NVIDIA Corporation ( NVDA ) is scheduled to announce its fourth quarter 2012 results on February 15, 2011, after the market closes. We see some movement in the analysts' estimates at this point.

Third Quarter Overview

NVIDIA reported decent third quarter 2012 adjusted earnings of 31 cents per share, significantly ahead of the Zacks Consensus Estimate of 26 cents. 

The company witnessed revenue growth across all its segments, with GPU business inching up 1.0% from the prior quarter. The gain was posted despite a $47.3 million decline in the chipset business, which the company intends to dispense with going forward. Professional business delivered revenues of $230.3 million, up 9.5% sequentially riding on the growth in Quadro professional graphics products. The Consumer business increased 14% sequentially.

Gross margin on a GAAP basis was 52.2% versus 51.7% in the previous quarter and 46.4% in the year-ago quarter. Gross margin exceeded the company's expectations during the quarter, primarily due to strong demand in the high-end segments of the company's desktop GPU products.

Fourth Quarter Outlook

For the fourth quarter of fiscal 2012, NVIDIA now expects fourth quarter 2012 revenue to be $950.0 million (+/- 1.0%), compared with the original expectation of $1,066.0 million (+/- 2.0%). The guidance reflects 10% to 12% sequential decline.

Agreement of Analysts

Out of the 25 analysts providing estimates for the fourth quarter, 22 analysts revised their estimates downward over the last 30 days, while there were no upward revisions. Again, for fiscal 2012, 21 analysts revised their estimates downward, while no one moved in the opposite direction. Further, for fiscal 2013, 21 analysts revised their estimate downward over the last 30 days while no upward revision was witnessed.

Some analysts believe that the demand for PCs is seasonally weaker in the near term and while HDD supply is improving, we believe that the PC demand will remain sluggish.  Also for NVDA, usage of Tegra 2 in tablets is slowly coming down, and while the company could have new Tegra 3 design wins into tablets, analysts believe that the improvement in production of the new tablets in the April quarter will not be as material.

Moreover, analysts are also of the opinion, that with Advanced Micro Devices ( AMD ) increasing the production of 28-nm Radeon HD7970, which delivers 5-30% better graphics performance than competitor GPUs on the market, coming in combination with the integrated APU Llano and Intel Corp.'s ( INTC ) Ivy Bridge-Haswell, may influence some structural challenges in the GPU market.

Magnitude of Estimate Revisions

We notice that the Zacks Consensus Estimate for the fourth quarter has declined by 8 cents to 19 cents in the past 90 days. On the other hand, the Zacks Consensus Estimate for fiscal 2012 has reduced by 7 cents. The Zacks Consensus Estimate for fiscal 2013 has plunged by 16 cents over the past 90 days to 92 cents.

Recommendation

The company has delivered decent third quarter results with EPS surpassing our expectations. The expected decline in PC demand may affect the demand for graphics card business of NVIDIA. The company expects to benefit from the integration of the new Tegra 3 into tablets; however, production of the new tablets in the forthcoming quarters will not be as material.

Moreover, the recent acquisition of data chip manufacturer Icera will add value to its product portfolio. The newly introduced NVIDIA PhysX technology will likely attract more gaming customers. However, NVIDIA's performance may be tempered slightly by the economic slowdown in Europe and increased competition.

Again, products developed through the collaboration of Intel and AMD may influence structural changes in the GPU market, which may have a negative impact on the company

Currently, NVIDIA holds a Zacks #4 Rank, implying a short-term Sell rating.