Nvidia Finally Wins Apple's Heart

Nvidia Corporation (NVDA), the leading graphics chip maker with annual revenue of $4.1 billion, recently reported a 74% decline in its Q3 earnings due to a 20% decline in revenue. However, earnings topped analyst estimates and shares soared, helped by the design win with Apple (AAPL). NVIDIA is on my list of Top Ten Semiconductor Stocks.

Q3 '09 revenue was up by $5 million from Q2 '09 to $897.7 million while year to date revenue increased 2% to $2.94 billion. Net income was $61.7 million, or $0.11 per diluted share, down from $235.7 million or $0.38 last year. Non-GAAP net income was $111.4 million, or $0.20 per diluted share. Analysts had forecast earnings of $0.12 per share on revenue of $889.5 million.

Nvidia has improved gross margin to 41%. Operating expenses were $311 million, including $8.3 million in restructuring costs. The company reduced its headcount by 260 in the quarter and currently has 5,293 employees. Operating cash flow was a positive $43 million. Cash and equivalents and marketable securities were $1.3 billion, down by $352 million from Q2 '09. NVIDIA repurchased shares worth $300 million during the quarter.

Nvidia is organized into four main business segments: GPU, the graphics processing unit with GeForce products; PSB, the professional solutions business with Quadro products; MCP, media and communications processors; and CBP, the consumer products business comprising Tesla products.

GPU revenue was down by $42 million or 8% q-o-q, MCP grew by $30 million or 19% q-o-q, and PSB grew by $20 million or 11% q-o-q. CPB was relatively flat q-o-q with growth in the Sony royalties offset by a decline in the mobile business.

Nvidia’s relationship with Apple has finally kicked off. Back in 2007, Nvidia had acquired PortalPlayer, which used to supply chips for the iPod. Now, NVIDIA has launched a new GeForce 9400M motherboard GPU for Mac notebooks that delivers up to five times performance improvement over Intel (INTC) integrated graphics in half the space.

And this quarter, Nvidia is also launching a product it has been working on for three years: its stereoscopic 3-D glasses for GeForce.

Despite these new launches, Nvidia expects current economic conditions to affect its revenue. Q4 revenue is expected to decline by 5% and gross margin is expected to be flat in the range of 41%.

Nvidia has recently cut its prices on some of its GeForce products in a bid to gain back market share from AMD (AMD’s recent earnings coverage is available here). This price cut could also be fallout from Nvidia’s transition to 55nm and a resultant stock clear out. The stock is currently trading around $7 with a market cap of about $3.8 billion. It hit a 52-week low of $5.97 on October 24.

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Comments

[chano:]

Surge? What surge?
Oh you must be talking about Iraq, I guess.
NVDA is tanking again, after a brief blip.
You're an analyst and you come out of hibernation to report a transient blip as significant?
Where I sit, we call transient blips noise.

2008 Nov 19 01:41 PM

[monkeyman:]

Well, NVDA did announce it was buying back shares at the beginning of this quarter. At the time it was announced, I did the math, and that buy back was roughly at the least 1/3 of the common shares. Considering the price is now half of when I did my math, that's sitting around now at close to a 2/3 common share buy back.

So, if EPS is above estimates, was the stock buyback ("NVIDIA repurchased shares worth $300 million during the quarter") taken into consideration to see if the EPS is inflated? I am wary of the number of times comments are made about am improved EPS in a company without taking into consideration any buy backs of common shares (not saying it was done here, though I could just do the math).

Nvidia may have won Apple's heart, but it is going to have to re-win the hearts of the consumer (though honestly, how was Apple going to choose ATI without causing any strain on it's relationship with Intel; Intel already made public whines about Apple choosing/sticking with ARM processors over their Atom solution). When the new MacBook was announced with dual Nvidia chipsets/processors, I saw many jokes commenting that two were necessary because one of them would fail. Nvidia has isolated itself from both AMD and Intel, boasting they could enter the CPU market; that's why AMD bought ATI and that's why Intel is again working on it's own in-house solution. There's still too much hubris at Nvidia.

2008 Nov 19 09:23 PM