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Storm clouds are gathering as NVIDIA faces a reinvigorated competitor

As the old saying goes, when it rains it pours.  NVIDIA was performing beautifully thanks to aggressive pricing and performance of its 8000 series of graphics cards.  It looked poised to leave competitor AMD (formerly ATI) in the dust.  However, the latest round in graphics war has marked a dramatic turnaround with AMD's 4850 and 4870 outperforming NVIDIA's offerings at a lower price

While NVIDIA still holds a tenuous grip on the highest end offerings, with its GeForce GTX 280 GPU, this might soon slip, depending on the performance of AMD's dual processor 4870 X2 (R700) card, likely coming in Q3 2008.  Meanwhile, NVIDIA faces challenges from Intel in its low-end and laptop graphics offerings, and from AMD's PUMA chipset/graphics package in the laptop market.

The economic repercussions of NVIDIA's slippage are already visible.  NVIDIA announced yesterday that it was going to turn in revenue of $875 million to $950 million for Q2 2008, which ends July 27.  This is significantly lower than the current analyst expectations of $1.1 billion.

That was not the end of the bad news from NVIDIA either.  It announced that it was facing a massive recall, due to overheating GPUs in notebook computers.  NVIDIA reported higher than average failures in both the laptop GPUs and in laptop chipsets.

NVIDIA said that the chips and their packaging were made with materials that proved to be too "weak".  NVIDIA passes the blame to notebook manufacturers, which it says contributes to the problem.  Typically notebooks have poorer ventilation and components concentrated in a smaller space than desktop computers.

The result of the recalls is that NVIDIA will be taking a onetime charge of $150M USD to $200M USD to cover the damages.  It plans to use the money to repair or replace defective parts.  It also hopes to collect part of the money from insurers it uses.  However, it has acknowledged its problems and switched the materials it uses.

The news has resulted in NVIDIA taking a beating on the stock market, sliding over 25 percent.

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By Amiga500 on 7/3/2008 1:04:43 PM , Rating: 0
Such as speculators forcing up commodities prices while adding no value to any given item.

But specifically here:

The news has resulted in NVIDIA taking a beating on the stock market, sliding over 25 percent.

Does anyone actually think Nvidia as a company are worth 25% less this week than they were 2 weeks ago?

Sometimes I think a time buffer of some kind should be built into the stock market to stop stupid knee-jerk reaction trading. No doubt a lot of the shares were dumped on the back of the original sale (post release) dropping prices.

By Dianoda on 7/3/2008 2:05:28 PM , Rating: 2
The actual value of company hasn't really changed much since 2 weeks ago, but the market didn't know what it was really worth then. NVIDIA's announcement brought the market new information, changing expectations regarding the firm's future earnings. The price of NVDA stock over the last two days shows strong support that the market is operating under the semi-strong form of the EMH (efficient market hypothesis), where the market price of the security reflects only publicly-available information. If NVIDIA had hinted to the market that something like this might happen, the market probably would never have overvalued the stock so much, and the dropped in price from today's announcement probably would have been better received by the market. In short, the stock's price was artifically higher than it should have been, due to non-disclosure (until now) by the company.

Also, yesterday as opposed to two weeks ago would probably be more accurate. NVDA is down 30% on the day. Ouch.

By TomZ on 7/3/2008 2:08:57 PM , Rating: 2
If you think the stock is oversold, then it's a great time to buy, right! That way, you can find out whether you are right or wrong with your own money on the line.

Buffer = regulation = inherently bad in this case. Better to just let the stock price move as the market sees fit. After all, where's the harm of large price swings. Also people don't just lose money on large price swings; they also make money as well.

By Amiga500 on 7/3/2008 5:35:41 PM , Rating: 2
After all, where's the harm of large price swings.

It results in stupid decisions being made by panicked people.

By kilkennycat on 7/3/2008 7:55:18 PM , Rating: 2
The smart individual investor in for the long term and very knowledgeable about the companies in which he/she invests can take advantage of the dumb activities by the big fund managers. 85% of nVidia's stock was (at least up to yesterday ) in the "capable hands" of big fund managers.... who are in total panic at the moment trying to put fingers in the dikes of their stock portfolios as the stock market dives.

Not a recommendation to specifically buy nV's stock. Just an observation.

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