By Manikandan Raman: Subscribe to Manikandan's RSS feed
August 10, 2010 12:46 PM EDT
Graphics card marker Nvidia (NVDA) needs to pursue strategic alternatives in response to secular market challenges, according to an analyst at ThinkEquity.
The brokerage believes that the company management needs to clearly articulate a response to near-term discrete PC graphics challenges and also longer-term secular challenges from the integration of CPU/GPU in Intel's SandyBridge PC platform and AMD's Fusion platform that should ramp in volume in first half 2011.
The brokerage said the recent Intel-FTC settlement provides a good framework for NVDA to pursue acquiring x86 processor capabilities and also potentially re-entering the Intel MCP integrated graphics/chipset market.
"We believe that NVDA may need to move aggressively and acquire x86 processor capability through licensing or a merger with Via Technologies (Taiwan)," analyst Krishna Shankar said in a note to clients.
Among others, the settlement with Federal Trade Commission (FTC) requires Intel to offer to extend Via x86 processor's licensing agreement for five years beyond the current agreement, which expires in 2013.
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Under the settlement, for six years, Intel must maintain a computer interface that allows graphics chips from companies such as Nvidia to access its central processing units.
Analyst Shankar, who has a "buy" rating on the stock, said, alternatively, NVDA should explore more radical strategic partnering/mergers with larger competitors such as Broadcom, Marvell Technologies, Advanced Micro Devices (AMD), Qualcomm, etc., in order to compete with Intel.
"We believe that pursing the status quo may increasingly not be viable. In our opinion, a strategic acquirer may have to pay a premium of 50-100% to acquire NVDA," Shankar said.
The analyst added that economic slowdown in Europe and consumer caution in the U.S. and China market may prompt notebook buyers to steer away from more-expensive notebooks with NVDA's Optimus hybrid graphics and instead stay with Intel or AMD-integrated notebook graphics.
However, Shankar said their checks suggest that NVDA has finally become more competitive in the mainstream performance graphics segment with the cost-reduced GTX460 priced at the $199 sweet spot of the market.
"While the product ramped late in the July quarter, we believe that it (GTX460) will be a crucial element of growth for the next quarter, along with further cost-reduced versions at the $149 and $99 price point," Shankar said.
Nvidia have maintained the lead in the high-end segment in July over AMD as gamers continue to take up NVDA's Fermi-based GTX 400-series cards, according to a recent survey by Auriga USA.
NVDA's share came in at 55 percent, while AMD tapped 45 percent of the high-end graphics card market. In June, NVDA had 57 percent of the high-end graphic card segment, compared to AMD's 43 percent.
NVDA is scheduled to report its quarterly results on August 12. Wall Street is expecting the firm to earn 11 cents a share on revenue of $837.26 million, according to analysts polled by Thomson Reuters.
Shares of California-based NVDA closed Monday's regular trading at $9.64 on Nasdsaq.
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