Transition
In some ways NVIDIA's performance is the most representative of the broader tech market of any company. The reason being it's one of the few to be playing in both the PC and mobile device markets with equal vigour.
NVIDIA's recently-announced quarterly earnings are a case in point. The graphics giant beat analyst expectations in the first quarter revenues from its Tegra 2 SoC started to have a significant impact.
Total revenue was $962 million, which was up 8.5 percent sequentially, but down four percent year-on-year. Analysts had been forecasting revenue of $948 million. Within that the consumer products business, which includes Tegra announced record revenues of $122 million as the first lot of Tegra 2 devices, such as the Motorola Xoom, hit the market.
"Our core GPU businesses are solid, with expanding revenues and margins. And this quarter, our Tegra mobile business took off," said Jen-Hsun Huang, NVIDIA president and CEO. "With the Tegra super chip and the Icera wireless communication processor, we will offer our customers the two most important processors of the mobile computing revolution. We look forward to completing the Icera acquisition shortly."
The big question for NVIDIA is to what extent Tegra is compensating for decline in PC graphics and, if that's the case, to what extent any decline is attributable to the overall market rather than NVIDIA's competitive position.
Our impression is that, allowing for its exit from the IGP (or as NVIDIA insists on calling it - MCP) market, NVIDIA is doing fine relative to AMD in the PC market. Furthermore much of the volume decline in PC sales that has been blamed on tablets is at the entry level, where NVIDIA's discrete graphics don't appear anyway.
But we will be concerned if we see a reversal of this quarter's year-on-year decline before long, as Tegra sales grow and account for a greater proportion of total revenues. Here are some excerpts from the earnings conference call that shed a bit more light on the situation, kindly transcribed, as ever, by Seeking Alpha, and attributable to Huang.
"Revenue by business segment was as follows. Our GPU business was up 3.8%. Our MCP revenue was down significantly as we entered the final phase of that business, but this was more than offset by a strong growth in notebook [indiscernible]. Demand for notebook GPUs increased significantly, as OEMs ramped production of Sandy Bridge notebooks.
"Our Professional business was relatively flat, gradually increased sequentially. However, our Tesla business was down relative to the prior quarter, as the fourth quarter benefited from a particular large transaction. And our Consumer business achieved record revenue, driven by our Tegra customers bringing their first Android products to the market."
Asked about whether tablets have been mis-positioned: "I think that is recognized that the vast majority of tablet users are actually buying it from retail and Wi-Fi only."
Asked to break down the Q2 forecast, which was up around five percent sequentially: "The GPU business, about flattish. The Professional business, about flattish. And the Consumer business, uppish. And so and as a result of that, we're able to overcome the Q2, which tends to be seasonally down."
Asked if NVIDIA plans to integrate Icera baseband processors into Tegra SoCs: "With respect to the integration, we have no current plans to integrate their modem... We also see that in the vast majority of the projects that we're working on, whether it's tablets or super phones, the ability to keep the 2 processors separate allows us to mix and match the best processors for the devices that we're in."
On reports that TI might be the lead chip partner for the next generation of Android: "Well, I'm not exactly sure what TI's talking about, but they're obviously making a lot of it for nothing. But we're working very closely with Google on Ice Cream Sandwich, and it's a very important new generation of operating system based on starting from the Honeycomb base and I'm expecting it to be really terrific."
