Wall Street Beat: IT rebounds as Nvidia, Cisco shares rise

IDG News Service - With Nvidia and Cisco reporting results, there was some good news on the chip and networking front this week that, with the help of a successful debt offering by Italy that eased economic concerns, helped fuel a rise in IT vendors' shares Friday morning.

Economic worries and potential supply-chain disruption from floods in Thailand have been weighing on the IT sector, however.

After the market closed Thursday, Nvidia reported that for the quarter ending Oct. 30, net income was $178.3 million, more than twice as much as a year earlier. Excluding one-time items, net income per share of $0.35 was $0.08 higher then expectations of analysts polled by Thomson Reuters. Sales increased a healthy 26% to $1.07 billion, a hair under analyst estimates for $1.06 billion.

Company watchers were generally pleased with the results.

"Nvidia is the brains behind many smart phones," noted analyst Jeff Kagan in email. "Nvidia looks like they are in the right place with their growing mobile computing business. It is the engine behind a young and growing revolution in the industry with smart phones, tablets and automotive information and entertainment systems."

Nevertheless, the solid profit report did not move analysts, most of whom have "hold" or "neutral" guidance for Nvidia shares, to change the overall stance on the company.

Canaccord Genuity analyst David Rovelli maintained his hold rating on the chip maker, as a result of potential weak PC demand and hard drive shortages going forward. "Shortages are poised to worsen beyond December and could negatively impact desktop production, an area of expected near term growth for the company," Rovelli wrote in a research note.

Hardware shortages are largely expected due to floods in Thailand. The floods will have an impact on PCs through the first half of 2012,IDC said Thursday. With operations disrupted at more than a dozen hard disk drive (HDD) factories, damage to the industry is significant, IDC said.

In the first half of 2011, Thailand accounted for as much as 45% of worldwide HDD production. As of early November, nearly half of this capacity was directly impacted by the flooding, which could lead to worldwide shipments dropping by as much as 20% in the first quarter compared to previous projections, IDC said.

Hard-drive costs are also likely to rise, which will lead to an increase in PC prices as well, IDC said.

Nevertheless, Nvidia shares rose along with the markets Friday, jumping $0.15 to $14.60 in late-morning trading.

Meanwhile, soft corporate spending affected Cisco profit, which nevertheless managed to beat analysts forecasts as the company's new focus on streamlining operations appears to be paying off. Last quarter, Cisco said it would cut 16% of its workforce and reduce costs by $1 billion.