NVIDIA Corporation (NVDA, Financial), with footprints in the United States, Taiwan, China, the rest of Asia Pacific, Europe and other Americas, operates as a visual computing company. The company operates through two segments –Â GPU and Tegra Processors. The company’s products are used in gaming, enterprise, high performance computing and cloud, and automotive markets. It sells its products primarily to OEMs, original design manufacturers, system builders, motherboard manufacturers, add-in board manufacturers, and retailers/distributors.
Quarter at a glance
The company posted first-quarter 2016 results on May 7, 2015. The highlights of the quarter are:
- First-quarter revenue increased 4% year over year to $1.15 billion, missing the consensus estimates of $1.16 billion.
- GPU revenue was $940 million, up 5% year over year.
- Tegra processor revenue was $145 million, up 4% year over year.
- Gaming revenue was $587 million, up 25% year over year, driven by the strength of Maxwell GPU architecture.
- Automotive revenue had a record quarter at $77 million, growing 121% year over year.
- The OEM and IP platform had revenue of $218 million, down 38% year over year, primarily due to EOL of for Tegra OEM designs as well as persisting weakness in PC OEM sales.
- Adjusted earnings per share came in at $0.24 versus analysts’ expectation of $0.26.
Other financial metrics
- Adjusted gross margin expanded 197 basis points over the year-ago value of 56.7%.
- Adjusted operating expenses increased 5.4% year-over-year to $468 million as a result of investment in research and development.
- Adjusted operating margin clocked 16.1% versus the year-ago value of 14.5%. This was on the back of growth in GPU business and higher revenues base.
- Adjusted net income increased 8% year-over-year to clock $185 million.
- Free cash flow came in at $216 million, while cash flow from operations was $246 million.
- The company repurchased 2.4 million shares during the quarter.
- The company paid quarterly dividends totaling $46 million during the quarter.
- NVIDIA exited the quarter with cash, cash equivalents and marketable securities of $4.79 billion versus $4.62 billion in the previous quarter.
Market growth projections
Total gaming hardware market is estimated to be over $100 billion and the breakup is as shown below:
NVIDIA's SHIELD and GRID products will go a long way in fueling growth in this segment. The company’s new console will be an Android TV console that brings entertainment of all kinds to people's living rooms. Android gaming on TVs will disrupt the market according to NVIDIA.
In addition, NVIDIA’s Tegra processors deliver industry-leading rich visuals and responsive performance for the broad range of devices in market – from smart-devices to gaming consoles. This innovation enables automakers to offer highly advanced systems integrated into the vehicle. With automobile sales growth poised to remain healthy, NVIDIA’s automobile segment can be a growth driver going forward.
Looking ahead
- Revenue for the second quarter is expected to be $1.01 billion plus or minus 2%.
- GAAP and non-GAAP gross margins are expected to be 55.7% and 56% respectively plus or minus 50 basis points.
- GAAP and Non-GAAP operating expenses are expected to be approximately $474 million and $425 million, respectively.
- Board of Directors has extended the previously authorized repurchase program through to December 2018 and authorized an additional $1.62 billion for an aggregate of $2 billion available for repurchase.
- NVIDIA intends to increase return to shareholders from $600 to $800 million in fiscal year 2016 through cash dividends and share repurchases.
Wrapping up
NVIDIA’s innovative product pipeline and strong presence in gaming and high-end notebook GPUs keep it well positioned. Higher adoption of Tegra processors could be another growth driver going forward. However, a continuous decline in the PC market can be a cause of worry for the company. Additionally it has to face credible challenge from the likes of Intel (INTC, Financial) and QUALCOMM Inc. (QCOM, Financial). The stock has a trailing P/E of 18.59 and forward P/E of 18.76, so pretty muted growth expected in a year. Compound annual growth rate for the next five years is slated to be 5.83% versus 7.9% of S&P500.
Hence, it is worthwhile to watch the stock from sidelines for the moment.
