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Nvidia (NVDA)
NVDA Shares Tumble after Warning of Lower-than-Expected Revenues
In last Thursday's trading Nvidia, the world leader in visual computing technologies, shares plummeted over 30% after the company warned that revenues and gross margins would be below expectations for the second quarter. The revised revenue expectations are now estimated between $875 million to $950 million, down from its May 8th, 2008 projection of $1.08 to $1.11 billion. Nvidia did not provide any specific numbers of the gross margins expectations. Previously analysts projected second-quarter earnings of 34 cents a share on sales of $1.1 billion. Are these revised expectations a reflection of end-market weakness around the world and increased competition or are they caused by product delays and overall company failures? Can Nvidia share prices rebound from this dramatic fall?
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Nvidia's announcement worried investors that other semiconductor companies would follow suit issuing their own forecasts regarding quarterly earnings. Shares fell across the industry as investors ditched many computing technology stocks. The Philadelphia semiconductor index fell 2.7% in early trading before recovering to end down .6%. The index has fallen over 11% in this year to date. Nvidia's competitors also suffered losses on Thursday. Advanced Micro Devices' (AMD: Charts, News, Offers) shares closed down 2.6% while Intel (INTC: Charts, News, Offers) shed 27 cents falling 1.3% on the day. PowerShares Dynamic Semiconductors (PSI: Charts, News, Offers) suffered similar losses down 1% on the day. While the company attributed a portion of their lowered expectations to global end market weakness, analysts refrained from changing their sales expectations for the personal computer market maintaining that it was too early to tell.
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Separately, Nvidia announced that it anticipates taking a one-time charge from $150 million to $200 million against its second quarter revenue to cover return, replace, warranty, and repair costs among others spurring from poor packaging and die material used in selected versions of its previous generation MCP and GPU products which operated in notebook computers. Certain configurations of these notebooks are failing at higher than normal rates. Nvidia president and CEO Jen-Hsun Huang stated, "Although the failure appears related to the combination of the interaction between the chip material set and system design, we have a responsibility to our customers and will take our part in resolving this problem." In addition, Nvidia has begun discussions with its packaging supplier regarding this material and will seek access to insurance coverage over this matter.
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Nvidia President and CEO summed up his comments saying, "...the lessons we've learned will help us build far more robust products in the future, and become a more valuable system design partner to our customers. As for the present, we have switched production to a more robust die/package material set and are working proactively with our OEM partners to develop system management software that will provide better thermal management to the GPU." Analysts have given mixed reviews on the future of Nvidia share prices with some seeing opportunities for long term growth while others claim that Nvidia will not be able to fix its production and supply problems anytime soon. Nvidia share prices have remained relatively stable through Monday morning trading. The company's second quarter ends on July 27th and are expected to release their quarterly report on August 12th.
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