NVIDIA Corporation (NASDAQ:NVDA) had a tough time last year, and the stock tumbled more than 15%. However, the stock has performed better so far this year. It bucked the industry trend, and posted annual revenue growth for fiscal 2013. NVIDIA’s revenue for the year touched $4.3 billion, and it also managed to increase its market share in key business segments.
NVIDIA to lure gamers
While the semiconductor segment is struggling, NVIDIA is rather well placed to weather the storm. A major portion of revenue comes from mobile chips, and now the company is revamping its business structure as well. With its GeForce line, NVIDIA is looking to capture the gaming market. The top two gaming consoles, namely the PlayStation and the Xbox, rely upon Advanced Micro Devices, Inc. (NYSE:AMD) for their GPU requirements.
AMD’s deal with Sony for PS4 was seen as a major win for the company, as such console deals provide GPU companies with visibility. However, AMD is not expected to make substantial financial gains, as such deals work on razor thin margins.
Instead of competing directly with Advanced Micro Devices, Inc. (NYSE:AMD) by trying to poach the console makers, NVIDIA Corporation (NASDAQ:NVDA) is looking to tackle the market in a new way with its Project Shield. As demonstrated during the latest edition of Consumer Electronics Show, the company plans to launch its gaming console, directly competing with handheld devices such as the PSP.
The console will come equipped with the Tegra chip, which ironically was the reason for NVIDIA’s withdrawal from supplying GPUs to Sony Corporation (ADR) (NYSE:SNE) and Microsoft Corporation (NASDAQ:MSFT). The company was willing to augment its mobile chip business and focused on developing the Tegra line. Now, it is using the product of its strategy to capture the gaming segment in a different way. The device is set to be launched in the second quarter.
At this point, it is difficult to quantify the impact of the launch on the company’s top line as NVIDIA Corporation (NASDAQ:NVDA) did not disclose pricing. However, in any case, the new development will help in vertical integration and open new avenues to grow. NVIDIA’s GTX Titan also sold out, again a good omen for the company.
Good start to the year with Tegra 4 family
The stock has finally snapped out of its loss making streak and is in positive territory for this year so far. In Q1, the results are expected to be flat, owing to the cyclical nature of the business. However, NVIDIA improved its margins in the previous year, which is a good sign for a company engaged in otherwise struggling segment.
Its new Tegra 4 processor is also winning rave reviews, and is expected to perform well when it hits the market in the second quarter of the year. NVIDIA has a firm grip on the tablet market, which is expected to show CAGR of 18% through 2016, according to a report released by IDC. With Tegra 4i Mobile chip, the company is also expanding its reach in the LTE market, where it has been lagging so far.
QUALCOMM, Inc. (NASDAQ:QCOM) is an undisputed leader in the LTE chip segment, with 86% market share in 2012. The company recently announced the launch of a new global LTE chip, which will make it easier for the smartphones to make transition over different 4G protocols.
With Tegra 4i, NVIDIA Corporation (NASDAQ:NVDA) is finally in the position to challenge the stronghold of Qualcomm, despite the fact that it will receive stern competition not only from Qualcomm, but also from Intel Corporation (NASDAQ:INTC), which is planning for a whole new range of Atom based processors to capture mobile computing segment.
Tegra 4i comes with various new features including integrated modem. Apparently, the chip may be embedded in cameras to enhance their performance. In this way, the chip is more versatile than its Qualcomm counterpart Snapdragon. However, Qualcomm is on the verge of releasing new Snapdragon 800 series, which is expected to provide tough competition to Tegra 4i.
Conclusion
NVIDIA Corporation (NASDAQ:NVDA) now clearly divides its business in Tegra and GPU segments. The new classification will help it in focusing its resources and plan in a better way. With just a 4.71% gain so far in the year, the stock is still underperforming broader markets. Despite strong results and a healthy product pipeline, the market seems to have unwarranted pessimism towards the stock.
The company has paid dividends to return value to investors. It also has a share buyback program in place, though, it has not made any such repurchase since 2008. Its stock trades at a P/E ratio of 14, lower than industry standard, and shows that the stock has good upside to it. Its new soon to be released product may just turn out to be the right kind of catalyst to propel its share price upward.
The article Is This Technology Company on the Path to Recovery? originally appeared on Fool.com and is written by Sujata Dutta.
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