Following market closure on Wednesday, nVidia reported its fourth Quarter results as well as last year’s total figures, including cumulative revenue, gross margins, and net income. For the fourth quarter of financial year 2010 [nVidia's F4Q runs from November 1st to January 31], company reported revenue of $982.5 million in Q4 which was a nine percent rise quarter over quarter coming from Q3. This was also 40 million dollars higher than Wall Street analysts consensus. During this same quarter, nVidia also managed to post a GAAP net income of $131.1 million. They also managed to increase their gross margin to 44.7 percent in that very same quarter.
In reporting their quarterly results, nVidia also released their annual results for the last fiscal year and the picture the raw numbers painted wasn’t very bright. Both revenue and net income were down year over year from 2009 to 2010. Although this is true, their gross margin did actually increase over that same period of time. These raw numbers, to most, wouldn’t paint a very rosy picture and to be quite honest even with all of the background knowledge, it’s still not the best picture? but it is Brighter*.
Looking at the numbers put before us, any uninformed investor would say that nVidia is bleeding money more so this year than last year. This is technically the truth, but it also forgets to factor in the fact that the latter part of fiscal year 2009 was a terrible half of the year, and the leading half of fiscal year 2010 wasn’t so good either. Now, if you look at nVidia’s quarterly statements and compare quarter over quarter going from fiscal year 2009 to 2010 you notice a near doubling of both revenue and gross margins. This doesn’t even factor into the fact that comparing those two quarters yields a delta of almost 270 million dollars meaning that nVidia took a $147 Million loss in the fiscal year 2009 and transformed it into an income of $131 Million in the fiscal year 2010.
Now, we get to the reasons why nVidia isn’t shining as brightly as it could be. While many people do see a recovery in the cards for nVidia, many investors and consumers have grown weary of nVidia and their problems with the 40nm process and its implementation in their high ASP products. More specifically, these high ASPs are referring to Fermi and its implementation in professional, HPC, and consumer markets. nVidia showed their Fermi architecture to the world back in September of 2009 and as a result of that, many companies and consumers got excited about Fermi and its usefulness to them in whatever space they might need it. The problem is that since nVidia had no high-end part to counter the DirectX 11-supporting 5870 GPU from AMD, they had to continue to sell their GT200 series of products until Fermi came out. The only problem is that nVidia did not react well to Fermi delays and did not order enough GT200 wafers from TSMC. Result of these missteps was a massive shortage of chips to AIBs [Add-In-Board manufacturers], who all are in the red right now.
Lack of enough GT200 chips lead nVidia to shaft their consumer AIBs who are all openly angry at the company and pushed the available chips into commercial space, in the form of Quadro and Tesla products. Excellent sales of these two lines resulted in that quarterly profit – but the sales was nowhere near it could have been and ultimately, this is another reason why nVidia posted a 67 million dollar loss in the fiscal year 2010. If nVidia had Fermi part to sell to professional, HPC, and consumers, they could have made up for the supply issues with the GT200 parts with the higher ASP Fermi parts. If not, the company obviously refused to face the reality and did not react in a timely way with GT200 parts. As a result, because of the continued delays with Fermi’s launch [which still has yet to be launched], nVidia posted a loss in the fiscal year 2010 even though they had two consecutively good quarters. Simply put, nVidia isn’t really hurting that badly right now, but if they continue to put off Fermi’s launch and continue to have supply chain issues we cannot forecast that they will post a profit the fiscal year 2011. We did manage to found out the hard launch date for consumer based Fermi parts, though. Their availability will dictate nVidia’s sales and profitability during the first fiscal quarter 2011, which runs from February 1st to May 31st.
Now, while nVidia has lost some revenue in their GPU business, they have also managed to significantly grow their embedded computing segment of their company which includes the Tegra SoC. This chip and it’s sales have been one of the reasons why nVidia is still a company to follow, especially during this calendar year. There is a very high probability that Tegra may end up making up a very large part of Nvidia’s revenue in 2010 because of the fact that we don’t see them putting out very many Fermi cards as a result of issues that they’ve had in the past with yields and the like. Even though AMD also technically posted a loss last year, we have a feeling that both companies will have to address the issues that caused them to not pull out a profit even if they are the exact same issue regarding yields.