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Nvidia warns of chip supplies and loss of Samsung

By Noel Randewich

SAN FRANCISCO (Reuters) - Nvidia Corp warned that delays in ramping up new manufacturing technology are affecting sales of its PC graphics chips and that smartphone chip-customer Samsung Electronics has become a rival.

Anxious to move beyond its traditional business of designing graphics chips for personal computers, Nvidia has jumped into mobile devices and late last year unveiled its new Tegra 3 processor.

On a conference call with analysts following Nvidia's fourth-quarter report on Wednesday, Chief Executive Officer Jen-Hsun Huang said short supplies of cutting-edge 28-nanometer semiconductors as its contract manufacturer TSMC adapts to the new technology were also hurting sales of Nvidia's PC graphics chips, or GPUs.

"New generations of smartphones, new generations of GPUs are going to drive the demand for 28-nanometer capacity. ... And so I think you're going it find that this year is going to continue to be tight," he said.

Huang stepped back from his previous goal of reaching $1 billion in sales of Tegra mobile chips in 2012, telling Reuters in an interview that one-time mobile chip customer Samsung Electronics has become a competitor.

He said revenue from Tegra last year was $360 million and that he expects to grow it at last 50 percent this year.

Samsung manufactures processors for Apple's iPhones and iPads and also makes smartphones that compete against Apple.

"It's a changing world. Samsung is now a direct competitor to us. They've been building processors for Apple for some time. ... And surely they've learned quite a bit and they're applying what they've learned for their own phones," Huang said.

Apple accuses Samsung of "slavishly" copying its tablet and smartphone technology and the two companies are involved in multiple lawsuits.

Nvidia also warned that a hard drive shortage caused by flooding of factories in Thailand last year would keep the PC industry from growing this year, but that Nvidia would gain some market share.

WAIT AND SEE

With competitors Texas Instruments Inc and Qualcomm Inc turning up the heat with their own new mobile processors, investors have been waiting to see if the Tegra 3 chip finds its way into a top-selling device.

"The bottom line is the stock has moved a lot on anticipation of Tegra growth and they haven't seen it yet, and they're certainly not guiding on it," said Evercore Partners analyst Patrick Wang.

Nvidia had some successes early in 2011 with its Tegra 2 chips appearing in tablets made by and LG Electronics, although sales have grown less quickly than many investors had expected.

Sales of Nvidia's Consumer Products group, which includes the Tegra chips, fell 42 percent sequentially to $110 million in the quarter. That was due to a drop-off of Tegra 2 sales ahead of the launch of devices using Tegra 3 chips, Nvidia said.

Sales at its consumer GPU group and its Professional Solutions group, which includes graphics chips used in workstations, each dipped 4 percent sequentially in the fourth quarter, hurt by the hard drive shortage.

Nvidia said revenue in its fiscal first quarter would be between $900 million and $930 million compared with analysts' average forecast of $944.63 million.

Nvidia also guided for an April-quarter gross margin forecast of 49.5 percent, plus or minus 1 percentage point, less than the 52.1 percent expected by analysts.

The company's shares were down 4.2 percent in extended trading after closing down 0.4 percent at $16.17 on Wednesday.

Nvidia said it had fourth-quarter net income of $116 million, or 19 cents per share, compared with $172 million, or 29 cents a share, a year ago. Analysts had expected 19 cents per share.

Nvidia said revenue for the quarter ended January 29 was $953 million, up from $886 million a year ago and slightly above analysts' average estimate of $950 million, according to Thomson Reuters I/B/E/S.

(Reporting By Noel Randewich; Editing by Tim Dobbyn, Phil Berlowitz and Richard Chang)

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