 |
| Intel Sandy Bridge Processor |
Some exuberance on NVIDIA (NVDA) is justified based on the news that Dell (DELL) will use a NVIDIA core in its phone. We do not argue that this development may be a game changer if NVIDIA can muster design wins with popular phone manufacturers. But this is only a speculation at this point. After all, Dell is nobody in the cell phone business.
NVIDIA’s prospects in the tablet business are less speculative and certainly a reasonable reason for some exuberance. However, investors do not seem to be taking into account that this will be a lower margin business. Investors also seem to be drastically underestimating the depth of potential losses in the existing graphic chip business.
The strategy of Advanced Micro Devices (AMD) of integrating more and more graphics capabilities on x86 processor chips has been obvious since Advanced Micro Devices acquired NVIDIA’s main competitor, giving it a significant edge.
In a further development, our analysis shows that ‘œSandy Bridge’ microprocessors from Intel (INTC) will significantly cannibalize stand-alone graphics chips from Advanced Micro Devices and NVIDIA. There are reports of a two-fold improvement in graphics, measured as frames-per-second rendering, versus the prior ‘œClarkdale’ integrated graphics processor from Intel.
The ‘œQuickSync’ video trans coder in Sandy Bridge from Intel makes video processing twice as fast as the most expensive graphics chips from NVIDIA and Advanced Micro Devices.
As a result, the stand-alone graphics processing unit market will shrink by as much as 50%, which is a negative for Advanced Micro Devices and NVIDIA. Intel’s deal with studios to download movies is yet another negative for NVIDIA. Advanced Micro Devices is much better positioned than NVIDIA.
Investors in NVIDIA seem to have disregarded the most probable scenario — profits from the new business will roughly equal the loss of profits from the traditional business .
We will take advantage of this over-exuberance by starting to lightly scale in a short position in NVID1A on up spikes. We will get progressively more aggressive if the stock price goes higher.
