Nvidia Posts Strong Quarter
08/09/2012| 05:15pm US/Eastern
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Nvidia Corp. (>> NVIDIA Corporation) posted strong second-quarter results and third-quarter revenue guidance as the chip maker benefits from its new graphics processor and its push into the mobile market.
The Silicon Valley company reported revenue at the top end of its guidance, while earnings topped analysts' expectations. In addition, its current-period sales outlook of $1.15 billion to $1.25 billion beat the $1.09 billion estimated by analysts, according to Thomson Reuters.
Nvidia is best known for chips called graphics processing units, or GPUs, that generate visual effects in videogames played on personal computers and consoles. Nvidia recently introduced its new Kepler GPU, which has been gaining traction with users, and it has also been pushing into the mobile chip market with its Tegra processor to offset tepid PC sales.
In particular, Nvidia has been strong in tablets, with Google Inc. (>> Google Inc) and Microsoft Corp. (>> Microsoft Corporation) both selecting the company's chips for their self-branded devices. Nvidia also is working with AsusTek Computer Inc. (ASUUY, 2357.TW) on tablets based on the Windows RT operating system, and people familiar with the matter said Nvidia's third Windows RT device partner is Chinese PC giant Lenovo Group Ltd. (LNVGY, 0992.HK).
"We're making really good progress in making our way into the fastest-growing segment of the computer industry," Chief Executive Jen-Hsun Huang said during a conference call with analysts.
Nvidia shares, up 18% over the past three months through Thursday's close, grew 4.2% to $15.32 in after-hours trading.
Mr. Huang said Tegra achieved record sales "as tablets come into their own." The company didn't detail its revenue from Tegra but said overall sales in the business that includes Tegra, Nvidia's wireless Icera operations and other areas jumped 36% sequentially to $179.7 million. Mr. Huang reiterated expectations for Tegra sales of about $540 million this year.
Meanwhile, the company said its consumer discrete graphics business--which includes desktop and notebook revenue--jumped 15% sequentially to $668.3 million. Nvidia said demand for its desktop graphics chips was "very strong," while notebook revenue hit a record.
Mr. Huang said desktop and notebook demand should continue to be strong in the current period and Nvidia should gain market share.
Nvidia has reported a couple quarters of stronger-than-expected results despite a soft PC market and worries that discrete graphics sales will be hurt by new processors from Intel Corp. (>> Intel Corporation) and Advanced Micro Devices Inc. (>> Advanced Micro Devices, Inc.) that integrate graphics and computing technology on the same piece of silicon. Along with market softness, Nvidia also has faced some manufacturing issues that have made it tough to meet customer demand.
Nvidia, like most semiconductor companies, doesn't build its own chips, but has them produced by contract manufacturers such as Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW), or TSMC. TSMC has struggled of late to increase production of advanced chips created with circuitry of 28 nanometers, or billionths of a meter. Such problems have also affected mobile chip maker Qualcomm Inc. (>> QUALCOMM, Inc.).
Mr. Huang on Thursday said the company should continue to be supply constrained throughout the current quarter. The company has taken the shortage into account for its guidance, he said, and could post some upside to its outlook if the supply situation plays out as expected.
To counteract a slowing PC market, Nvidia has placed a major bet that it can move into mobile devices. It bought its Icera wireless chip business to help it make 3G and 4G chips, and it also recently partnered with patent-portfolio incubator Intellectual Ventures to acquire about 500 wireless communication patents.
For the quarter ended July 29, Nvidia reported a profit of $119 million, or 19 cents a share, down from a year-earlier profit of $151.6 million, or 25 cents a share. Excluding items like stock-based compensation, per-share earnings fell to 27 cents, from 32 cents. Analysts expected earnings of 14 cents a share.
Revenue rose 2.7% to $1.04 billion. Nvidia's upbeat May guidance saw revenue of $990 million to $1.05 billion.
Overall, operating expenses rose 14% from a year earlier, with higher research and development expenses and overhead costs.
"They had a very, very good quarter," said Patrick Moorhead, analyst at Moor Insights & Strategy.
-Kristin Jones contributed to this report.
Write to Shara Tibken at shara.tibken@dowjones.com
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