Forbes: Update -- AMD, Nvidia Take On DOJ
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Market Scan
Update -- AMD, Nvidia Take On DOJ
Joshua Lipton, 12.01.06, 6:49 PM ET
Advanced Micro Devices and NVIDIA compete head-to-head for consumers in the graphics chips market but now the two California-based rivals face a common adversary: Uncle Sam.
Both companies have received subpoenas from the U.S. Department of Justice regarding investigations into potential antitrust violations relating to graphics processing units and cards. The DOJ has not yet made any specific allegations against the companies and both AMD (nyse: AMD - news - people ) and NVIDIA (nasdaq: NVDA - news - people ) intend to cooperate.
(Separately, Intel, a market leader in the production of integrated graphics chips, has not received a subpoena, according to a spokesman for the company.)
Shares of NVIDIA slumped 3.9%, or $1.45, to $35.54 while shares of AMD sank 4.08%, or 88 cents, to $20.69.
Analysts so far remained largely unconcerned about the news, wondering what took the government so long to catch onto the fact that the two companies form a duopoly on the market.
In an interview, Caris & Company analyst Nick Aberle says that NVIDIA controls about 53% of the market while AMD controls about 47%. But there is no news, Aberle says, in those numbers.
“The industry has these characteristics for at least five years,” he says.
More broadly, Aberle doesn’t see any evidence of antitrust violations, arguing that consumers aren’t being taken advantage of and smaller players aren’t being pushed out.
“I can’t come up with any reasons why this makes sense,” Aberle says.
Aberle maintains a “buy” recommendation on NVIDIA.
Global Crown Capital Equity Research Analyst David Wu agrees. “The DOJ is about five years late to the party,” he said in an interview.
At this point, Wu didn’t see any reason for worry. “All this means is that their legal bills go up,” he said.
Wu maintained an “underweight” rating on NVIDIA, with a target price of $35.
Needham & Company analyst Quinn Bolton was likewise unsurprised by the government’s decision to investigate, but he did note that such uncertainty can have potential consequences for traders.
“These things do represent overhang on the stock until they’re cleared up,” Bolton said in an interview. “And it can distract management.”
He maintains a “hold” recommendation on NVIDIA.
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