Nvidia reports 84% drop in profit
Posted by talleyrand on Saturday, August 24 2002

By Therese Poletti
Mercury News

Nvidia reported an 84 percent drop in net income Thursday, results that were on target with Wall Street's reduced expectations, as the once fast-growing graphics chip maker finally succumbed to the economic downturn and weakness in the personal computer industry.

Late last month, Santa Clara-based Nvidia said it would report lower-than-expected revenue for its fiscal second quarter in the range of $410 million to $430 million, due to the anemic PC market, and take a charge for inventory write-downs.

On Thursday, Nvidia said its revenue was $427.3 million, an increase of 64 percent from year-ago revenue of $259.9 million, but short of its original forecast of between $560 million and $580 million.

Additionally, the company took a charge in the quarter, which ended July 28, to write down excess inventories of Xbox and nForce chips. The surplus of chipsets for the Xbox, the gaming console developed by Microsoft, was made obsolete when the software behemoth shifted to new security chip codes during the first quarter.

Including the charge, Nvidia reported net income of $5.3 million, or 3 cents a share, a drop of 84 percent from net income of $32.9 million, or 19 cents a share, a year ago.

``This is the first big hit they have taken since they became a successful company,'' said Joe Osha, a Merrill Lynch analyst who does not own any Nvidia stock. ``It was the PC market really.''

In a conference call with analysts, Nvidia executives said they expect revenue to grow from 1 percent to 5 percent in the third quarter and they expect earnings in the range of 6 to 12 cents a share.

The company also said its next-generation graphics processor, currently code-named NV30, should come out in time for the Christmas buying season despite delays due to its transition to a new manufacturing process. Nvidia said it is the first graphics chip maker to transition to 0.13 micron technology, which will enable more transistors to be squeezed onto a tiny sliver of silicon, making its chips faster.

But delays in the new manufacturing process have some analysts nervous that the company could miss an entire product cycle, while its archrival, ATI Technologies of Toronto, leaps ahead.

``They will miss the sweet spot of the holiday season,'' said Hans Mosesmann, a Prudential Securities analyst who does not own any semiconductor stocks. ``If you come out with this chip on Nov. 25, you will miss the sweet spot. Or if you come out with the chip on Dec. 15, there was some product, but you will miss the volume portion of the season.'' ATI, he noted, has its next-generation graphics processor, the 9700, coming out in the next week or so.

Mosesmann noted that some graphics chip companies have had severe problems after missing a product cycle in the fast-moving and competitive graphics industry, most notably 3dfx Interactive, which went out of business.

``Usually, you miss a product cycle and it spells, in some cases, disaster,'' Mosesmann said. ``But I wouldn't bet against Nvidia, certainly not in the long term.''


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