Nvidia: Citi Cuts To Hold On Dual-Core Competition, Tablet Concerns
By Tiernan Ray
Shares of Nvidia (NVDA) are down 82 cents, or 3.5%, at $22.58, following the company’s slight miss on Q4 revenue last night, and a spirited discussion afterward in which CEO Jen-Hsun Huang fielded questions from analysts on the conference call about the company’s new “Kal El” chip, which has four separate compute “cores” on the same semiconductor.
Glen Yeung with Citigroup this morning cut his rating on the stock to Hold from Buy, but also raised his price target to $27 from $20, writing that Nvidia faces “increased competitive risk,” and “the threat of excess tablet inventory may constrain multiples near-term and balances the risk-reward for the shares.”
On the competitive from, Yeung was referring to dual-core chips from Qaulcomm (QCOM) and Texas Instruments (TXN), which threaten the dominance Nvidia has built up by being “first mover” in tablet computers with its Tegra 2 chips, and by being the first with a dual-core chip based on ARM Holdings’s (AMRH) Cortex A9 CPU.
Yeung thinks the stock’s valuation multiple will be constrained. The stock trades at roughly 25 times Yeung’s estimate for 91 cents per share in earnings this year, which is up from his prior 89-cent estimate.
The other half of his thesis is a partial failure of some tablet products. Yeung writes:
We’re not as optimistic about tablet growth as are our peers. Based on the price elasticity for other consumer devices, tablet devices would need to decline to approximately $200-$250 to expand the market above 50M units annually. With the constraints of current technology, this is not possible. With this is mind, we suspect that the 50M- 60M tablet build forecasts for 2011 could result in excess inventories, likely evident by 2H11. The counter-argument is simple: tablets will sell well. And while we cannot definitively say they will not, we believe the risk of excess inventory will keep Tegra-related multiples range-bound. |
