Nvidia Riding the Graphics Boom
Nvidia’s (NASDAQ: NVDA) recent 3:2 stock-split on 9/10 must have helped, but the stock’s rally, this week, has more to do with Nvidia’s robust showing in the Q2/07 results. Net earning of $172.73 million ($0.43 a share) on a revenue of $935.3 million is almost double that of $86.7 million ($0.22 a share) in Q2/06 on a revenue of $687.7 million.
After deducting one-off items, the Q2/07 revenue stands at $860 million, translating to $0.51 a share that beat the Street estimate of $0.43/share. Notably, gross margins have improved by nearly 3% from 42.5% to 45.3%.
The strong quarterly result is on account of strong demand for its graphics chips in both desktop and notebook computers. No doubt CEO Jen-Hsun Huang is exuberant. “As the leading and only dedicated GPU (graphics processing unit) company in the world, our opportunity has never been more exciting as the number of applications and digital devices that benefit from the GPU continues to grow.”
As of Q4/06, according to a survey by Jon Peddie Research, Nvidia has been the second largest supplier of desktop graphic devices at 28.5% market share, putting them behind Intel but ahead of AMD. However, it still was the largest discrete graphic device supplier with 53.8% of the market. And as for discrete mobile graphic device, the Jon Peddie Research saw NVDA scoring tremendous gains in market share from 53.0% in Q3/06 to 59.1% in Q4/06.
On January 5 this year, at a cost of $357 million, Nvidia completed acquiring PortalPlayer, the company that supplied the original iPod chips for a while before conceding the prized place to Samsung. Portal Player also did not get the iPhone design win.
Analysts believed that the Nvidia-PortalPlayer combination would contribute $280 million this year including $150 million from the iPhone, $100 million from the new video iPod, and $30 million from non-Apple MP3 players. However, the Apple revenue stream has not come through for the most part, especially the projected iPhone revenues as discussed in the iPhone’s Component Ecosystem Analysis. However, the Portal Player business should find other customers as competitors line up against iPhone and iPod, and non-Apple MP3 Players and convergence devices should sustain a healthy revenue line in the upcoming quarters.
Before ATI was acquired by AMD last October, it was the principal competition of Nvidia in pureplay GPU. Today, Nvidia is the largest GPU-company in the world with very little in terms of focused competition. If you want to ride the graphics book, feel free to book the ride on Nvidia’s back. Competition will surely come from Intel and AMD, but Nvidia is a strong company with superb leadership at the helm, and I believe, will continue to execute well.
Sramana,
What do you think is the market potential for Tesla in the HPC market? Is it superior to competing products in this market and where do you think short-term growth for Nvidia comes from?
Thanks…
The data on PortalPlayer is bad. NVIDIA neither won the iPhone nor the Video iPod business this year. Hand held is a promising segment for NVIDIA but they have yet to report any really big design wins from their PP acquisition.
Oh, and your stock price high for this week is also inaccurate, my data shows an inter-day high of $35.72 on the 19th. $37 would have exceeded the all time high of $36 set on 5Sept.
I cant believe the number of mistakes you made
in this article. How do you expect to maintain
any credibility?
You are absolutely right, we made some unacceptable errors on this article.
In terms of your questions, my personal belief is the Portal Player WILL have other design wins in the non-Apple MP3 Player and convergence device segment. We will track what happens there, but I have a hard time believing that a guy like Jen-Hsun Huang has not done his due diligence to assess the acquisition and its prospects.
It could be, that his acquisition thesis was that PP would have the iPhone/iPod business, but the dates don’t compute, so that cannot possibly be the acquisition thesis. He knew that NVidia did not win that business, even though we didn’t know it yet, and those analysts that attributed the PP-Apple forecasts to Nvidia certainly didn’t know.
Arvind, your question about Tesla: I think it’s a nice piece of technology, but the very high performance computing market targeting scientists and engineers doing high-end simulations is not a huge market, certainly not one that is likely to have a lot of big impact. There is an animation rendering segment that companies like SGI capitalized on years ago, and that segment’s needs still continue to grow.
But, at the end of the day, the consumer market is more interesting in terms of size, and that’s where Intel and AMD’s multi-core efforts will run up against Nvidia.
That, however, is such a large market opportunity, that it can certainly support Nvidia’s short term growth. In fact, on your question about short term growth – the non-Apple Portal Player business is also a line item to watch.
We need to look into this over the next few months, and see which of their hypothesis are checking out.