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. NVIDIA is on my list of Top 10 Semiconductor Stocks.

Q309 revenue was up by $5 million from Q209 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 Q209. 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 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.