Nvidia Shares Fall After Robust 3Q Results, Mediocre Outlook

on November 09 2012 2:28 PM
NVIDIA Tegra 3
NVIDIA Tegra 3 NVIDIA

Shares of graphics chip specialist Nvidia Corp. (Nasdaq: NVDA) fell slightly after the company reported better-than-expected third quarter results and announced an initial dividend.

In late trading, shares of the San Jose, Calif., chip designer fell 38 cents to $12.30. They're off 10 percent for the year and 13 percent for the past 52 weeks.

Besides a home in laptops and PCs, Nvidia Tegra chips over the past year have been installed in supercomputers, including Titan at the Oak Ridge National Laboratory in Tennessee. About 90 percent of that computer's processing power comes from the Tegra.

That's exactly the intent of co-founder and CEO Jen-Hsun Huang, who wants to diversify out of low-margin consumer products to higher-margin servers and professional ones.

“Investments in new growth technologies paid off this quarter,” he said.

The diversification is “quite impressive,” said Hans Mosesman, analyst with Raymond James, who maintained a “strong buy” recommendation on the shares.

Nvidia reported third-quarter net income rose 17 percent to $209.1 million, or 39 cents a share, from $178.3 million, or 39 cents, a year earlier. Revenue rose 13 percent to $1.2 billion.

Huang also offered a moderate forecast for the current quarter. Revenue could reach $1.175 with flat gross margins, which could explain why shares fell slightly Friday.

For the first time, Nvidia will use some of its cash pile – $3.43 billion – in the quarter ended Oct. 28, for a quarterly dividend of 7.5 cents, or 30 cents a year. The initial payment will be on Dec. 13 to shareholders of record as of Nov. 23, the company said.

Meanwhile, Jefferies analyst Mark Lipacis maintained a “hold” rating on the shares with a price target of $14, noting there is intense competition in the semiconductor sector now. Tegra is especially well-placed to catch on with new Microsoft (Nasdaq: MSFT) Windows 8 RT tablets, he said.

Only a handful have been announced but if the new OS becomes a success, that could be a major hit for Nvidia over time, he said.

Nvidia's market capitalization is $7.7 billion.

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