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Nvidia profit plummets

Company's shares plunge after it reports that profit dropped nearly 80 percent due to turbulence in the desktop market and increased competition.

Graphics chipmaker Nvidia saw its profits drop nearly 80 percent in the second quarter due to turbulence in the desktop market and increased competition.

The earnings, coupled with a downgrade Friday from Pacific Growth Equities, sent Nvidia's shares plunging. In midmorning trading on Friday, the company's stock was down $4.67, or 32 percent, to $9.89.

On Thursday, the Santa Clara, Calif.-based company reported earnings of $5.1 million, or 3 cents a share, compared with $24.2 million, or 14 cents a share, in the same period a year ago. Revenue was $456.1 million, slightly less than the $459.8 million the company reported during the same period last year.

Analysts expected the company to report revenue of $501 million and earnings of 15 cents a share.

"Q2 was challenging and disappointing, as the desktop (graphics processing unit) segment declined significantly as a result of several unusual market events," Jen-Hsun Huang, CEO of Nvidia, said in a statement.

In a conference call, Huang attributed the decline to market share losses and competition with archrival ATI Technologies.

Analysts said the company lost market share to both ATI and Intel. In a research note released Thursday, Jon Peddie Research stated that Intel's share in the graphics chip market rose from 33 percent in the first quarter to 37.7 percent, while Nvidia's share declined from 27.2 percent to 23.2 percent. ATI lost market share--but only marginally, sinking from 24 percent to 23.2 percent.

One of the slowest-growing sectors in graphics was the market for standalone graphics chips, the market Nvidia specializes in.

In the early part of the decade, Nvidia surpassed ATI to become the largest graphics provider in the world. In late 2002 and early 2003, however, Nvidia had to postpone a new line of chips at a time when ATI's designs were catching up in terms of performance. The two companies and Intel, which makes graphics chips that are integrated into chipsets, are the three dominant players in the market.