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Three Factors That Can Drive NVIDIA’s Growth This Quarter

May 06, 2014 | About:

Graphic processing unit (GPU) and gaming chip maker NVIDIA (NASDAQ:NVDA) is slated to release its first-quarter 2015 results on May 8. Last quarter, it reported a mixed result with revenue growing but earnings per share declining from the year-ago level.

Revenue growth was mostly driven by growing demand of PC gaming chips. NVIDIA expects first-quarter revenue to grow by roughly 10% year over year, which is higher than 3% growth recorded in the first quarter of 2014. Let’s find out the factors that can boost NVIDIA’s revenue growth this quarter.

A Revival in the PC Market

The PC industry, which has been declining in the past two to three years, is now seeing signs of slow rebound. Although PC shipments fell 1.7% in the first quarter of 2014, it is way better than the steeper drops that it saw in the previous quarters. Now if the demand for desktops revives it would mean good business for NVIDIA as it provides gaming chips for the desktop PCs.

Last quarter, the company’s GPU business grew 14% year over year, although PCs dropped roughly 7% in the fourth quarter of 2013. Particularly, sales of GeForce GTX GPUs, which is the gaming chip, grew roughly 50%. This was driven by higher demand for latest games from Activision Blizzard (NASDAQ:ATVI) and Ubisoft (UBSFF). According to research firm DFC Intelligence, global PC gaming revenue could reach $25 billion in 2014. This means a lot more new gamers would chip in, and higher demand for PC gaming will give rise to more demand for high-performance gaming chips, which bodes well for NVIDIA.

A better PC market coupled with the growing interests in PC-based gaming could drive the chipmaker’s GPU revenue.

Increased Shipments of Smartphones

Shipments of smartphones are increasing and this could prove beneficial for NVIDIA. According to market research firm IDC, last year's shipment of smartphones grew 38.4% year over year. And the momentum was maintained in the first quarter of 2014 with shipments growing 34% year over year.

NVIDIA serves smartphone-makers with Tegra chips and is constantly on its toes to launch advanced chips to improve consumer experience. In the past quarter, the company expanded its reach in the mobile devices market with Tegra 4 chips — the next iteration of its extremely popular Tegra 3 chips. China’s renowned smartphone-maker Xiaomi has featured the Tegra 4 chips in its latest Mi3 smartphone.

During the fourth quarter, NVIDIA witnessed good demand for the Tegra 4 chips from smartphones. Considering the growing shipments of smartphones, it is expected that demand for the company’s latest Tegra chips will also go up.

Maxwell GPU Chips Launched

Technology is an ever-changing ground, and new product roll-outs incorporating upgraded technology are the key to survive in this market. NVIDIA launched two gaming chips featuring its "Maxwell" GPU architecture in February. Maxwell architecture enhances the picture resolution and minimizes power consumption. Energy efficient chips are important for notebooks and tablets for better performance and long hours of gaming. Most importantly, NVIDIA assures that the chips will be affordable.

The growth in mobile gaming could propel demand for the Maxwell chips and put serious threat on Advanced Micro Devices’ (NASDAQ:AMD) similar offerings.

Parting Thoughts

NVIDIA is a strong player in the gaming chip market. Although there is stiff competition, the company is well positioned to monetize the ample scope in the gaming market (both PC and mobile). The chip maker could also gain market share with the acceptance of its Maxwell architecture.

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