Needham & Company Maintains an 'Underperform' on NVIDIA (NVDA) as Tegra Stalls Into the Future

Needham & Company maintains an 'Underperform' on NVIDIA (NASDAQ: NVDA).

Needham analyst says, "We maintain our rating on NVDA following an inline quarter/guide on the top line. While NVDA saw good discrete DT GPU and workstation sales, Tegra revs were up only 10% Q/Q in F3Q. After a big Tegra build in F1Q at ~$100MM (vs. $38MM in F4Q10), Tegra revs have stagnated during the last three quarters, and are forecasted to remain flat in F4Q. We find it concerning that the cadence of Tegra revenues is not as robust given the sheer number of tablet/smartphone design wins. In our view, NVDA is not well positioned in the higher volume smartphone segment (compared to TI and QCOM-N/R) & that Non-iPad tablets are not selling well. Moreover, with Tegra revenues approaching ~$420MM in FY12, we find it hard pressed that NVDA can achieve its stretch goal of $1BN of Tegra revenues in FY13 cited by NVDA in Sept. The competitive landscape will intensify in the tablet market with QUALCOMM (Nasdaq: QCOM) / TI (NYSE: TXN) gaining share, and pricing pressure will accelerate in the smartphone market driven by low-end smartphones. In order for us to be constructive on the stock, we need to see the following: 1) evidence of deeper penetration in the broader smartphone market; 2) a viable Non-iPad tablet ecosystem in 2012; 3) penetration into the ARM-based notebook market and 4) stable discrete GPU market. We see limited upside for the shares at ~$15, and see downside risk if Tegra estimates are reset for FY13."

For an analyst ratings summary and ratings history on NVIDIA click here. For more ratings news on NVIDIA click here.

Shares of NVIDIA closed at $14.47 yesterday.

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