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Tough times for nVidia and Texus Instruments

Mobile-phone revenues down, chip sector tough

Lingering concerns about mobile-phone revenue and the chip sector are weighing on nVidia and Texas Instruments this week.

Despite an upbeat forecast for global laptop sales, lingering concerns about mobile-phone revenue and the chip sector are weighing on nVidia and Texas Instruments this week, as IT managers remain cautious about spending on IT.

nVidia shares dropped to a three-year low yesterday as Lehman Brothers became the latest investment bank to reduce its rating on the company's stock, cutting its price target from $15 to $12. Under pressure as AMD becomes a serious rival in graphics chips, Nvidia suffered a $120,929 net loss last quarter as revenue dropped to $892 million from $935 million in 2007. Based on recent meetings with management, it might take longer than expected for the company to bounce back, Lehman said in a research note.

nVidia is not helped by a lawsuit, filed in a California court this week which charges that the company concealed the existence of a serious defect in its graphics chips. Nvidia closed Thursday at $10.30, down by $0.52.

nVidia is also labouring under an uncertain outlook for chips globally. Holding meetings this week with Asian manufacturers, the Citigroup semiconductor team wrote in a research note that "while evidence from the PC supply chain is mixed, on balance data points are more negative than positive". In the specialty chip sector Citigroup noted, among other things, "weak back to school order chatter" and "potential cracks in the handset space."

The report came out a day after Gartner reported that smartphone sales decelerated in the second quarter. Though 32.2 million smartphones were sold, up 16 percent from a year earlier, Gartner stressed that was a drop from growth over previous years. In the 2007 quarter, for example, smartphone sales rose 55 percent from a year earlier.

Texas Instruments, meanwhile, tightened its sales forecast for the current quarter, to between $3.33 billion and $3.47 billion. The upper end of the forecast was brought down from a prior estimate of $3.54 billion. "We came into this quarter with a subdued outlook for wireless," investment relations spokesman Ron Slaymaker said in a conference call. TI shares dropped from $22.38 to close at $21.71 Tuesday, climbing slowly back up over the next few days.

Against this backdrop, some sector consolidation may occur, especially in niche semiconductor markets. On Thursday, for example, Vishay Intertechnology, which makes discrete semiconductors and passive components, increased its all-cash offer for rival International Rectifier by 8.4 percent to $1.7 billion.

On the corporate buyer side, the weak economy is affecting IT spending at nearly half of large enterprises in North America and Europe, according to a Forrester Research poll released Tuesday. The poll, of about 950 senior IT managers, found that 43 percent of companies have slashed their overall IT budgets this year.

Not all was gloom and doom this week. Though the financial markets are roiling from a series of crises, fanning worries about consumer spending and corporate profits, IDC increased its projections for 2008 world PC unit growth from an already healthy 15.2 percent in its June forecast to 15.7 percent. Low-cost laptops such as the Asus Eee PC helped fuel Western Europe PC sales by 60 percent over the second quarter of 2007, and are expected to boost growth for the remainder of 2008, IDC said.

See also: nVidia 'misled' public over graphics chip defects

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