The world’s largest gaming card manufacturer NVIDIA Corporation (NVDA) recently announced NVIDIA PhysX technology. This was first incorporated by Funcom’s Dreamworld 2.5, a leading game engine for massively multiplayer online games (MMOGs).
Dreamworld Engine 2.5 will help double the speed of in-game physics processing compared with the traditional client-side PhysX technology, which will help in delivering better time response and better manage the collision effect. Some of the most powerful gaming platforms supported by PhysX include Age of Conan and Anarchy Online, with a third, the Secret World, currently in development.
This is expected to create a new experience among gamers. Apart from the western world, the gaming market in the Middle East has grown and evolved in the past few years, and offers good opportunity for the gaming companies. The Middle Eastern gaming industry is likely worth somewhere between $1.0 billion and $2.6 billion in terms of revenue across software and hardware.
So demand for the above-mentioned graphic card is expected to increase both from local manufacturers and International players. NVIDIA being the market leader, is expected to take major share of this pie.
NVIDIA seems to have the right business approach, targeting some of the most significant growth areas in technology. These include cloud computing, mobile Internet and energy efficiency. While this will no doubt enhance its brand equity, we might notice a meaningful rise in research and development expenditure moving forward.
Moreover, NVIDIA forecast its core business comprising GPUs, chipsets and royalties to be flat at around $3.3 billion in calendar year 2011. This seems to indicate that royalty income may not have a major positive impact on the revenue stream. However, NVIDIA should be a beneficiary of the increasingly visual computing environment, where software is increasingly depending on visual user interfaces rather than text.
This apart, the company’s new business, comprising Tegra & Telsa, is expected to generate revenues to the tune of $500–$700 million during 2011.
On the other hand, performance will likely be tempered by cyclical weakness, exposure to Europe and increased competition from Advanced Micro Devices (AMD) Additionally, the increasing expenses on research and development may put some pressure on margins going forward and a revival in demand in the GPU segment will take some time.
We have a Neutral rating on the stock, with a short-term Zacks #3 Rank (Hold).