Nvidia's Graphics Chips and Core-Logic Revenue Drops 30%

Weak Packaging Charges Continue to Hit the Company

by Anton Shilov
08/12/2010 | 03:18 PM

Nvidia Corp.'s sales of graphics processors and chipsets dropped 29.5% sequentially in the second quarter of fiscal 2011, the company said on Thursday. But weak sales of consumer chips was not the only reason why the firm posted a loss. Apparently, Nvidia was hit again by the charges for faulty chips that used inappropriate packaging material.

 

Nvidia's revenue of for the second quarter of FY2011 ended August 1, 2010, were $811.2 million, down 19.0% from the prior quarter and up 4.5% from $776.5 million from the same period a year earlier. On a GAAP basis, the company recorded a net loss of $141.0 million, or $0.25 per share, compared with net income of $137.6 million, or $0.23 per diluted share, in the previous quarter and a net loss of $105.3 million, or $0.19 per share, in the same period a year earlier. GAAP gross margin was 16.6% compared with 45.6% in the previous quarter and 20.2%  in the same period a year earlier. Excluding the charge for the weak die/packaging material set and the associated tax impact, non-GAAP net income for the quarter was $20.1 million, or $0.03 per diluted share.

 

Nvidia Revenue Split for Q2 FY 2011 (in $ million)

 

Q2 FY2011

Q1 FY2011

Change

GPU Business (GeForce, IGP)

$550.4*

$780.9

-29.5%

Professional Solutions Business (Tesla, Quadro)

$215.1

$189.7

+13.4%

Consumer Business (Tegra, royalties)

$45.7

$31.2

+46.5%

Total

$811.2

$1001.8

-19%

*According to Jen-Hsun Huang, sales of chipsets were in the range of "less than $200 million", which essentially puts sales of discrete GPUs to over $300 million, but probably less than $400 million.

Based on the company's revenue split, Nvidia experienced substantial drop in sales of graphics processors and chipsets (Nvidia reports about them under the same moniker), managed to moderately increase sales of professional solutions like Tesla (which was up significantly) and Quadro (which was up slightly) and finally succeeded in boosting sales of its Tegra-series system-on-chip to consumer electronics makers.

During the second quarter Nvidia recorded an additional net charge of $193.9 million related to a weak die/packaging material set that was used in certain versions of our previous generation chipset and graphics processing unit (GPU) products shipped before July 2008. Together with the previously announced charges related to this same issue, the new one brings the total net charge to $475.9 million.

Nvidia also blames the unexpected consumer PC market weakness for excess inventory of certain, primarily older generation, products.  As a consequence, the company's second quarter results include charges for a "large" inventory write-down.

"Inventories at the end of the quarter were $434.2 million, up 11.9% over the prior quarter.  Notwithstanding the inventory write-downs, inventory was up as a result of lower actual revenue than was planned early in the first quarter when we made wafer start commitments. Our manufacturing cycle time is approximately four months. We made appropriate adjustments to our build plans over the course of the second quarter, but we do not expect these corrections to meaningful impact our inventory levels until the fourth quarter," explained David White, chief financial officer of Nvidia.