Nvidia reported results near the top of guidance and ahead of expectations ($955M vs. $940M, and $0.13 vs. $0.10 GAAP) even as Tegra revenues dropped more steeply than we had expected ($103M vs. $125M); the company was helped by relative strength in graphics which supported sales and gave gross margin a lift.
- Guidance is weaker than expected as another steep decline in the Tegra segment reflects the winding down of Tegra 3 builds. The delay in Tegra 4 accounts for this gap in revenues this year compared to last and so Tegra sales look to drop below $70M (down 34% Q/Q), a level not seen since the early days of the effort (F4Q11 – Jan 2011). GPU is expected to rise on desktop GPU strength even as notebook GPU declines (up 7% Q/Q).
- Tegra 4’s ramp in 2H is critical: Tegra 4 is slated for tablets, other Android devices, Shield, gaming systems, autos, and other consumer electronics applications (not phones), and is expected to begin to ramp at the start of the October quarter. The company expects Tegra revenues in FY14 to match those of FY13 ($764M), but to do this, given the F2Q outlook, would require 2H revenues close to $600M, a 31% increase over F2H13 Tegra sales and nearly 250% 2H/1H. Uncertainty in design wins, and in the success of these among consumers, clouds forecasts and leads us to discount management’s outlook.
- GPU share topped out: Nvidia’s share gains last year (esp. in notebook) still have some life in 2013 as Intel keeps Ivy Bridge in play longer than expected, but Haswell’s better graphics and AMD’s recent efforts suggest that the PC side of Nvidia’s GPU business is likely to stagnate. On the professional side, we expect more growth through Tesla and GPGPU in servers, and perhaps even a slight rebound in workstation graphics on the mediocre macro recovery.
Key Drivers, New Estimates, and Recommendations: