NVIDIA Corp. (NVDA) reported second quarter 2012 adjusted earnings per share of 26 cents, marginally beating the Zacks Consensus Estimate by a penny.
Revenues
The company reported second quarter 2012 revenue of $1.02 billion, up 5.7% from the previous quarter and 25.4% from the year-ago quarter.
Within business segments, the company’s Graphic Processing Unit (GPU) business recorded strong performance in the second quarter driven by higher notebook product sales. Despite seasonal weakness in the PC market, the company generated record notebook GPU revenue, thereby increasing the notebook GPU market share by 9.0% to 50.6%, according to Mercury Research.
While the company’s desktop GPU business decreased within typical seasonality, overall desktop GPU attach rate of consumer PCs remained strong at 55.0%. The company added 2 new desktop products targeted toward the gaming market.
The Professional business segment increased 4.2% from the prior quarter. Moreover, the company’s Quadro professional graphics business grew sequentially, as the company witnessed an improvement in enterprise IT spending. The company also continued with its transition to Fermi generation products.
The Consumer business rose 36.8% over the prior quarter primarily attributable to higher game console royalties, which were seasonally up from the previous quarter, and as a result of new customer wins and increase in embedded entertainment products.
Operating Results
Gross margin on a GAAP basis was 51.7%, up from 50.4% in the previous quarter and 16.6% in the year-ago quarter. Gross margin on a non-GAAP basis was 51.9% compared with 50.6% in the previous quarter and 39.2% in the year-ago quarter. Gross margin exceeded the company’s expectations due to the product mix within the company’s GPU systems.
GAAP operating expense in the quarter stood at $306.0 million versus $296.8 million in the previous quarter and $272.1 million in the year-ago quarter.
The company reported net income of $151.6 million or 25 cents per diluted share on a GAAP basis, compared with a net loss of $141.0 million or 25 cents in the year-earlier period. Excluding a net charge against cost of revenue arising from a weak die/packaging material set, amortization of acquisition-related intangible assets, other acquisition-related costs, tax gains, but including stock-based compensation expenses, adjusted net income was $162.1 million or 26 cents per diluted share, compared with $26.6 million, 5 cents per share in the year- earlier quarter.
Balance Sheet & Cash Flow
The company exited the quarter with cash, cash equivalents and marketable securities balance of $2.47 billion, down from $2.72 billion in the previous quarter, while the balance for inventories stood at $361.9 million, down from $380.9 million.
Guidance
For the third quarter of fiscal 2012, the company expects revenue growth of 4.0% to 6.0% sequentially. The company expects to witness strong growth across all its business segments. However, NVIDIA is concerned about the ongoing decline from its discontinued MCP business.
The company expects gross margin to return to the record levels achieved in the second quarter, both on a GAAP and non-GAAP basis. Operating expenses, on a GAAP basis are expected to be between $361.0 million and $366.0 million, while non-GAAP Operating expenses are projected between $319.0 million and $321.0 million.
Our Take
Nvidia Corp. is a worldwide leader in visual computing technologies. The company reported decent second quarter results and is optimistic about its long-term growth with the gradual recovery in demand for graphic chips. The company has rolled out its first quad-core mobile processor and new GeForce products.
Moreover, the recent acquisition of data chip manufacturer Icera will add value to its product portfolio. The newly introduced NVIDIA PhysX technology will likely attract more gaming customers. However, NVIDIA’s performance may be tempered slightly by the economic slowdown in Europe and increased competition.
Currently, NVIDIA holds a Zacks #3 Rank, implying a short-term Hold rating.
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