Graphics card and digital media manufacturer NVIDIA Corporation (NVDA) hosted its analyst day on March 8, revealing important strategies for the next year or so.
Accordingly, CPU and GPU strategies adopted by the company based on its ARM architecture module, will gain some mileage. NVIDIA expects that Microsoft’s (MSFT) recently announced decision to launch Windows for the ARM eco-space will also have positive implications for the company, as both these technologies can complement each other.
On the other hand, NVIDIA forecast its core business comprising GPUs, chipsets and royalties to be flat at around $3.3 billion in calendar year 2011. As a result the royalties income may not have a major positive impact on the revenue stream. This apart, the company’s new business, comprising Tegra & Telsa, is expected to generate revenues to the tune of $500–$700 million during 2011.
OPEX is likely to remain high while gross margin is expected to be above 50%. This is an optimistic estimate showing improvement on a yearly basis.
NVIDIA’s R&D efforts remain on track. Despite the momentum in the tablet and handset segments, the company is working on a new product using the Tegra 3 platform. NVIDIA has accelerated the production of its quad-core applications processor codenamed “Kale-El,” which it plans to ship during the third quarter.
The processor is slated to be used first in tablets and then in smartphones beginning 2012. The company also expects its GPUs to take share in both notebook and desktop markets in 2012.
NVIDIA seems to have the right business approach, targeting some of the most significant growth areas in technology. These include cloud computing, mobile Internet and energy efficiency. While this will no doubt enhance its brand equity, we might notice a meaningful rise in research and development expenditure moving forward.
The company reported decent fourth-quarter numbers, and is optimistic about its long-term growth prospects as demand for graphic chips recovers. The company also received $1.5 billion in a licensing agreement with Intel Corp. (INTC) that spans for six years. However, NVIDIA’s performance may be slightly tempered by the economic slowdown in Europe and increased competition.
The company has Zacks #2 Rank (short-term Buy recommendation).
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