Nvidia a company in transition say analysts

FINANCIAL ANALYSTS came away from Nvidia's briefing yesterday saying the firm is still very much in transition and that, despite optimism about products from Tesla at the supercomputerish high end to Tegra at the mobile low end, an investment in Nvidia shares is still somewhat of a gamble right now.

Industry analysts said Nvidia was shifting its focus from one heavily based on discrete graphics to a much more diversified approach to multiple customer markets.

As both Intel and AMD close in on a combined CPU-GPU offering, Nvidia is being forced onto the defensive, having to push the capabilities of its own discrete GPU chips and encourage punters that it's worth splashing out for the extra silicon, something the firm may well find to be a tough sell, which might require it to slash its margins to remain competitive.

The Green Goblin's new CFO, David White, apparently neither confirmed nor altered financial guidance and also refused to comment on current market conditions, but he did set out a three step roadmap for gross margin improvement, hoping to to reach the 37 to 39 per cent range within two to three quarters. For this projection to pan out, however, Nvidia will have to rely heavily on shipments of its 40nm parts rising to 70 per cent of total sales, along with the hope that commercial spending on its high-end Quadro parts will right itself pronto. A tall order by all accounts.

Analysts said they expect Nvidia to meet its margin guidance of 32 to 34 per cent for the July quarter, but said the top line remained too early to call and that most margin gain would come from the completion of inventory clearing. The financial soothsayers also noted that their research suggested an "impending share loss" beginning in the third quarter, accelerating in the fourth quarter and first quarter of 2010 under further average selling price (ASP) pressures.

Financial sources went on to say that, whereas Nvidia is almost sure to see a jump in gross margin this quarter, overall there remains a concern that the firm's market share could shrink over the next several quarters as computer system sales might shift toward lower-end systems.

Nvidia told analysts it was putting a lot of faith into "co-processing" and CEO Jen-Hsun Huang emphasized his firm's determination to diversify by aiming for a future product mix of Tegra at 50% of sales and GeForce 25% to 30%, with Quadro and other professional kit making up the balance.

Ion appears to be gaining traction, Nvidia said, with over 20 current design wins and another 40-plus apparently in the pipeline, making it Nvidia's fastest growing segment.

Huang admitted to having had yield problems with chipmaker TSMC, but added that 40nm products are now well on their way, although the firm's first 40nm GPUs will be based on older GT200 architecture. Still, the 40nm die shrink has the advantage of having adopted GDDR5 in the GTS series cards, which should deliver lower power consumption and souped-up performance.

More importantly for Nvidia, with 100 design wins for its new 40nm chips already under its belt, the firm may regain some of its market share against Intel's upcoming Calpella platform. Nvidia just better hope its supplies won't be too limited.

Another thorn in Nvidia's side is the fact AMD seems to be well ahead in DirectX11 support, with estimates of its lead ranging from between three to nine months. Resolution of the Intel chipset litigation will also be pretty critical for Nvidia if it doesn't want to put its Ion roadmap at risk by waiting for Intel's Westmere architecture to tip up in 2010. µ