Boring but Profitable

NVIDIA is back on track with a strong quarter and solid profits

NVIDIA posted their latest results following the quarter ending on July 31, 2011.  Unlike 2010 at this time, NVIDIA posted a strong quarter.  Technically this is Q2 FY 2012 for NVIDIA.  Last year’s results were pretty dismal with $811 million in gross revenue and a net loss of $140 million.  This quarter was much stronger with $1.016 billion in gross revenue, and a healthy $150 million in net income.

This quarter was also up sequentially from last quarter’s $962 million gross revenue and $135 million net income.  The only truly interesting thing about the increase is that there really was not very much interesting about it at all.  All of the product groups showed either flat performance, or a marginal increase.  The largest increases came from the mobile sector, which saw discrete mobile GPUs in laptop sales take a significant gain.  Consumer desktop stayed pretty even, though NVIDIA has a much stronger mix of cards stretching from the $100 US mark to above $750 with the GeForce GTX 500 series.

Read the rest of the article after the break.

The upcoming Tegra 2 based Samsung Galaxy-R is expected to be a big seller.

NVIDIA continues to hold a large marketshare in the professional graphics market, and even though they have seen minimal gains, they far outshadow the competition in this important sector.  NVIDIA saw some growth with business deciding to spend more on computer infrastructure than what was expected considering the seasonal decline that Q2 represents.  The Tesla group holds nearly 100% marketshare in their sector, and a lot of their sales are going to one off super-computer clusters, so revenue can be “lumpy” at times.  Tegra 2 has only been shipping for around two quarters, and there are a number of new and large design wins that are only now going into production.

Next quarter is expected to see around a 4% to 6% growth due to the stronger demands of Q3, as well as more Tegra design wins and the upcoming Kal-El quad core ARM based processor with advanced graphics.  Notebook should continue to be strong and a place of good growth for NVIDIA.  Sandy Bridge has been a growth factor in the adoption of both standalone notebook and desktop graphics units, and they are pretty proud of the combination of discrete NVIDIA graphics and the Intel Sandy Bridge processors.

Embedded graphics is a growth market for NVIDIA.  Next year Audi will feature all NVIDIA based products in their in-dash infotainment systems.  More car companies will follow with products based on NVIDIA technology.  Tesla is expected to grow more, but the limiting factor right now is not so much the need for that kind of technology, but rather the effective porting of software that can utilize massively parallel processing power.  NVIDIA expects to see steady growth here, but they are not yet where they want to be in terms of a software environment.

NVIDIA finished the acquisition of Icera.  So far revenue from this acquisition is minimal, at best.  More R&D is being poured into the company, and they expect their first LTE based modem to ship for revenue in Q1 2012.  Eventually NVIDIA wants to integrate this modem technology into their Tegra applications processor, so that it is an easy bundle for cellphone and tablet manufacturers.

The results in black and white, compared to the quarter before.

Royalties from Sony and Intel were healthy this quarter, so it certainly added to the bottom line.  With the lack of a next generation console from either Sony or Microsoft, NVIDIA expects these royalties to be strong.  Intel will spend the next few years paying NVIDIA a royalty due to the agreement formed after the prolonged lawsuit between the two companies.

NVIDIA continues to shut down the MCP (motherboard chipset) business, and the decline from this sector was easily covered by the strength of the other product lineups.  NVIDIA expects to eventually break even in Tegra, but they are still investing R&D funds into this burgeoning area for NVIDIA and so far it has consumed more money than it has produced.

Jen-hsun Huang claims that NVIDIA is far more prepared for the jump to 28 nm production than they were back in the 40 nm day.  They created a group inside of NVIDIA whose only job is to develop technologies and design rules to more adequately jump to new process nodes.  It is well known that 40 nm production was a huge hurdle for NVIDIA, and there is hope that this new group has helped ease the way towards future 28 nm production.  NVIDIA says that they are nearly ready to start production on 28 nm, but it sounds like TSMC is still not quite ready to ramp up production.  They do have working silicon back from the Fab though, and they are much more confident going into this next generation than they were the generation before.  I would not expect NVIDIA to actually ship 28 nm parts until late Q4 of this year, if not in fact Q1 2012.

Even though the world economic forecast is uncertain, so far the booking rate with NVIDIA has been linear and solid.  This means that orders are holding steady and are right where they expect them to be.  NVIDIA seems very confident about the strength of the coming quarter.  It will not blow analysts and investors away, but it will continue with steady growth combined with successful cost controls put into place last year after their weak quarters.  While the other bread and butter markets have somewhat stagnated in terms of growth, NVIDIA is still pinning a lot of hope on the growth of their embedded products and the Tegra line.  If NVIDIA can ship Kal-El in a timely manner, they should still have a decent leg up on the competition in this very competitive (and huge) space.