Nvidia: Analyst Expects Difficult Quarter

Following our checks in Asia this week, we believe NVDA's January quarter is tracking below plan. We believe the company's GeForce (GPU), Quadro, and Tesla businesses combined are down about 10-12% Q/Q, with Quadro/Tesla somewhat weaker than GPU, Susquehanna Financial analyst Chris Caso wrote in a note to clients.

In November, the company indicated that it expected Quadro to be up sequentially, Tesla to be flat, desktop GPU to be up sequentially and notebook GPU flat to slightly down. In total, Nvidia guided revenue flat, plus or minus 2 percent sequentially.

We think the company is significantly below that plan at this point in the quarter. Given that Chinese New Year is occurring in late January, we think the channel will be loathe to take on additional inventory ahead of the slowdown, preferring to work through existing inventory, Caso said.

On a positive note, lead times for the company's enthusiast product line (GTX570/580/590) are up, indicating strong demand, which should help average selling prices in the quarter.

Meanwhile, the analyst said Advanced Micro Devices Inc. (NYSE: AMD) is having supply issues on its high-end GPU product, which theoretically could benefit Nvidia as a share gainer. But Caso believes the company has not been able to take advantage of AMD's struggles due to a lack of wafer supply.

Given the company's aggressive FY13 revenue targets, we believe it would be better from a stock perspective for NVDA to take its medicine in F4Q, rather than pull revenue forward at the expense of F1Q, and thus start the year off in a hole and making those targets that more challenging, said Caso, who has a neutral rating on the stock.

Nvidia is expected to announce its fourth-quarter on Feb. 17. Wall Street expects earnings of 27 cents a share on revenue of $1.06 billion, according to analysts polled by Thomson Reuters.

Shares of Nvidia closed Friday's regular trading session at $14.90 on Nasdaq.