Slow Demand in China for Nvidia

Nvidia (NASDAQ:NVDA) could potentially see some of its sales hampered due to technological advances that Intel (NASDAQ:INTC) and AMD (NYSE:AMD) have made in recent times. An analyst from Pacific Crest has noted that Nvidia’s Q2 2011 sales in China have slowed down, ^[1] and who is to blame? It looks like Intel is having some success with its Sandy Bridge processors which are serving as a replacement for low-end Nvidia GPUs. ^[1] But it might not stop there. If AMD experiences success with its own hybrid chips, it could further make a dent in Nvidia’s low end sales. This looks like bit of trouble, but should investors be concerned?

It is estimated that China accounts for 35% of Nvidia’s revenues. ^[1] However not all of this comes from the discrete graphics business. We estimate that about 20% of Nvidia’s value is attributed to discrete GPUs. If we assume the similar proportion for these, discrete GPUs in China will constitute about 7% to Nvidia’s stock and thus, a relatively smaller value. We are not changing our forecasts quite yet and will investigate further once a clearer trend emerges.

Our price estimate for Nvidia stands at $21.25, implying a premium to market price.

See our complete analysis for Nvidia’s stock here

1. Nvidia: Intel’s Sandy Bridge Hits GPUs In China, Says Pac Crest, Barron’s, June 9 2011 [↩] [↩] [↩]