NVIDIA (NVDA) Reports Strong Q3 Numbers; Analysts Mixed on Results

NVIDIA Corp. (Nasdaq: NVDA) is trading higher ahead of the opening bell Friday, following strong third-quarter earnings from the GPU titan.

After the market closed Thursday, NVIDIA reported adjusted net income of 35 cents per share on revenue of $1.017 billion, versus consensus views calling for net income of 26 cents per share and revenue of $1.07 billion.

GPU revenue for NVIDIA increased 1 percent to $644.8 million.

Following the numbers, analysts issued comments:

• Goldman Sachs is still cautious following the report, saying NVIDIA "will continue to struggle to drive significant earnings leverage given a lack of scale in its mobile business and ongoing OpEx increases."
  
  Risks to guidance come from HDD supply constraints from Thai floods, which Goldman says could make its way into early 2012. Further, Goldman said, "Over the longer term, we remain concerned that NVIDIA may not be able to drive enough scale in its mobile business to justify the significant investments it is making to support new customers – and we note that the company appears to be losing traction in key accounts (such as Motorola and Samsung) even as it gains other new design wins."
  
  Goldman currently rates NVIDIA at Neutral, with a price target of $14.
  
  
• Wedbush is more bullish on prospects for NVIDIA, suggesting investors grab additional shares given "NVIDIA will benefit from (1) Tegra 3 ramp, (2) increasing silicon footprint from Icera acquisition, (3) stable GPU attach rates and market share gains, and (4) a very healthy balance sheet bolstered by strong generation of CFFO."
  
  The firm was also surprised with guidance, saying "NVIDIA expects FQ4 to continue to be driven by desktop GPUs from a multi-year PC cycle and continuing Quadro strength."
  
  Wedbush has an Outperform and $18 price target on NVIDIA.
  
  
• Wells Fargo is also bullish on NVIDIA, saying its "GPU segment grew 1% sequentially during the October quarter. End of life integrated graphics (MCP) business declined $47.3 million on a sequential basis to $22.4 million. If we back this out of the GPU numbers, sequential growth of the continuing business was a solid 9%."
  
  On its outlook, Wells noted NVIDIA "expects Tesla and mobile revenues to be flat in the January quarter. Professional solutions revenue in this segment grew 10% sequentially and 10% year over year driven by record Quadro revenue stemming from solid demand for Fermigeneration products in enterprise markets as well as new growth for Quadro products in emerging markets, including Brazil, Russia, India, and China. Tesla revenue also increased sequentially."
  
  Wells currently rates NVIDIA at Outperform, with a valuation range of $15 to $18.
  
  
• Kaufman Bros. recommends buying NVIDIA following recent negative sentiment that drove share prices lower. Kaufman was impressed with quarterly revenue numbers. Looking ahead, Kaufman sees the Street moving fourth-quarter EPS outlooks more toward 28 cents per share, about 2 cents higher than current estimates.
  
  On GPU, Kaufman said, "Share loss in notebooks not as bad as some analysts have mistakenly broadcast; design-in activity for Ivy Bridge the highest in company history; and channel inventory said to be in good shape." For Tegra, "Tegra 3 has more wins than Tegra 2 did at this time in its ramp cycle (primarily for smartphones), and is ramping at multiple OEMs."
  
  For NVIDIAs fourth-quarter, Kaufman is "adjusting total revenue/non-GAAP EPS to $1.075B/$0.28 from $1.095B/$0.29 (the Street is currently at $1.076B/$0.26)." The firm currently has NVIDIA at Buy with an $18 price target.
  
  
• Deutsche Bank is taking the cautious route following earnings, expecting the Discrete GPU market to slow and "competition to remain fierce in apps processors...when combined with the elevated opex necessary to compete in the ultra-competitive AP/baseband markets, we believe EPS growth will prove challenging."
  
  Looking forward, Deutsche highlights some positive and negative risks, saying "The primary negative risks include macro-related risks such as slower PC unit growth, shift to lower-end products, and lower demand for game consoles. Company-specific risks include structural shift toward more integrated graphics, loss of market share in core GPU and Chipset business, competitive pressure from existing vendors (AMD) and potential new entrant (Intel), poor product execution, and lack of access to key IP. Positive risks are success in new emerging segment such as Handsets and High Performance Computing."
  
  Deutsche rates NVIDIA a Hold, with price target of $15.
  
  
• Jefferies said NVIDIA's third-quarter beat was driven by strength in desktop GPU, workstation, and Tegra, while notebook GPU declined sequentially. Though Jefferies is a little concerned about headwinds for GPU, it notes that shares are cheap at 1.6 times enterprise value-to-sales, versus 2.4 times for the group.
  
  Notably, Jefferies commented "we continue to believe as Intel and AMD aggressively transition to "ultrabook" form factors, it will become increasingly difficult for OEMs to fit power-hungry GPU in notebooks, regardless of the traditional discrete GPU upsell opportunity the company argues."
  
  On the flip side, Jefferies sees NVIDIA as in the best position to benefit from Windows-to-ARM deployments, particularly as the combination continues to gain traction in notebook form factors. Adding some caution, "we think there are multiple schedule risks associated with introducing a new PC architecture. We could become more constructive with visibility into progress in "Windows on ARM", or Tegra ramps into Smartphone/Tablet."
  
  Jefferies rates NVIDIA a Hold with $16 price target.

NVIDIA is up about 2.2 percent early Friday.

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