nVIDIA Corp. sym: nvda

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nVIDIA Corp. (sym nvda)

• Ramu N.
• 4/18/05

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Overview

• Develops technology for 3D graphics
• Mid-Cap company with 3.6 billion dollar market
  capitalization
• Majority of revenue comes from the PC market
• Expanding into other markets

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Business Model

• Often called a fabless semiconductor company
• It does not manufacture any of its chips
• This is subcontracted to IBM or several Taiwanese
  firms
• Mainly focused on engineering and marketing
• Increasingly more revenues are based on royalties
  and licensing

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Competitors

• ATI about equal market share
• Intel focuses primarily on the low end
• XGI and S3 tiny market share restricted only in
  low end cards

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Products

• PC graphic boards
• Share about half the mid to high end market with
  ATI
• Constitutes about 80 of their revenue
• Trying to expand beyond personal computers

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ProductsMotherboards or Mainboards

• Link various parts of the computer together
• Ex CPU, memory, hard drive
• Recently signed an agreement with Intel allowing
  it sell motherboards that work with Intel
  chipsets
• growth opportunity
• Moving into more profitable server boards

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ProductsConsoles

• Provides the graphics technology for the Xbox
• Has licensed its next generation graphics
  technology to Sony for PS 3
• Low risk and steady stream of revenues

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ProductsHandhelds

• A few high end cell phones use Nvidia chips for
  graphics
• As cell phones become more advanced it is more
  difficult for these companies to design
  everything in house
• As handsets become more like commodities,
  manufacturers are often turning to other
  companies to design or provide chips

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Recent Developments

• The latest generation has received good reviews
  and are being sold in significant numbers
  unlike ATI
• Won the PS 3 contract
• Beat ATI to the market with dual card system
  sold over 350,000
• Allows graphics enthusiast to spend upward of a
  1000 on a system
• May saturate the market and fill demand before
  ATI can deliver its solution
• Locks owners into Nvidia

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Recent Developments

• The mainstream and high-end graphics market that
  constitutes the majority of Nvidia profits can be
  considered a zero sum game
• ATI lowered outlook for earnings and has not
  reported good earning recently
• Improving Margins
• 34 gross margins 4th quarter up from 29 a year
  ago

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Recent Articles

• Nvidia galloping ahead on graphics front (April
  12th)
• Nvidia has sold 350,000 SLI chipsets (March 2005)
• ATI mobile share gnawed by Nvidia, Intel(February
  2nd)

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Ratio Analysis
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Why not ATI?

• Has never been given good evaluations in the past
• Stock has gone sideways in the past few years.
• Are losing market share
• Executing poorly
• Nvidia has a stronger management

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1 year chartNews and Earnings
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Growth Drivers

• Recovering market share in core graphics cards
• Playstation 3 deal expected to add 50 100
  million annually for 4 years
• Also speculation that Nvidia may be part of the
  ambitious Cell processor
• Expansion into other markets
• ie cell phones, HDTVs
• Improving Margins

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Risks

• New SEC rules regarding options expensing
• Intel may decide to expand into midrange of the
  market seems unlikely since they withdrew many
  years ago
• Price war may ensue at the low end
• Sales often dependent on software or hardware
  companies
• Economy may slow down hitting high beta
  companies like Nvidia hardest

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Targets

• Should benefit from rising market share
• 26 in a 3-6 month range
• May benefit from a rebounding NASDAQ
• First Call
• Median 33.50
• Low 5.00
• High 50.00
• Likely will continue their positive earnings
  surprises next earnings report in mid-May

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Proposed - Sell on Ameritrade

• Have held it a little over 6 months but are not
  profitable
• Ongoing price war between brokers hurting margins
  even further
• Some firms are even suggesting they will give up
• Profits at brokers are depend on trading volumes
  with wreaking financial markets, unlikely to do
  well

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1 - Year Chart