Nvidia (NASDA:NVDA) reported its Q2 fiscal 2012 earnings and surprisingly, Sandy Bridge’s impact did not appear to be significant. Intel’s (NASDAQ:INTC) launch of Sandy Bridge processors, which are hybrid of CPU and GPU, earlier in the year cast some doubt over Nvidia’s graphics business. However it now seems that these processors are mainly impacting the integrated graphics business. AMD’s (NYSE:AMD) launch of Llano will perhaps be no different and Nvidia will still continue to flourish in the discrete GPU business.
While desktop GPU revenues were down slightly compared to last quarter, the notebook GPU segment exhibited strong growth. This growth was a result of combination of gain in market share and increased attach rates of discrete notebook GPUs despite the launch of Sandy Bridge. Attach rates refer to the proportion of notebooks sold with discrete GPUs.
These attach rates increased from 33% to 36% for notebooks while overall attach rates remained constant.  This implies that the impact of Sandy Bridge is not that significant overall.
In fact, Nvidia has leveraged the Sandy Bridge launch in a way that the combination of Sandy Bridge CPU and Nvidia’s discrete GPUs provides very compelling performance at a reasonable price. Additionally, data from Mercury Research indicates that Nvidia’s share in discrete notebook GPU market increased by 9% compared to last quarter. We now expect Nvidia’s share for the full year 2011 to amount to close to 47%.
Our price estimate for Nvidia stands at $20, implying a premium of about 50% to the market priceNotes: