Today NVIDIA released its quarterly results for the second quarter of their fiscal year 2016 (yes, 2016) and they had excellent sales of their GeForce GPUs, but have decided to write down their Icera modem business, which hit their operating expenses to the tune of around $90 million. Revenue for the quarter was up 5% though as compared to Q2 2015, and came in at $1.153 billion for the quarter. On a GAAP basis, gross margin was 55%, down 110 bps over last year and down 170 bps since last quarter. Net income was just $26 million, down 81% sequentially and 80% year-over-year. This resulted in diluted earnings per share of $0.05, down 77% from Q2 2015’s $0.22.

NVIDIA Q2 2016 Financial Results (GAAP)
  Q2'2016 Q1'2016 Q2'2015 Q/Q Y/Y
Revenue (in millions USD) $1153 $1151 $1103 flat +5%
Gross Margin 55.0% 56.7% 56.1% -1.7% -1.1%
Operating Expenses (in millions USD) $558 $477 $456 +17% +22%
Net Income $26 $134 $128 -81% -80%
EPS $0.05 $0.24 $0.22 -79% -77%

A big factor in this was the write down of their Icera modem division. NVIDIA had been looking for a buyer for their modem unit, but was unable to find a suitable buyer for the business and is therefore winding down operations in this unit. This caused a hit of $0.19 per diluted share. Also during the quarter, NVIDIA announced a recall of their SHIELD tablets due to overheating batteries, and there have been two cases of property damage due to this. This caused another hit of $0.02 per diluted share. They also had $24 million in expenses related to the Samsung and Qualcomm lawsuit.

NVIDIA Q2 2016 Financial Results (Non-GAAP)
  Q2'2016 Q1'2016 Q2'2015 Q/Q Y/Y
Revenue (in millions USD) $1153 $1151 $1103 flat +5%
Gross Margin 56.6% 56.9% 56.4% -0.3% +0.2%
Operating Expenses (in millions USD) $421 $425 $412 -1% +2%
Net Income $190 $187 $173 +2% +10%
EPS $0.34 $0.33 $0.30 +3% +13%

NVIDIA’s non-GAAP results “exclude stock-based compensation, product warranty charge, acquisition-related costs, restructuring and other charges, gains and losses from non-affiliated investments, interest expense related to amortization of debt discount, and the associated tax impact of these items, where applicable” which means that they do not reflect either the Icera write-down, nor the tablet recall. On a non-GAAP basis, gross margin was up 20 bps to 56.6%, with net income up 10% to $190 million. Diluted earnings per share were $0.34, up 13% from Q2 2015’s $0.30 non-GAAP numbers. Despite a significant write-down and a recall, the core business is still doing very well.

For the quarter, NVIDIA paid out $52 million in dividends and repurchased $400 million in stock.

What is driving growth right now is its GPU business. Revenue for GeForce GPUs grew 51%, and NVIDIA has continued to see strength in the PC gaming sector. Fueled by the release of the GTX 980 and GTX 980 Ti, sales of high-end GTX GPUs “grew significantly” year-over-year. The Titan X would certainly fall in there as well, although unlikely at as high of volume. Maxwell has been a very strong performer, and gamers tend to go where the performance is. Souring the results somewhat is a decline in Tesla GPU sales, as well as Quadro GPU sales. Overall, GPU revenue was up 9% year-over-year to $959 million. Even as NVIDIA has tried to diversify with SoCs, their GPU business is still almost 85% of the company.

NVIDIA has found a niche in the automotive infotainment world, and that that area is still strong for them. Tegra has not taken off in the tablet or smartphone space in any meaningful way, but there was still growth in the automotive sales for Tegra. Overall Tegra processor revenue was down 19% year-over-year, which is mainly due to Tegra OEM smartphones and tablets. NVIDIA’s own Tegra sales in the Shield helped offset this loss somewhat, but as the recall filings showed, they only sold 88,000 SHIELD tablets. Margins are likely helped by the fact that they run their own SoC in it though.

NVIDIA’s “Other” segment is a fixed 66 million licensing payment from Intel, and as always, that is flat and does not change. This is from the 2011 settlement of a licensing dispute, and will end in 2017.

NVIDIA Quarterly Revenue Comparison (GAAP)
In millions Q2'2016 Q1'2016 Q2'2015 Q/Q Y/Y
GPU $959 $940 $878 +2% +9%
Tegra Processor $128 $145 $159 -12% -19%
Other $66 $66 $66 flat flat

For Q3 2016, NVIDIA is expecting revenue to be $1.18 billion, plus or minus 2%, with margins of 56.2% to 56.5%.

NVIDIA is obviously a giant in the GPU space, and that is going very well for them. Sales are very strong, and PC gaming has been a strong point in an otherwise weakening PC market. They are attempting to diversify to mobile, but have found out just how difficult that can be, and had to write down their modem division completely. Without a good integrated modem, it will be difficult to gain traction in the smartphone space, but NVIDIA’s current SoC offerings don’t seem well suited to smartphones anyway. Their strength in GPU knowledge has certainly helped them with the GPU side of the equation, but their first attempt at CPU design has not been as strong. We shall see what their plans are for the SoC space going forward, but for now they are riding a wave of strong GPU sales, and that is a good thing for NVIDIA.

Source: NVIDIA Investor Relations

 

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  • zepi - Friday, August 7, 2015 - link

    Financial / fiscal years of companies are not aligned with calendars.

    "July 21, 2015 Microsoft Fiscal Year 2015 Fourth Quarter Earnings"
    "Apple® today announced financial results for its fiscal 2015 third quarter ended June 27, 2015"

    So MS Fiscal year 2015 was from beginning of Q3/2014 to end of Q2/2014
    Apple's Fiscal year 2015 is still ongoing, from Q4/2014 to end of Q3/2015

    Nvidia is well ahead of both with it's fiscal year aligns with calendar years, but is one year ahead, being half a year ahead of MS and three quarters of a year compared to Apple.
    Reply
  • Kjella - Friday, August 7, 2015 - link

    Fiscal years is the inmates running the asylum in accounting, don't try to understand just accept that companies make this shit up with no relation to the actual calendar. Reply
  • prisonerX - Friday, August 7, 2015 - link

    Their fiscal years are named by the year in which they end. Why is that so hard to understand? Reply
  • lefty2 - Friday, August 7, 2015 - link

    One thing that isn't mentioned here is that the Tegra division lost $57 million last quarter - and obviously more this quarter.
    Tegra has lost money every quarter since it's inception (9 years ago?). Nvidia don't mention the Tegra operating loss in the press release, because it looks bad, but you can find it in form 10-Q.
    Reply
  • jwcalla - Friday, August 7, 2015 - link

    They need to find some better markets for that thing. They should be pushing Chromebooks and stuff like that.

    One of the problems I've noticed with the ARM stuff is that it takes way too long between a design being ready for production and it actually shipping in products. In some ways, the Tegra X1 (both CPU and GPU) is "old technology" by now. Compare this to Intel, where they essentially have partners shipping products the day they announce their chips.

    But I do think that companies like nvidia are going to have to start pushing non-x86-tethered platforms if they want to open opportunities for Tegra (so Android, ChromeOS, etc.).

    dat graph tho... up 10% after hours.
    Reply
  • Flunk - Friday, August 7, 2015 - link

    When you write these you don't really need to mention the "Non-GAAP" results because they're total hogwash. If you don't follow GAAP you can just make things up or manipulate the results. Our financial system is totally dependent on Generally Accepted Accounting Principles and if you throw those out the window then your data in meaningless. Reply
  • takeship - Friday, August 7, 2015 - link

    Non-GAAP is at least useful as a "we couldn't even manipulate our way into a profit" data point. Companies frequently use their non-GAAP results to highlight the strengths of their profitable decisions, even if they "officially" have to report their missteps in their GAAP numbers. I.e., posting a profit in both is great, a loss in GAAP but profit in non-GAAP should trigger some analysis, while a loss in both mean that either your management or business model or both are outright failing. Reply
  • Peichen - Saturday, August 8, 2015 - link

    GAAP is complete hogwash. If you don't report your number under IFRS, might as well not report them. Using GAAP is like using furlongs per fortnight, different across countries and no one knows where you are hiding that shell company. Reply
  • JDG1980 - Friday, August 7, 2015 - link

    This has not been a good year for acquisitions. AMD writing off SeaMicro, Microsoft writing off Nokia, and now Nvidia writing off Icera.

    One might almost think that many corporate acquisitions are about empire-building and self-enrichment by executives, not about what actually makes sense for the corporation's core business plan.
    Reply
  • Michael Bay - Saturday, August 8, 2015 - link

    Most acquisitions are about using money corporation can`t return into the country without paying tax on them. Then whatever they buy gets gutted into the mothership and the shell is written off.
    For good or bad, that`s an approved strategy with investors. They didn`t even flinch when Microsoft had to write down aQuantive, which was deemed to be worth like 2 of Nokia.
    Reply

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