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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  • Shadowmaster625 - Friday, August 7, 2015 - link

    Non-GAAP earnings up! Rally time! lol people are so dumb. Where is that rally monkey? Reply
  • jardows2 - Friday, August 7, 2015 - link

    NVIDIA is a GPU company. They try to expand into markets not related, and it doesn't work out. About the only place Tegra is being used is in the companies own gaming tablet, which isn't exactly a stellar success in sales. Purchasing a modem company? What does that have to do with computing graphics? Absolutely nothing.

    When will these companies learn that doing one thing, and doing it really well, is the key to success. Trying to do everything, just because it seems like it is a profitable venture, usually doesn't work out.

    NVIDIA, stick to doing what you do best. You do it well, and you won't have to worry about a major division, unrelated to your core business, dragging you down.
    Reply
  • jwcalla - Friday, August 7, 2015 - link

    I think they rightly see that the rise of IGPs / APUs is directly impacting revenue, and doesn't bode well for the future. So they have to make up that revenue somehow. And that means taking risks on unknown markets. Reply
  • Gigaplex - Saturday, August 8, 2015 - link

    "Purchasing a modem company? What does that have to do with computing graphics? Absolutely nothing."

    If they want their "computing graphics" products in mobile SoCs, they need a decent modem to support it.
    Reply
  • TheJian - Sunday, August 9, 2015 - link

    You forgot to mention NV handily beat the street (1.01B expected revenue), which is why it was up ~10%! How can you leave out what everyone else had as the headline?

    Integrated modems won't matter as soon as die shrinks makes the power on these tank just like everything else. Many throw in a qcom/intel modem even today.

    No so sure Intel's fees end in 2017, as they'll have to come up with something themselves that doesn't trample NV's patents again, or pay up anyway. Considering the Markman hearing showed the judge favoring NV in 6/7 patents, I'm not sure NV needs to make any money right now in mobile when they're likely to get billions from WILLFUL infringement, a long term lic fees from samsung/qcom/apple etc. It's just a matter of figuring out who's most responsible and for how much. When you consider MSFT makes ~7-8B a year now on $4/unit sold with android, you can easily see how NV has a valid argument for a few bucks themselves. Qcom charges a % of the ENTIRE device whenever their modem is inside (in court now in china due to this, but a valid argument until USA shoots it down too).

    Anand himself didn't call it the wild west of patent infringement for nothing right? Seeing Intel's 1.5B loss in the same type of suit (over Nv's gpus), I can't see how samsung (not a USA company), with profits dwarfing Intel (22-30B, vs. Intel ~8B now), could get away with less than that + lic fees for a decade or more. Those patents are from 1999-2001. They will continue to trample desktop's gpus/patents for 15 years after those as NV/AMD have pretty much every patent that puts a game on your screen for the last 15-20yrs. I expect an AMD suit if they have anything, as soon as NV wins and gives them a leg to stand on [cheaply] in court. I doubt Intel will get out of patents going forward either. They will either have to pay up again (new contract) or remove gpus from their cpus at some point. Just like Qcom with modems and sending signals etc, there is not a radically different way to get a game on your phone/tablet that desktop gpus haven't already patented for 15yrs straight.

    My point is, they're already diversified, you're just not getting it. A lic fee and a fine is just as good as selling a soc. Just ask Microsoft about their $7-8B a year (a Billion alone for the last 2yrs from samsung...LOL) from 2B units of android. Also note it won't help Samsung that they were LATE paying MSFT what they agreed to pay and MSFT added a 6mil late fee...ROFL. A jury won't like people with 22-30B a year that don't pay debts and are NOT a USA company pilfering USA patents correct? I can't wait to see that sticker shock price compared to a NON-Willful infringement case of 1.5B (just broke chipset deal so became infringing, not willful for 2-3yrs). NV makes ~600mil a year. Merely a $1 per android devices nets you 2B of pure income. MSFT doesn't have to keep pouring R&D into new lines of android code for that $3.5-4 bucks a pop per device either. Again, a great reason for a jury to award NV big, when they have to keep pouring 1.2B a year into gpu tech etc. Google can't seem to figure out a way out of the code after years of android.

    http://www.dailytech.com/Samsungs+Royalty+Fee+to+M...
    Reply

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