Nvidia earnings focus on the transformation from PCs to mobile chips

Nvidia reported a strong fiscal fourth quarter and said it was upbeat about the potential for its Tegra 2 mobile phone chips to be used in a raft of new smartphones and tablets.

If Nvidia can keep its revenues high as it makes the transition to mobile chips, it may be one of the few technology companies to successfully navigate the PC-to-mobile transition.

Nvidia CEO Jen-Hsun Huang said the results show “the larger story of transformation.” He said that graphics chips for PCs remain critical to Nvidia, but the future growth of the company is coming from mobile computing. Nvidia has now shipped 1 billion graphics chips, most of them for personal computers.

“Tegra is positioned center stage in the revolution in super phones and tablets, while Tesla (high-end graphics chip familys) is becoming an essential processor for supercomputing,” he said. “I have never been more excited about Nvidia’s prospects.”

The company reported fourth quarter earnings of $171.7 million, or 29 cents a share, up 48 percent from a year ago. Revenue was $886.4 million, down 10 percent from a year ago. Non-GAAP earnings were 23 cents a share, 7 cents better than estimates. Revenues were slightly lower than the $892 million expected by Wall Street, but Nvidia said some analysts had high estimates based on assumptions they made about a legal settlement with Intel. That settlement gave Nvidia $57 million in the quarter as part of a larger $1.5 billion settlement of patent licensing issues.

Nvidia’s Tegra 2 mobile processor is getting into more tablet and smartphone designs from companies such as Dell, LG, Acer, Toshiba, Samsung and Motorola (Motorola’s Xoom is pictured above). At the high-end, Tesla chips are becoming more common in supercomputers. Tegra customers are just starting to order chips in high volumes, but Huang said in a conference call that during the fourth fiscal quarter, Nvidia “barely shipped anything” on Tegra.

For the first fiscal quarter, Nvidia projects revenue growth of 6 percent to 8 percent from the fourth quarter and profit margins of 48.5 percent to 49.5 percent.

Nvidia said it gained market share in desktop graphics chips, growing from 59 percent of the market to 61 percent. Both laptop and desktop chip demand was strong during the quarter. As  Intel ships its Sandy Bridge combo graphics-microprocessor chips, Nvidia expects to gain market share because many PC makers are putting both the Intel processor, which has decent graphics performance, and the Nvidia graphics chips as well.

Nvidia will start shipping its Kal-El quad-core Tegra mobile processor in the third quarter. Huang said this next-generation mobile processor is as much as a year ahead of rivals, which include Qualcomm, which will ship its 2.5-gigahertz quad-core mobile chip in early 2012. Nvidia has samples of its Kal-El chip in customers’ hands now.

Beyond the near-term, Nvidia is working on Project Denver, an ARM-based microprocessor that is expected to be able to run Microsoft’s next-generation Windows software. Nvidia has no timeline for that chip yet. Huang said that Nvidia is pouring a lot of engineering resources into Tegra and Project Denver.

During the quarter, Nvidia said it is working not only with Volkswagen Audi Group on car-based entertainment systems, but also on systems for BMW and Tesla cars.

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