31 July 2010

NVDA: Revenue Shortfall Warning

On 12 August 2010 NVIDIA (NASDAQ: NVDA) will report its results for fiscal 2011's second quarter, which will end on 1 August 2010.  However, NVIDIA has already announced that Revenue in the quarter will be much less than the guidance the company provided on 13 May 2010.

The guidance, issued in conjunction with first quarter results, had been to expect second-quarter Revenue 3-to-5 percent below the first quarter's $1.0 billion.  These percentages translated into a Revenue guidance range of $950 million to $970 million.

NVIDIA's press release dated 28 July 2010 states that Revenue is now estimated at only $800 million to $820 million.  In other words, Revenue in the second quarter will be 18 to 20 percent less than Revenue in the first quarter.

They blamed the revenue shortfall on "increased memory costs and economic weakness in Europe and China [... that ...] led to a greater-than-expected shift to lower-priced GPUs and PCs with integrated graphics."

NVIDIA did not identify how the revenue shortfall would affect its bottom line, but we have made a (very) rough estimate.

In our "look-ahead" for NVIDIA's current quarter, posted 1 July 2010, we used the midpoint of the company's original Revenue guidance to forecast earnings of $120 million ($0.20 per share).

We have now revised our Income Statement model to reflect NVIDIA's lower estimates for Revenue.  We also reduced the expected Gross Margin from 46.5 percent to 41.5 percent because slumping sales often lead to production and distribution inefficiencies.  The 41.5-percent figure is just a guess. 

We assume there will be some minor savings in revenue-dependent marketing costs.

Leaving most other assumptions unchanged, our new estimate for the quarter is Net income of $35 million ($0.06 per share).

Please click here to see a full-sized, normalized depiction of the projected results next to NVIDIA's quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

Full disclosure:  Long NVDA at time of writing. 

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