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NVIDIA Corporation reported its financial results for the third quarter of fiscal 2004 ended October 26, 2003, on Thursday, the 6th of November. The firm’s financial performance appeared to be better than analysts estimated. During the conference call, NVIDIA’s management talked on loads of things, including NV4x GPUs, MCPs and other exciting products.

For the third quarter of fiscal 2004, revenue increased to $486.1 million, compared to $430.3 million for the third quarter of fiscal 2003, an increase of 13%.  Net income for the third quarter of fiscal 2004 was $6.4 million, or $0.04 per diluted share, compared to a net loss of $48.6 million, or $0.32 per diluted share, for the third quarter of fiscal 2003. 

The financial results for the third quarter of fiscal 2004 included a charge to operating expense of $3.5 million for the write-off of in-process research and development that resulted from NVIDIA’s acquisition of MediaQ in August 2003, and a charge of $13.1 million to other expense related to the full redemption of NVIDIA’s $300 million of 4.75% Convertible Subordinated Notes in October 2003.

Revenue for the nine months ended October 26, 2003 was $1.35 billion, compared to revenue of $1.44 billion for the nine months ended October 27, 2002.  Net income for the nine months ended October 26, 2003 was $50.3 million, or $0.29 per diluted share, compared to net income of $39.9 million, or $0.24 per diluted share, for the nine months ended October 27, 2002.  The financial results for the nine months ended October 27, 2002 included a charge of $61.8 million that resulted from the exchange of certain out-of-the-money employee stock options.

Highlights of the third quarter, product, design wins, announcements:

  • NVIDIA began shipping the GeForce FX 5950 and GeForce FX 5700 GPUs.
  • NVIDIA commercially launched its first GPU produced at IBM’s 0.13 micron foundry in East Fishkill, New York.
  • NVIDIA captured an overwhelming majority of the new design wins launched with Microsoft’s XP Media Center Edition 2004.  NVIDIA was the exclusive graphics partner as Microsoft launched the Media Center Edition in Europe.
  • In October, NVIDIA shipped its 6 millionth NVIDIA nForce2.
  • Claims to have extended its leadership position in AMD64 market;
  • NVIDIA sells 37% of chipsets for AMD platform;
  • Completed acquisition of MediaQ, marking NVIDIA’s entry into the wireless mobile segments. Introduced NVIDIA’s first media processor for handhelds.

Highlights of the third quarter, financials:

  • Gross margins were down to 27.6% in Q3 compared to 28.3% in Q2. The company’s CFO believes this is the bottom in gross margins and believes the firm to “turn the corner”.
  • Operating expense in the most-recent quarter was up to roughly $119 million from $105 million in Q2.
  • R&D increased $7.4 million because of amortization, write-offs, hiring of MediaQ engineers, product prototyping and tapeouts, etc.
  • Sales, general and administrative expenses were up about $2.5 million to $42.2 million, primarily as a result of increasing expenses for tradeshows and promotions of the new products. 
  • Inventory level rose to $260.82 million from $218.86 million by the end of Q2 2004. It now represents 67 days of sales. The added inventory is entirely the GeForce FX family of chips. The trend of increasing inventory is also effective for ATI Technologies’ most recent quarter.
  • ASPs in Q3 of fiscal 2004 were up compared to the Q2.

Product mix notes for the third quarter:

  • Notebook revenue was a record and reflected a successful transition to the GeForce FX Go notebook GPU product line.
  • Platform processor revenue rebounded strongly with sequential revenue growth of 60%.
  • XBOX sales were 25% of revenue compared to 19% in Q2 fiscal 2004.
  • MediaQ revenue was less than 1% of sales.
  • Workstation products represent approximately 10% to 15% of revenue depending on the quarter.
  • Memory and components sales were $27 million for the quarter.

