Nvidia Falls Most in Two Months on Concern Over Tablet, Phone Competition

Nvidia Corp. (NVDA), a maker of graphics chips, fell the most in two months after an analyst downgraded the stock on concern price pressure may weigh on gross margins and that tablet competition may increase next year.

The stock fell $1.46, or 7.1 percent, to $19.04 at 9:57 a.m. New York time in Nasdaq stock market trading, after dropping 8.9 percent for the largest intraday decline since Feb. 22. The stock had gained 33 percent this year before today.

Competition in the tablet computer and smartphone markets will accelerate next year, Rajvindra Gill, an analyst at New York-based Needham & Co., said in a research note downgrading the stock to “hold” from “buy.” He also said the growth rate in the core graphics processing business is declining and Nvidia’s Tesla chip is facing slow adoption.

The company yesterday forecast second-quarter sales that exceeded analysts’ estimates, as a new microprocessor from Intel Corp. (INTC) helped fuel demand for more expensive personal computers. Revenue in the current period will rise 4 percent to 6 percent from the first quarter to as much as $1.02 billion, Santa Clara, California-based Nvidia said in a statement. That compares with an average analyst estimate of $990.4 million, according to a Bloomberg survey.

Nvidia is trying to lessen its dependence on chips used in PCs with a push into processors for mobile phones and tablet computers. That business, based on a chip called Tegra, began to take off this quarter, said Chief Executive Officer Jen-Hsun Huang.

A gross margin between 50.5 percent and 51.5 percent is the “right level,” because it allows for a “healthy balance between growth and profitability,” Karen Burns, interim chief financial officer at Nvidia, said yesterday on an earnings conference call.

To contact the reporters on this story: Danielle Kucera in New York at dkucera6@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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