Things You Need to Know About Nvidia

Cecil is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the semiconductor manufacturer announcing that it will report its earnings on Nov. 8, I feel it is important for an investor to be aware of what he is to expect from the report. Before we dive into the present quarter, though, let us go through last quarter’s report.

Last quarter, Nvidia (NASDAQ: NVDA) produced an impressive earnings report; they managed to beat all the analyst expectations. Earnings per share were at $0.19, clearly beating the expected $0.14 per share. The revenue was another area where Nvidia seemed to impress everyone; it generated a revenue of $1.04 billion against the expected $30 million.

With such an impressive earnings report, the stock had hit a high of $15, but eventually started pulling back and hit a 52-week low of $11.63. In the same quarter, Nvidia reported a 15% increase in GPU sales; this was phenomenal, as Nvidia's competitor Advanced Micro Devices (NYSE: AMD) had a 5% drop. System On Chip for smart phones and Tegra helped increase Nvidia’s customer product sales by 35% on a quarterly basis.

So what do analysts looking for in this quarter? Well, considering a phenomenal previous quarter, analysts are expecting anything between $1.17 billion and $1.26 billion in term of revenue. This would mean that the earnings per share will be at about $0.30.  

In the year 2011, AMD had a market share of 55% in the notebook market. While in the first quarter of 2012 we started to see a fall in AMD’s market share to about 51%. By the second quarter of 2012, Nvidia’s market shares shot to 55%; this was due to the fact that Nvidia’s Kepler GPUs were being used in a lot of notebooks. And because of the reputation the GPU had attained, we saw Apple include the Kepler GPU in the MacBook Pro 15-inch model; this was previously a model that was powered by AMD.

Even in the desktop space, AMD is expected to lose ground. This is due to the fact that during the first half of 2012, AMD was the only company that provided a full range of 28nm products in the market. The second half of 2012 will see Nvidia entering the space with a full range of 28nm products. This was confirmed when Nvidia announced that their supply constraints in the 28nm range had eased. So what does this imply? The Kepler series is priced cheaper and performs better when compared to its AMD counterpart, and thus will help Nvidia dig into the desktop market shares as well.

All of this being said, Nvidia will have a lot of competition in the SoC sector from ARM Holdings (NASDAQ: ARMH) and Vivante. According to Jon Peddie Research, ARM and Vivante together account to about 24% of the market share. You might say that this isn’t significant, but the point is in the first quarter of 2012 these companies accounted for less than 10% of the market combined. This becomes even more significant when you know that the SoC sector has grown by about 91% over the last year.

So what is it that enabled ARM to get a grip of the market? The Mali GPU design, which is used in all major entry-level smart phones. That being said, ARM also has modified designs that work on high-end smart phones too; the perfect example for one such design is the Mali 400 GPU that is used in Samsung’s Galaxy S III. They also have the Mali 450 GPU, which runs on mid-range smart phones. The depth at which this product has penetrated the smart phone market is ARM's biggest advantage.

That being said, I feel that Nvidia has all the resources required to topple all its competition. 

ceciljohn2002 has no positions in the stocks mentioned above. The Motley Fool owns shares of ARM Holdings and NVIDIA. Motley Fool newsletter services recommend ARM Holdings and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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