Nvidia delivers strong Q3, weaker Q4 outlook

Nvidia, like rival Qualcomm, delivered a strong quarter as ARM-based processor companies fare well. The fourth quarter outlook was light. The big unknown is Windows 8 uptake.

Nvidia reported strong fiscal third quarter results and initiated a dividend in another sign that ARM-based processor companies are faring well amid strong smartphone shipments. The fourth quarter outlook, however, was light. 

The company, which makes graphics and mobile processors, reported fiscal third quarter earnings of $209.1 million, or 33 cents a share, on revenue of $1.2 billion, up 15.3 percent from a year ago. Non-GAAP earnings were 39 cents a share.

Wall Street was expecting Nvidia to report fiscal third quarter earnings of 30 cents a share on revenue of $1.19 billion.


As for the outlook, Nvidia projected a wide fiscal fourth quarter revenue range of $1.02 billion and $1.17 billion. Non-GAAP gross margins are expected to be flat. Wall Street was expecting revenue of $1.21 billion in the fourth quarter. Nvidia will pay an annual dividend of 30 cents a share.

Nvidia's outlook may be attributed to the big unknown in the fourth quarter: Windows 8 sales and upgrades. Microsoft's partners aren't certain what hardware will sell well. Regardless, Nvidia's processors are in Microsoft's Surface tablet so if there is a hardware hit the company should be covered. 

Overall, Nvidia had a strong showing just like rival Qualcomm. Also:  Qualcomm: Q4 strong, outlook stronger

Rob Csongor, vice president of investor relations at Nvidia, said the company has grown its non-PC revenue. He said on a conference call:

This quarter we not only grew our PC business. We also significantly increased our business beyond the PC, in tablets, quad core phones, data centers and automobiles. Nvidia processors rolled out in Q3 in a range of new devices. From Google's Nexus 7 tablet and Microsoft's Surface, to Oak Ridge National Laboratory's latest computer. Three years ago, non-PC revenues were 7% of total revenues. This quarter they grew to a record 30%.

Consumers are also now starting to realize that a great tablet is better than a cheap PC. Because of Tegra, Android and Windows RT, the entry level PC market is now a new opportunity for us.

Regarding the PC industry, Csongor said that tablets are eating up PC sales. He added:

We're not seeing anything unusual than anybody else. The end markets are softer than this time last year. I guess I'm surprised that you asked at all. I think the overall market seems to indicate that the holiday season for PC sales is a little softer than expected. And it's global. It's not particularly related to one particular geography. But China's softer. Europe is softer. The US is -- seems okay. But the vast majority of the end markets appear to be uncertain. 

Regarding Nvidia's outlook, Csongor said:

The Nexus 7 is selling super well and the Surface and the Win RT devices are really exciting. However, the vast majority of the builds for the holidays have to happen before the holidays. And so we shipped more proportionately to them in Q3 than in Q4.

In a commentary, Nvidia interim CFO Karen Burns said the following:

  • "Demand for our desktop GTX (enthusiast and PC gaming) products remained strong in the third quarter as we continued the launch of our Kepler based GPUs. Inventory in the channel remained healthy. As anticipated, notebook GPU revenue was at a record level on the strength of our Ivy Bridge design wins."
  • "Our Quadro business continued to be challenged in the current quarter by the macroeconomic environment, with weak economic conditions in Europe and softness in other geographies. Conversely, our Tesla business was up both sequentially and year-over-year. The increase was largely due to the first shipments of our new Kepler-based Tesla products to Oak Ridge National Labs in connection with the build of their new Titan supercomputer."
  • Smartphone and tablet design winds boosted Nvidia's consumer business. Tegra 3 processors sold well.