Expectations for the future, financials:

  • The company expects revenues to rise across all markets the firm serves.
  • XBOX revenues to decline by $80 million, but the decline will be offset by the growth of sales in other segments, the management believes.
  • Revenues will be approximately flat from Q3 to Q4, according to NVIDIA.
  • CFO supposes gross margins will go up.
  • CFO also anticipates that the gross margins will improve with each new product introduction and its actual revenue shipments. As “new products” ramp up, the company expects better product costs and higher gross margins.
  • CEO added that the company has implemented a “re-tuned model” to address product cost issues. He also said about increasing margins with every new product.
  • NVIDIA believes GeForce FX 5700 and nForce3 chipset will generally help to increase margins already in the Q4 (looks like the transition between GeForce FX 5600 to the GeForce FX 5700 will be unbelievably rapid, editor).
  • Marvin Burkett also noted the company was able to achieve better FX product costs from TSMC.
  • The company expects its gross margin to be up 1% in the fourth quarter of fiscal 2004 (a significant improvement keeping in mind that sales of lucrative XBOX core-logic sets will be down).
  • Operation expenses are expected to increase 3% to 5% quarter-to-quarter (they mean the growth over the figure – around $115 million – that excluded one-time expenses from the Q3, editor). Some increases are due to impact of MediaQ acquisition, some are because of increase number of tapeouts of future products GPUs and MCPs.
  • Management anticipates ASPs to improve in Q4 over Q3.

Expectations for the future, products:

  • Aims to deliver “an exiting roadmap of digital processors” for handhelds market. 60 ex-MediaQ engineers to join NVIDIA.
  • Mr. Jen-Hsun Huang mentioned “design-wins” for the GoForce 2150 for Europe, Asia and the USA.
  • The co projects new lineup of ultra low-power media processors for handhelds.
  • The management also talked about exciting DTV products during the conference call, but provided not details or timeframes for the devices.
  • The CEO talked on a future MCP with native Gigabit Ethernet and Serial ATA-150. Claimed the company will bring “MCP’s features and performance to a new level during the quarter”.
  • No updates on nForce for Intel CPUs.
  • The officials from NVIDIA confirmed a “whole-new” NV4x family to be launched next year (probably, calendar year, editor) and bring “programmable shading and cinematic computing to a new level”.
  • In Q1 some of NV4x will be in production. By Q2 many of NV4x will be in production to bring the margins up. By Q3 “almost entire” family of NV4x will be ramping up in production. No indications whether “calendar” or “fiscal” quarters, though.
  • When asked about NV40 tapeout, the management did not comment saying “We do not comment on tapeouts; we just comment on production ramps and design wins. There will be time to talk about NV40, today is our time to talk about 5950 and 5700…”
  • NVIDIA will offer top-to-bottom lineup of GPUs and MCPs with support for PCI Express.
  • NVIDIA is now sampling customers with its “first PCI Express technology”.
  • NVIDIA is excited about the PCI Express and will surely be on track with it, but denied to talk about the speed of transition, etc.
  • NVIDIA anticipates “something like” 10 different versions of GPU products next year, the majority of which will be PCI Express, as I understood from Jen-Hsun Huang, NVIDIA’s CEO.

Interesting statements:

  • Both NVIDIA’s product redesigns and IBM’s manufacturing technologies allow shrinking 0.13 micron cycle time at IBM (65 days versus TSMC’s 80 days, according to a report from Pacific Crest issued earlier this month, editor).
  • Some products at TSMC are made using 300mm wafers, as I understood from the CEO’s claims. ATI said during the most recent conference call that its RADEON 9600 XT had been in production at TSMC’s low-k 300mm lines.
  • IBM manufactures NVIDIA’s GPUs using 300mm wafers and 0.13 micron process, not low-k, though.

NB! We also provide you some figures not said during conference call and not available at the company’s web-site. The figures primarily concerning calendar quarter-on-quarter growth of shipments came from NVIDIA PR last month to reflect the company’s performance in calendar Q3 2003:

  • NVIDIA saw a healthy 8% overall unit quarter-on-quarter volume increase.
  • NVIDIA turned in 18% quarter-on-quarter growth in portable standalone components.
  • Shipments of NVIDIA’s total standalone components grew by 6% sequentially.
  • NVIDIA DirectX 9.0 components were up sharply, growing 62% quarter-on-quarter, while DirectX 9.0 growth was stunning 200%, as reflected by Mercury Research.
  • NVIDIA had 50% unit increase in the integrated core logic shipments during the third calendar quarter 2003.

Please also check our news-story titled “Mercury Research Details Q3 2003 Graphics Market” to obtain more information on the market share data in the Q3 2003. 


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