NVIDIA Struggles Without Losing Focus on Innovation

Yesterday, NVIDIA, the leading graphics chip maker, reported its results for the fourth quarter 2009 and fiscal year 2009. As we saw with Intel and AMD last month, demand has been weak in the chip sector, and NVIDIA has been hit hard by it, with a wider-than-expected loss and a 60% slump in sales.

Q4 revenue was down 60% y-o-y and 46% q-o-q to $481.1 million. Net loss was $147.7 million, or $0.27 per share and excluding charges, it was $94.4 million, or $0.18 per share. Analysts expected loss of $0.12 per share on revenue of $587 million. Last month, NVIDIA had slashed its revenue guidance about 50%.

For fiscal year 2009, revenue was down 16% to $3.4 billion. GAAP net loss was $30.0 million, or $0.05 per share, compared with net income of $797.6 million, or $1.31 per diluted share last year.

Gross margin for the quarter was 29.4%. The company ended the quarter with $1.26 billion in cash, cash equivalents and marketable securities, down $49 million from Q3. Headcount was 5,420, up 127 from Q3 and 435 from last year. NVIDIA has implemented a hiring freeze except for the most critical positions.

Operating expenses were $300 million. By the end of Q2, the company expects to reduce operating expenses by $35 million, and in addition to the hiring freeze, it has tightened travel policies and made cuts across all business units.

Revenue across all segments was down in the quarter. Sequentially, revenue from the GPU business was down 47%, the Professional Services business was down 44%, and the NCP business was down 51%. Within the GPU business unit, Desktop revenue was down 34% and Notebook revenue was down 63%, reflecting the buying trend towards low-end systems with integrated graphics. Memory was down 68% to $7.2 million.

After the design win with Apple last quarter for the GeForce 9400M motherboard GPU, the GPU space has been heating up. NVIDIA recently announced the NVIDIA Ion™ Platform, which combines GeForce® 9400 GPU with the Intel Atom CPU. Aimed at the netbook market, the Ion platform allows netbooks to display 1080p HD content, which is supposed to be even better than Intel’s new Atom chip.

In response to this, Intel has rushed to the market with the new Atom N280 processor, which is paired with a chipset that allows users to watch high-definition content on netbooks while using less power.

Jen-Hsun Huang, president and CEO of NVIDIA, said in the earnings call, “Although fiscal 2009 was extremely difficult, it was one of our best years of innovation. We made many important advances in graphics processing with PhysX and 3D Vision, GPU computing with CUDA and Tesla, and mobile computing with ION and Tegra. I am pleased with the excellent achievements we made in each of these important areas.”

For the first quarter of fiscal 2010, NVIDIA expects revenue to be flat or slightly higher than Q4. The stock is currently trading around $9 with market cap around $5 billion. It hit a 52-week low of $5.83 on November 20.

It is true that companies that use recessionary times to continue to innovate come out strong once the market is back. I like the fact that Jen-Hsun Huang underscores this philosophy, and look forward to seeing how NVIDIA continues to push the envelope on innovation, and keep Intel on its toes. Someone needs to!