Nvidia Beats the Street with Strong GPU Sales, Betting on Shield, Project Logan To Boost Tegra Business
Strong gross margin of 55.8% (up 4% year-on-year), new GPU launches, and sustained Quadro demand all helped anchor revenue. Tesla revenue surged in particular; up 127.5% year-on-year, while Quadro recorded a 14.3% gain. Consumer GPU revenue grew by just 3.9%, but this is the space under the most pressure from more powerful integrated graphics and, more recently, tablet sales. Overall, the GPU side of the business remains remarkably strong in the face of multiple headwinds.
Tegra Sales Collapse
The other side of the business, however, is downright ugly. Nvidia had previously warned that it expected Tegra sales to fall in 2013, calling the shift a cyclical trend. Even with this forewarning, the falloff is steep -- sales are down 49% quarter-on-quarter, and down 71% year-on-year. That's a hard blow for the company to take, particularly after Tegra 3 was such a success. Google's decision to use Qualcomm for the second-generation Nexus 7 and Microsoft's (rumored) decision to do the same for a future Surface RT both obviously hit the company hard. It's not clear what this collapse says about SHIELD revenues, either -- while the device only began shipping on July 31, the pre-order revenue would all have been recognized in this past quarter.
In May, Jen-Hsun announced that the company had chosen to flip/flop on Tegra 4 / 4i and pull the latter in for a closer launch date at the expense of pushing the former out further. Nvidia has demoed the Tegra 4i several times throughout this year, but the current expected launch date for devices is still early 2014.
The good news, if you want to call it that, is that from here, everything is pretty much upside. Nvidia's profitability isn't hanging on Tegra 4's sales or lack thereof. The company would obviously hate to lose the revenue its built from that business, and its hoping that Shield will stoke sales of its own handheld, but the drop doesn't threaten the company's positioning. The company is optimistic about the potential for its new GPU licensing business, but isn't yet ready to announce any customers for that IP.
The company's analyst call was heavy on emphasis for Tegra 4's longterm upside, with a long discussion of what Nvidia expects from Shield, Project Logan, and the future of Android mobile gaming. The company also emphasized Project Logan as well positioned to capture "early design wins," implying that T4 might well be outdated before its ever commercially available.