Nvidia beats forecasts, but not because of tablets

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Nvidia beats forecasts, but not because of tablets

Traditional graphics business drives chip company to strong Q3, but CEO laments failure to get into Kindle Fire

By CAROLINE GABRIEL

Published: 14 November, 2011

READ MORE: Financial | nVidia | Processor | Tablet

Nvidia beat Wall Street forecasts in its third quarter, though this was mainly on the strength of its traditional graphics processor business rather than its high profile Tegra mobile chips. While Nvidia has been the darling of some analysts because of its strong showing in the nascent tablet segment, the company's management are keeping their feet on the ground, aware that the non-iPad market has been disappointing so far. This mood saw CEO Jen-Hsun Huang praising the new Tegra 3, but bemoaning the failure to get Tegra into Amazon's Kindle Fire, likely to prove the iPad's biggest challenger so far.

In the third quarter, Nvidia's earnings were $178.27m, or 29 cents a share, on revenue up 26% year-on-year to $1.07bn. Wall Street was looking for earnings of 26 cents a share on revenue of $1.06bn. Analysts said the main reason for the strong results was a good showing in graphics processors for PCs, as well as in high end workstations used for applications like industrial design. "We're in the second half of a 10-year game console cycle, and the PC has evolved so far beyond the console that it's become the preferred gaming platform," Huang said. "That typically continues for multiple years."

But some observers wanted to see more powerful momentum behind the mobile business, on which Nvidia has pinned many of its hopes for future growth. Its Tegra 2 apps processor has taken a strong position in tablets and is also in some high end smartphones, and the quad-core Tegra 3 was unveiled recently, for incorporation in devices from late 2011. However, there is concern that the tablet sector remains smaller than expected and that competition is so tough in handsets, especially from companies like Qualcomm with integrated processor/baseband chipsets. Nvidia recently acquired baseband specialist Icera to address this gap in its range.

Huang said the company was working hard to get into future Amazon tablets, having seen the new Kindle Fire go to Texas Instruments' OMAP (the Kindle e-readers use Freescale processors). He said on the earnings call: "There are a couple of design wins that I wish we had this year that we didn't have. I already mentioned Motorola. We were surprised by the Amazon Fire, but frankly, we're not going to be surprised again. We're obviously very excited about Amazon, and we're going to do our best to be a partner of theirs someday."

He insisted Tegra 3 designs wins were on target, but also discussed missed opportunities, particularly the loss of the latest Motorola deals, an indicator of how competitive and fluctuating the mobile business is - and how important timing is. Nvidia was at the right point in the tablet design curve late last year, but when processors were being selected for the new wave of smartphones coming to market now, TI had hit back with new OMAP 4. "Motorola had their own internal rhythm and OMAP 4 was right in between Tegra 2 and Tegra 3 and they felt that OMAP 4 was a better processor than Tegra 2. Obviously, I feel different, but Motorola made their choice," said Huang.

But he said Nvidia had more experience of building mobile devices, and more OEM engagements and contracts, than it had a year ago - and Windows 8 tablets would open up a major new opportunity in which Nvidia would start from a position of strength.