’re also developing new, more affordable mainstream phones,” Chief Executive Jen-Hsun Huang told analysts on a conference call.

Revenue from Nvidia’s closely watched consumer products group, including Tegra, jumped 78 percent sequentially to $122.6 million in the first quarter, more than analysts concerned about stiff competition from Apple forecast.

“Tegra came in slightly better than we expected,” said Stifel Nicolaus analyst Kevin Cassidy. “It seems like the industry concerns about Tegra inventories building might not be warranted.”

BIGGER FOOTPRINT

To expand its mobile offering, Nvidia said this week it is buying British cellphone chipmaker Icera for $367 million.

Huang told Reuters that Icera’s modem technology complements Nvidia’s mobile chips. But he said Nvidia does not plan to build the modem technology directly onto its Tegra chips.

Nvidia said second-quarter revenue would rise 4 to 6 percent from the first quarter, implying revenue of $1 billion to $1.02 billion. Analysts on average had forecast $992.5 million in revenue for the current quarter, according to Thomson Reuters I/B/E/S.

The company reported GAAP net earnings of $135.2 million, or 22 cents a share, for the quarter ending May 1, compared with a net profit of $137.6 million, or 23 cents a share, in the year-ago period.

Non-GAAP earnings per share were 27 cents and first-quarter revenue fell 3.97 percent to $962 million.

Analysts on average expected net profit of 19 cents a share and revenue of $947.8 million in the first quarter.

Nvidia also forecast a record gross margin of 50.5 to 51.5 percent in the current quarter, above the average forecast for about 49 percent. The company’s first-quarter gross margin was 50.4 percent.

Reporting by Noel Randewich; editing by Richard Chang and Andre Grenon

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