UPDATE 3-Nvidia sees Q4 revenue above Street estimates

By Ian Sherr SAN FRANCISCO, Nov 5 (Reuters) - Graphics chipmaker Nvidia Corp forecast fourth quarter revenue above Wall Street expectations, and said its new server and mobile chips were gaining momentum. Its shares rose 6 percent in after-hours trading. The company, which also benefited from strong spending among consumers on its core graphics cards, said on Thursday, that its high-end server and mobile computing platforms -- Tesla and Tegra, respectively -- were quickly gaining momentum. "We invested for quite a long time in this area we call mobile computing, and we were certain that the vast majority of us are going to demand computing everywhere," said Nvidia Chief Executive Jen-Hsun Huang, adding that the Tegra mobile platform is doubling every quarter off its small base. "This is an investment that is starting to come home to roost." The company expects fourth-quarter revenue to be up about 2 percent from the third quarter, well above Wall Street's expectations. The company said its GAAP gross margin is expected to be in the range of 40 percent to 42 percent -- versus the average Wall Street forecast of 40 percent -- while GAAP operating expenses should be an in-line $305 million. The chip sector as a whole has been lifted by increased consumer demand, particularly during the previous quarter's back-to-school shopping season. That has helped tech heavyweights such as Intel Corp and Apple Inc post earnings well above Wall Street expectations. "Our growth was almost across every segment of our business," Nvidia Chief Financial Officer David White told Reuters in an interview, adding that most of the company's growth came from consumer spending. "We have seen a recovery in our industries that was beyond our expectations, and certainly exceeded what we planned for." NEW MARKETS In the short term, Nvidia is riding its dominance in mainstream video cards, which power games and multimedia applications on computers. Nvidia now lords over the graphics market for desktop and notebook computers along with rival ATI, which is owned by Advanced Micro Devices Inc.

But Intel has plans to compete with a forthcoming graphics unit built into its microprocessor, code-named Larrabee. Nvidia also is now embroiled in a lawsuit with Intel over the graphics maker's rights to produce chipsets -- collections of chips on a board that connect a microprocessing brain to other parts of a computer. That lawsuit threatens the future of the company's desktop and laptop chipset products, which constitute nearly 30 percent of Nvidia's revenue. To counter those threats, it has begun focusing on Tesla and Tegra, which executives have dubbed the future of the company, though they are still tiny parts of Nvidia's business. Nvidia may benefit most in the short term from a recovery in its lucrative professional graphics chip business which boasts almost 70 percent margins, Raymond James analyst Hans Mosesmann said. Once it picks up and again becomes between 20 percent to 23 percent of sales, gross margins will bump up as well, he said. Nvidia said third quarter net income rose to $107.6 million, or 19 cents a share, from $61.7 million, or 11 cents per share in the year ago period. Excluding items, earnings were $110.3 million, or 19 cents a share, compared with $111.4 million, or 20 cents a share. That exceeded the average analysts' estimate of 10 cents a share, according to Thomson Reuters I/B/E/S. Revenue rose to $903.2 million from $897.7 million. Analysts has expected $838.1 million. Nvidia's forecast for a 2 percent sequential rise in revenue in the fourth quarter also surpassed Wall Street's forecast of $868.11 million. Shares of Nvidia rose to $13.01 in extended trading from their $12.27 close. (Reporting by Ian Sherr; Editing by Tim Dobbyn and Carol Bishopric) (([e-mail]; +1 415.677.2542; Reuters Messaging: [e-mail])) Keywords: NVIDIA/ (See http://blogs.reuters.com/mediafile/ for Media and Technology -- Reuters' media and technology blog) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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