NVIDIA Reports Financial Results for the Fourth Quarter and Fiscal Year 2003

by Anton Shilov
02/14/2003 | 07:35 PM

NVIDIA announced financial results for the fourth quarter of fiscal 2003 and the fiscal year ended January 26, 2003. A very good thing about the company is that it is still profitable, but there is a pity for it as well: it is not as profitable as it used to be, moreover, fourth quarter earnings were lower than revenues for the same period a year ago what is a rather disturbing sign. On the other hand Q4 results improved from Q3 and it is a good sign for the company.

For the fourth quarter of fiscal 2003, revenues were $469 million, compared to $503.7 million for the fourth quarter of fiscal 2002. Net income for the fourth quarter of fiscal 2003 was down to $50.9 million, or $0.30 per diluted share, from $76.0 million, or $0.43 per diluted share, for the fourth quarter of fiscal 2002. In early February NVIDIA and Microsoft announced the settlement of all issues related to pricing of the Microsoft XBOX GPU and MCP chips. As a result of the settlement NVIDIA recognized $40.4 million in additional revenue in the fourth quarter of fiscal year 2003. Of the $40.4 million, revenues associated with unit sales in the fourth quarter of fiscal 2003 were $4.8 million and revenues associated with unit sales in prior quarters were $35.6 million. <%BANNER[article]%>

During the conference call with NVIDIA’s CEO and president Jen-Hsun Huang, Michael Hara (Vice President of Investor Relations and Communications) and Marvin Burkett (Chief Financial Officer) it was said that gross margins in the fourth quarter were approximately 35.7% due to the settlement with Microsoft. Without the settlement the gross margins would have been nearly 30%.

During the Q4 of fiscal 2003, the company managed to reduce the inventory to 44 days of sales (or approximately 145 million) compared to 58 days at the end of October 2002. During the first quarter of fiscal 2004 more reductions are likely to happen, though, one should consider the fact that NVIDIA needs to build the new NV3x graphics processors before starting to sell them, hence, it is not very likely that the reductions in inventory are substantial if at all possible in the current situation. The latter fact can be easily explained because if NVIDIA makes its best to get rid off the current stock before starting to sell the NV3x products, their market share will tumble. The majority of present inventory are the GeForce4 MX graphics processors, but NVIDIA’s representatives point out the company also has loads of other chips in stock, including outdated TNT2s and GeForce2 MX products.

Revenues for the fiscal year ended January 26, 2003 were $1.91 billion, an increase of 39% compared to revenues of $1.37 billion for the fiscal year ended January 27, 2002. Net income for the fiscal year ended January 26, 2003 was $90.8 million, or $0.54 per diluted share, compared to net income of $176.9 million, or $1.03 per diluted share, for the fiscal year ended January 27, 2002.

Some very interesting statements in regards the future of the company were made during the quarterly conference call and its Q&A session, take a look:

• Upcoming NV3x graphics processors:
  • NVIDIA prepares to launch multiply GeForce FX derivatives for various PC market segments and price ranges from $99 to $399 as fast as by the end of Q2 of its fiscal 2004.
  • The GeForce FX-derivative mainstream product is due to come in the first quarter of financial 2004.
  • Three new graphics processors based on the NV3x architecture now are ramping at TSMC using 0.13 micron copper fabrication process.
  • NVIDIA will present and offer its current programmable architecture (and its future incarnations) based chips for all possible markets in two years.
  • No exact information about the NV31, NV33, NV34, NV35, NV36 and NV40 products was issued. Check X-Bit Labs Newswire for that kind of news every day :)
• XBOX-related:
  • The company plans to improve its margins for the XBOX intended processors after the settlement with Microsoft.
  • Orders on the XBOX-related chipset will decline in the first quarter, but will ramp by the end of the second quarter of NVIDIA’s fiscal 2004.
• nForce-related:
  • nForce2 platform products have been very popular and the company intends to capture the largest market share of AMD processor-supporting chipsets.
  • Currently NVIDIA sells more integrated versions of its nForce2 core-logic products, though, it predicts that soon discrete chipsets will also gain popularity.
  • Majority of nForce-series shipments came from nForce2-series.
• Mobile products:
  • NVIDIA currently offers highest-performing solutions on all mobile PC market segments and more products, including those based on NV3x architecture, to come soon.
  • NVIDIA’s current market share in mobile market is 25%.
• Business/Financials-related:
  • By the end of Q1 (NVIDIA’s Q1 ends in late April) the Santa Clara, California-based company hopes to sell up to 1.5 million of NV3x-based products.
  • R&D expenses are to rise during the first quarter. Most of the expenses are associated with taping-out numerous new graphics chips.
  • NVIDIA expects their overall gross margins to reach “high thirties” with the GeForce FX derivative product line.
  • The graphics processor developer predicts that standalone graphics chips market will expand this year as a lot of gamers who use old-generations of products for old games will upgrade their hardware for newer titles like Doom III, Half-Life 2 and Unreal 2. As integrated graphics cores are not able to run these potentially popular games, NVIDIA’s predictions that DirectX 9.0-supporting products will gain popularity seem to be correct.
  • At the moment NVIDIA’s largest customers are Microsoft, MSI and ASUSTeK.