Another concern is inventory risk. While initial shipments of Shield were probably fairly modest, it could still be expensive to fix or replace all of those units. That’s especially troubling when the device is not expected to earn very high profits; NVIDIA recently dropped the price from $349 to $299 to stimulate consumer demand .
Foolish bottom line
It’s possible that this incident will just be a slight bump in the road for NVIDIA. After all, gaming devices are not NVIDIA’s bread and butter — the company is really relying on its Tegra and Icera mobile chips and its GRID cloud-based graphics cards for future growth. Shield is just a sideshow, at least for now.
The danger for NVIDIA investors is if Shield becomes a costly sideshow. Investors should definitely keep an eye on the company’s margins in its next quarterly report, and look out for any disclosures about losses related to this quality issue.
That said, in light of the company’s fairly low valuation, good prospects in its core areas of focus, and its significant program to return cash to shareholders, the stock still looks attractive at current levels. If NVIDIA’s management can maintain its focus on the company’s main growth drivers — the upcoming Tegra 4i chip and the rollout of GRID servers — the benefits should overshadow any headwinds from Shield.
The article NVIDIA Shield Delayed: Does It Matter? originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg owns shares of NVIDIA. The Motley Fool recommends NVIDIA.
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