NVIDIA Corp. (NVDA) reported third-quarter fiscal 2011 earnings per share of 15 cents, exceeding the Zacks Consensus Estimate of 14 cents. Total revenue came in at $843.9 million, at par with the Zacks Consensus Estimate of $844.0 million.
NVIDIA reported third quarter revenues of $843.9 million, up 4.0% from the prior quarter and down 6.6% from the comparable quarter last year. The Graphic Processing Unit (GPU) segment grew by a modest 6.0% year over year. On the other hand, the professional business decreased slightly as a result of the depressed computing segment. Revenue for the computing segment varies from quarter to quarter because it is impacted by even a small number of large orders.
This apart, the consumer business grew slightly, driven by solid performance in the company’s embedded business. NVIDIA also expects Tegra revenue to ramp up in the fourth quarter, as customers begin building their pre-launch inventory.
Given robust growth in the core GeForce and Quadro businesses, it appears that NVIDIA has been regaining market share. Moreover, in the GeForce business, the company’s DX11 technology leadership led to an improvement. NVIDIA also witnessed standalone GPU share growth from 55.0% in the second quarter to 59.0% in the third quarter.
Operating Results
Gross margin on a GAAP basis was 45.6%, up from 16.6% in the previous quarter and 43.4% in the year-earlier quarter. Gross margin on a non-GAAP basis was 46.5%, up from 38.9% in the previous quarter and 40.7% in the comparable quarter last year. The gross margin was at the low-end of NVIDIA’s range, primarily as a result of product mix being slightly less favorable than what was expected at the beginning of the quarter.
GAAP operating expense in the quarter was around $288.3 million, down from $309.5 million in the prior quarter, but up from $283.9 million in the year-ago quarter.
NVIDIA reported a net loss of $84.8 million or 15 cents per share on a GAAP basis, compared to a net income of $107.6 million, or 19 cents per share in the year-earlier period. Including the weak die or packaging material charge, non-GAAP net income in the quarter was $84.8 million, or 15 cents per share, compared to a net profit of $77.4 million or 13 cents per share in the year-earlier quarter.
Balance Sheet & Cash Flow
NVIDIA exited the quarter with cash, cash equivalents and marketable securities balance of $1.98 billion, up from $1.77 billion in the previous quarter, while the inventories balance stood at $377.8 million, down from $434.3 million at the end of the previous quarter.
Guidance
For the fourth quarter of fiscal 2011, the company expects revenues to increase approximately 3.0% to 5.0% from the third quarter. The GAAP gross margin is expected to be flat. Operating expenses on a GAAP basis are expected to be approximately $300.0 million. The tax rate is expected to be in the range of 18.0% to 20.0%.
NVIDIA reported weak third-quarter numbers, but is optimistic about its growth potential in the long run with the gradual recovery in demand for graphics chips. However, this performance will likely be tempered by cyclical weakness, economic slowdown, exposure to Europe and increased competition. Additionally, increasing investment in research and development, coupled with slow recovery in the GPU market will exert some pressure on margins over the next few quarters.
The company has a Zacks #3 Rank (short-term Hold recommendation).
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