Shares of nVIDIA soared 33% to $21.37 on Friday on expectations that Microsoft is accelerating orders for the chips used to power its Xbox video game console. Late Thursday, Nvidia reported a 31% plunge in revenue for its fiscal first quarter resulting partly from a slowdown in demand from Microsoft. "Xbox-related revenue dropped more than $43 million," said Jen-Hsun Huang, Nvidia's chief executive and president, during a late Thursday conference call. "But the company expects it to ramp up significantly over the next two quarters in preparation for the holiday season."
"Things are getting better," says Schafer of CIBC. "Our checks reveal that Xbox is ramping up a quarter before expectations. It usually has a bad first quarter, then ramps up in the second half of the year. And while most people expected Xbox would start buying Nvidia's chips in July, they're starting to buy now. Roughly two-thirds of the upside on the Nvidia guidance is from improved visibility from Xbox. The other third is that Nvidia is commanding the low end of the graphics-processing-unit markets."
"Three things are driving the second quarter," says Rick Schafer, an analyst at CIBC World Markets. "Xbox is ramping up earlier than planned, the NV35 is shipping in early June and should arrive early in the quarter and, finally, Nvidia controls the mainstream part of the market." Chief Executive Jen-Hsun Huang said the company will launch its new graphics chip, code-named 'NV35,' next week at the E3. It will replace the company's prior top-end product, code-named NV30 (GeForce FX), which Huang said was unsuccessful.
News source: Team Xbox
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