Nvidia Riding the Graphics Boom

Nvidia’s (NASDAQ: NVDA) recent 3:2 stock-split on 9/10 must have helped, but the stock’s rally, this week, has more to do with Nvidia’s robust showing in the Q2/07 results. Net earning of $172.73 million ($0.43 a share) on a revenue of $935.3 million is almost double that of $86.7 million ($0.22 a share) in Q2/06 on a revenue of $687.7 million.

After deducting one-off items, the Q2/07 revenue stands at $860 million, translating to $0.51 a share that beat the Street estimate of $0.43/share. Notably, gross margins have improved by nearly 3% from 42.5% to 45.3%.

The strong quarterly result is on account of strong demand for its graphics chips in both desktop and notebook computers. No doubt CEO Jen-Hsun Huang is exuberant. “As the leading and only dedicated GPU (graphics processing unit) company in the world, our opportunity has never been more exciting as the number of applications and digital devices that benefit from the GPU continues to grow.”

As of Q4/06, according to a survey by Jon Peddie Research, Nvidia has been the second largest supplier of desktop graphic devices at 28.5% market share, putting them behind Intel but ahead of AMD. However, it still was the largest discrete graphic device supplier with 53.8% of the market. And as for discrete mobile graphic device, the Jon Peddie Research saw NVDA scoring tremendous gains in market share from 53.0% in Q3/06 to 59.1% in Q4/06.

On January 5 this year, at a cost of $357 million, Nvidia completed acquiring PortalPlayer, the company that supplied the original iPod chips for a while before conceding the prized place to Samsung. Portal Player also did not get the iPhone design win.

Analysts believed that the Nvidia-PortalPlayer combination would contribute $280 million this year including $150 million from the iPhone, $100 million from the new video iPod, and $30 million from non-Apple MP3 players. However, the Apple revenue stream has not come through for the most part, especially the projected iPhone revenues as discussed in the iPhone’s Component Ecosystem Analysis. However, the Portal Player business should find other customers as competitors line up against iPhone and iPod, and non-Apple MP3 Players and convergence devices should sustain a healthy revenue line in the upcoming quarters.

Before ATI was acquired by AMD last October, it was the principal competition of Nvidia in pureplay GPU. Today, Nvidia is the largest GPU-company in the world with very little in terms of focused competition. If you want to ride the graphics book, feel free to book the ride on Nvidia’s back. Competition will surely come from Intel and AMD, but Nvidia is a strong company with superb leadership at the helm, and I believe, will continue to execute well.