Nvidia Shares Affected by Weaker Playstation 3 Demand

A series of reports last week pointed to longer than expected shelf-time for Sony's Playstation 3 video-game console, as well growing inventories across the country, raising concern about possible slower demand for the new system.

Santa-Clara Calif.-based Nvidia, which provides the technology behind the system's advanced graphics and special effects, may take a hit as a result of the slowdown.

"Sony royalties garnered by Nvidia from the PS3 build are expected to be the primary driver of Nvidia’s gross-margin expansion in fiscal 2008," Michael McConnell, semiconductor analysts of Pacific Crest said.

"Although poor manufacturing yields on Blu-Ray diodes were the initial cause of PS3 unit constraints at retailers, we have seen evidence of weaker-than-expected consumer demand as availability has improved, likely stemming form overly high prices at retailers and a lack of compelling game titles."

While the report did not speculate on the number of units that would be sold, a component "tear-down" performed by market researcher iSuppli last month showed that Nvidia would receive $129.00 for every Playstation 3 sold.

The analyst lowered his price target for Nvidia to $33 from $45, and predicted earnings of $1.67 a share for the year, instead of $1.77 previously indicated.

Shares of Nvidia closed down $1.29, or 4.10 percent, to $30.18 in Monday trading on the Nasdaq Stock Exchange.