Late last week NVIDIA reported their Q3 2012 (they have an unconventional reporting calendar), and the results were overwhelmingly positive for the once struggling company.  Throughout 2010 NVIDIA struggled with the poor results of their 400 series of graphics cards as compared to the relative smooth sailing that AMD had going into the DirectX 11 marketplace.  NVIDIA was also struggling to get the original Tegra to be accepted by the marketplace, which never occurred with that particular generation of products.

NVIDIA reported gross revenues of $1.07 billion for the previous quarter, with a net income (GAAP) of $178.3 million.  Margins improved to a respectable 52.5%, which is generally considered high for a fabless semiconductor company.  When we compare these results to AMD which had reported earnings a few weeks ago, we see that while NVIDIA had less revenue (AMD reported $1.7 billion) the company had nearly double the overall profit (AMD reported around $97 million).  AMD has a strong CPU business, which is something that NVIDIA is working on.  AMD reported margins in the 45% range, but they also have a larger workforce and larger capital expenditures at this time.

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NVIDIA continues to use TSMC as their primary foundry, and with further improvements to both NVIDIA’s designs and TSMC’s process, NVIDIA seems to be enjoying far better yields than what was experienced throughout 2010.  NVIDIA has also improved its foothold in the mobile CPU/GPU market with their Tegra 2 offerings.  While NVIDIA is not at a breakeven point for the amount of money they have invested in this new venture, they are approaching it quickly.  NVIDIA expects that Tegra will account for $1 billion in revenue next year, which evens out to be around $250 million a quarter.  Tegra 3 was recently released, and NVIDIA has reported that design wins for that part has so far exceeded that of the previous Tegra 2.

The biggest areas of growth for the company were professional graphics and mobile graphics and processors.  Desktop graphics only accounted for around 1% of growth.  NVIDIA is essentially untouched in the HPC space with their Tesla branded products, but this area is one of small growth so far.  NVIDIA is essentially out of the chipset market but will still continue to support legacy products for some time.  During this time they appear to have taken marketshare back away from AMD in the overall graphics marketplace.

The outlook for Q4 is not exactly spectacular, but there is the expectation of around a 0.5% growth.  Usually Q4 is quite strong and up several points from Q3, but this year is different.  Most PC based companies are expecting a slower season due to high hard drive costs.  It does look like this will be somewhat offset by the greater demand for the quad core Tegra 3 processors that are shipping this month to select customers, as well as ramping up for further production next year.  There will also be products using Tegra plus the technology from recently acquired Icera in a single product.  This will be desirable for lower end, more integrated handhelds and could be a good future product for NVIDIA.

While many had written off NVIDIA last year with their stumbles with the first iterations of the Fermi architecture and the small pickup of Tegra products, the company has pushed back and is now in a much more enviable position with strong products in both the graphics and CPU markets.  While Q4 will not show much growth for the company, I would expect a nice jump once Tegra 3 starts shipping in volume and new 28 nm graphics parts to hit the ground in both desktop and mobile.  Once these things occur, we can expect some healthy numbers from NVIDIA.