Nvidia Extends its Share Repurchase Program
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“We are pleased to start paying our shareholders a quarterly cash dividend. We have confidence in our businesses and our continued ability to grow. Given our strong financial position and ongoing ability to generate cash, we are well positioned to continue investing in our future.”
Jen-Hsun Huang, CEO & President of Nvidia
Nvidia (NASDAQ: NVDA) designs and manufactures graphic chips for the personal computers. It invented the graphic processing unit (GPU) which is now used to design almost everything from house to jumbo jets.
Nvidia’s Q3 '13 revenue was $1.2 billion, an increase of 15.3% from Q2 '13. It adjusted net income was $0.25 billion, which was 44% higher than Q2 '13. The major reason for this increase in revenue is a rich GPU product mix that was powered by Kepler 28 nanometer technology product and Tegra 3 processors.
Nvidia expects Q4 ‘13 revenue to be between $1.03 and $1.18 billion, a decrease of 2%-15% from Q3 2013. A decrease in revenue expectations for the company is based on the fact that the demand from the customers will fall due to the on-going global economic environment, consumer softness in the mature market, and a slowing enterprise market segment.
Nvidia extended its 2004 share repurchase program. Since the beginning of the repurchase program in August 2004, Nvidia has repurchased 90.9 million shares for $1,460 million. This brings the average share repurchase price to about $16 per share. This shows that company is willing to repurchase its share at a premium of about 30%-31% to the prevailing share price. The company is expected to fund this repurchase through its working capital. Though I believe that repaying long term finances through short term funds is not a healthy practice, seeing the large cash and cash equivalent balance of $3.4 billion, which includes primarily marketable securities, is a good idea. Marketable securities generate lower returns, hence repurchases in the long run help the company to enhance the shareholder return.
Intel (NASDAQ: INTC), the largest global supplier of microprocessors, is one of the major customer of Nvidia. Out of the NVDA's total revenue, the GPU segment comprises of 62.3%. Licensing fees from Intel are one of the primary sources for Nvidia's GPU segment revenue. For Q3 2012, license revenue was $66 million, which was flat in comparison to Q2 ’11. This will not change in the future, as Nvidia is investing heavily in R&D.
Recent product launchs like Tegra 3 processors and Kepler-based Tesla products further strengthen this claim. Tesla is presently used in Oak Ridge National Labs to build the supercomputer Titan. This reflects the quality of the research and development Nvidia is engaging in.
Advanced Micro Devices (NYSE: AMD) is another competitor of AMD. Its total revenue for Q3 2012 stands at $1.2 billion, which is somewhat at par with Nvidia. However, AMD has not come with any exciting product in the recent past. In the fast changing technology industry, stagnancy in product development can be suicidal.
In Q3 2013 Nvidia extended its share repurchase program to 2014. I believe this is pleasant news for those who are investing in Nvidia. Until recently Nvidia has paid a 30%-31% premium on average on the repurchase. I believe that the trend will continue, which means it is worthwhile to buy shares, as I believe that this will give 20%-25% returns to investors in the medium and long term.
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