Nvidia profit view raised at FBR

FBR Capital Markets raised its profit estimate and price target of Nvidia (NVDA), a day after the graphics chip maker reported third quarter earnings that topped Wall Street estimates, despite declining from last year, and guided solid revenue growth for the fourth quarter.

California-based Nvidia makes graphics processing units (GPUs), which is a single-chip processor that creates lighting effects and transforms objects every time a 3D scene is redrawn.

For the quarter ended Oct. 31, Nvidia earned $84.9 million, or 15 cents per share, down from $107.6 million, or 19 cents per share, a year-ago. Revenue dropped to $843.9 million from $903.2 million last year.

The company's profit surpassed the 14 cents per share projected by analysts surveyed by Thomson Reuters, while revenue came in below their $844.04 million forecast.

We have turned the corner, said Jen-Hsun Huang, Nvidia's chief executive. We have restored our speed of execution and are regaining share in desktops. Only seven months after shipping our first processor based on the Fermi architecture, we have begun production on seven more GPUs...

For the fourth quarter, Nvidia said it expects revenue to grow 3 to 5 percent over the third quarter, indicating revenues of $869.2 million to $886.2 million. Analysts expect revenue of $866.06 million for the fourth quarter.

Nvidia's recent results reflect improved company execution and stabilizing product shipments, with Tegra potentially a large opportunity, FBR Capital Markets analyst Craig Berger wrote in a note to clients.

Tegra is a system-on-a-chip series developed by Nvidia for mobile devices such as smartphones, personal digital assistants and mobile internet devices.

The analyst raised his 2011 Tegra shipment forecast to 25 million units, at a $12.75 a chip, driving $320 million of annual revenues and contributing 20 cents of earnings per share.

Berger, who has a market perform, rating on the Nvidia stock, also raised his calendar 2011 GAAP earnings estimate to 55 cents per share from 40 per share. Wall Street expects the firm to earn 56 cents per share for the full year.

While we still have some concerns about the company's declining chipset business, and the impacts of Intel's SandyBridge and AMD's Fusion CPU architecture changes, Nvidia does seem to be carving out a niche in mainstream graphics, high-end professional graphics, and parallel compute processing (Tesla), and with Tegra ramping but still an unknown, Berger said.

We could become more favorable on the stock near $10 to $11 per share, or with evidence of real traction with its Tegra or Tesla products, said Berger, who also raised his price target on the Nvidia stock to $13 from $10.

Shares of Nvidia closed Thursday's regular trading session at $12.61 on Nasdaq. For the past 52 weeks, the stock has been trading in the range of $8.65 - $18.96.