Nvidia demand strong despite drop by Apple

Piling up the chips.

Nvidia reported solid second-quarter results and issued an upbeat guidance, a sign that the company is taking market share in chips for laptops and enjoying strong demand for game consoles and other products. Once known solely for its chips called graphics processing units, or GPUs, which generate visual effects in videogames played on personal computers and consoles, Nvidia has recently stepped up and expanded its business to mobile devices such as cell phones and tablets.

The company said its phone business ramped up toward the second half of the latest quarter and that more devices carrying its Tegra chips are going into production. At the Consumer Electronics Show in Las Vegas earlier this year, Nvidia unveiled a series of “design wins,” in which electronics manufacturers agreed to use its mobile chips for their products. On Wednesday, Nvidia said Samsung Electronics is using the company’s Tegra chip in the new Galaxy R smartphone, the first time Asia's biggest electronics firm has used that chip in one of its phones.

For the quarter ended July 31, Nvidia posted a profit of $151.6 million, or $0.25 a share, compared with a prior-year loss of $141 million, or $0.25 a share. Excluding some items, earnings rose to $0.32 per share, up from $0.08 a year earlier and above analyst estimates of $0.25. Nvidia said revenue for its consumer products group, which includes Tegra, rose 36.8% from the first period. But most of that gain came from royalties for game consoles and from embedded entertainment products.

One negative factor has been Apple's (AAPL) recent decision to drop Nvidia GPUs in favor of Advanced Micro Devices' (AMD) products. Nvidia's chips, however, still appear in Samsung, Motorola and LG Electronics' products. The chipmaker predicted revenues in the current quarter would grow 4% to 6%, implying revenue of $1.06 billion to $1.08 billion, compared with analysts' average forecast of $1.05 billion. Its outlook on Thursday comes despite mounting economic uncertainty and concerns that spending on consumer electronics during the upcoming holiday shopping season may fall short of expectations.

Nvidia (NVDA : NASDAQ : US$12.88), Net Change: -0.53, % Change: -3.95%, Volume: 79,689,961

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

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