Nvidia – NVDA
NVIDIA was founded in 1993 and its headquarters are in Santa Clara, CA, USA. It operates in 3 segments: a) graphic processors for the desktop and notebook industry with GoForce as the key product, b) Professional Solutions Business (PSB) through the Tesla product line, and c) Consumer Product Business (CPB) with its Tegra processors.
Nvidia is a leading designer of programmable graphics chips that enhance the interactive consumer experience on PCs and mobile applications. In particular, Nvidia is one the industry’s key suppliers of computer graphic processing units, or GPUs, with particular emphasis on the high end of the market. The company’s assembled products are sold on a worldwide basis as pre-installed hardware items or as product upgrade pieces.
Nvida’s business requires constant innovation to keep ahead of its major competitors such as Texas Instruments, Qualcomm, AMD, and in the low-price segment, Intel. Furthermore, the business is very competitive and the market is demanding faster and faster adaptation as product cycles become shorter than ever.
With the stagnation in the desktop and laptop market, a shift to miniaturized items for the fast growing area of mobile and tablets has been necessary. This field is largely controlled by Motorola, Samsung, and HTC. The Tegra chips product line was developed and implemented for this purpose. On the other hand, Nvidia developed the Tesla product line which can handle mathematically intensive graphics requirements used in the field of supercomputing applications. This segment is largely an untapped market as scientific and industrials are lacking high-end merchandise in this field.
More recently, the company designed and put forward SHIELD, a portable gaming device based on Tegra 4 and GRID, a server dedicated to graphics processing for applications such as cloud gaming and computer-aided design via a network. This is another segment where quite substantial market potential exists and which eventually could boost the business for stand-alone graphic cards.
Nvidia’s business, and as a result its profits, are highly cyclically. While Nvidia has an excellent reputation, it holds no major competitive advantage over the industry competition; it is strong in some segments and weak in others. In this industry, not only is a firm’s R&D budget allocation highly important, but more importantly, the outcome must meet with an immediate market need and strong take-up. One wrong development can mean the company loses out on one complete business cycle and could put the future of the company in jeopardy.
The traditional CPU market has entered into a pure replacement cycle. As end user’s still have not seen the potential of the Tegra and Tesla product lines, the impact (to the balances sheets) of these products is still limited. So they are either in the early market phase or late embryonic phase (e.g. SHIELD and GRID). Therefore, all things equal, at present significant market share growth is little likely.
Strengths and weaknesses analysis / Fundamental analysis:
Strengths:
- Nvidia’s management has an excellent long-term perspective,
- The legal settlement with Intel, and subsequent cross-licensing opportunities could open new avenues for Nvidia,
- Declining PC utilisation is offset by chipset sales for mobile and handset applications,
- The Tesla product line could be the driver of a new growth opportunity,
- While the competition is stiff amongst the present market leaders, the possibility of new providers joining the peer group is unlikely due to the high complexity of graphic processors and the large R&D budget company’s allocate to defend their business.
Weaknesses:
- Because the CPU market has entered into a replacement cycle only, Nvidia’s growth potential is presently limited,
- Nvidia’s business is highly cyclical and therefore profits are subject to strong fluctuations,
- Extremely short product cycles and stiff competition make it impossible for one graphic card designer to stay in a leadership position for too long.
Company profile, investment opportunity and asset management integration:
| Metric | Rating |
| Operational risks: | Well above average |
| Expected growth: | Below average |
| Long term value creation: | Excellent |
| Positive competitive advantage: | Above average |
| Management excellence: | Average |
| Financial strength: | Well above average |
| Investment orientation: | Group “Best-in-Class”: US-Technology |
Price ranges:
| Buy: | Only forcustomers |
| Sell | Only forcustomers |
| Stop-loss: | Only forcustomers |
| Fair-value: | Only forcustomers |