Graphics processing unit (GPU) specialist NVIDIA (NASDAQ:NVDA) is not in the best of health. The company’s results haven’t been all that good, which was quite surprising.
A Bad Performance
However, in reality, NVIDIA's net income actually fell by a substantial 16% on a year-over-year basis, which was attributed to increased operating costs that obviously did not lead to positive results. The core GPU manufacturer soon realized the shifting trend of consumer usage from using PCs to mobile devices and quickly changed gears by shifting its focus to developing graphics products for mobile devices instead.
Although the PC industry as a whole recorded a steady decline, NVIDIA was saved by its PC gaming segment. This was evident by the fact that the company recorded a substantial 14% year-over-year increase in revenue from sales of its GeForce graphics chips targeted at high-end gamers, the majority of whom use desktop machines. This is a positive event, bearing in mind that around 40% of the global gaming market is made up of desktop PC users. NVIDIA's graphics cards occupy nearly 70% of that market.
- Warning! GuruFocus has detected 4 Warning Signs with NVDA. Click here to check it out.
- NVDA 15-Year Financial Data
- The intrinsic value of NVDA
- Peter Lynch Chart of NVDA
Moreover, this is an exciting opportunity for the company in emerging markets like China and India, where cost-conscious consumers use PCs to play high-end games, instead of buying expensive game consoles from vendors like Sony and Microsoft.
However, NVIDIA’S greatest competitor Advanced Micro Devices which has recently launched a new high-end GPU has compelled NVIDIA to lower prices on some of its products. AMD has surpassed NVIDIA’S revenue from its game console business and has even launched a new graphics API code named Mantle.
NVIDIA plans to launch its new GPU architecture, which should significantly improve the performance of its next-generation graphics products and drive away its worry about decreased profit margins in the long run.
Apart from focusing on gaming GPUs, NVIDIA must not ignore the booming smartphone and tablet revolution, which is where its Tegra line of chip sets comes into focus. However, its Tegra business could not capture significant market share and has instead posted a 37% decline in revenue during quarter four.
A major reason for this might be NVIDIA's continued inability to match up to the high standards of the integrated LTE-enabled chips manufactured by rival Qualcomm. Qualcomm has been making such chips for over two years and is the definite market leader with over 97% share of global LTE-based revenue.
But, NVIDIA recently launched its next-generation Tegra K1 chip, based on its Keplar graphics technology, which has primarily been used in making high-end components for PCs. The company is promising mobile enthusiasts a PC-like gaming experience with the use of this chip which should brighten its prospects considerably.
Nvidia’s Shield and GRID technology for the cloud computing space are another promotable features. The Shield is a purely Android-based handheld gaming device with the capability to play streaming video games. The GRID technology allows multiple users to virtually share the computing power of a single GPU through cloud utilization. This saves the cost and need for expensive on-site equipment, a big potential advantage for NVIDIA. Amazon is already planning to offer GRID-based GPUs as a part of their overall cloud offerings that display NVIDIA's technology potential to become a big success story.
Hence, investors must keep a close watch on the stock’s performance in the near future as it has the potential to become a good buy if it is able to execute well.