Nvidia recovering in fiscal Q1

Yields improving on Fermi GPUs

Graphics card and GPU co-processor maker Nvidia has closed out the first quarter of its fiscal 2011 ended on May 2, and showed marked improvement over the pretty terrible results it had this time last year. However, sales were only up a bit sequentially, and Wall Street promptly gave Nvidia's shares a haircut.

In Q1, Nvidia reported revenues just over $1bn, up 50.8 per cent from a dismal Q1 of fiscal 2010 and gross margins improving to 45.6 points compared to an anemic 28.6 points a year ago. The graphics chip maker swung to a $137.6m profit, a whole lot better than the $201.3m loss it booked this time last year.

But as far as Wall Street was concerned, this was not good enough because Q1 sales were only up two per cent and profits were only up five per cent from the fourth quarter of fiscal 2009 ended in early February.

Wall Street was similarly unhappy to hear that Nvidia was expecting revenues to be seasonally down three to five per cent from the first quarter, and the idea that margins would improve a bit did not help to maybe 46 or 47 points did not keep investors from punishing Nvidia this morning. As El Reg goes to press, Nvidia's shares are off 10.6 per cent to $13.10 a pop and were continuing to slide.

In a call with analysts, David White, Nvidia's chief financial officer, said it was a good quarter, driven by a recovery in enterprise spending coming along with the shipment of Fermi-based graphics cards and co-processors. White said that the core GPU business was flat and that supply constraints that had been plaguing Nvidia for its new chips were starting to ease and that yields for high-end Fermi GPUs were better than expected.

That meant Nvidia could ship more GeForce GTX 470 and 470 graphics cards and Tesla GPU co-processors than it anticipated it would in the quarter. The Quadro graphics card lineup is approaching pre-recession sales levels, according to White, and Tesla had a record quarter.

Jen-Hsun Huang, president and CEO at Nvidia, said that the company shipped a few hundred thousand Fermi chips in the quarter, and that the yield issues with Fermis as they are baked at the fabs of Taiwan Semiconductor Manufacturing Corp using 40 nanometer processes have been worked through.

"With respect to manufacturability of 40 nanometers, I think we're surely out of the woods," Huang said in the call. "I think we can now officially say that."

But Nvidia is not TSMC's only customer, and everyone wants their wafers baked in 40 nanometer lines. "The challenge is that the more and more customers are getting into 40 nanometers as well, and so we certainly aren't swimming in 40 nanometer supply. We are constrained here and there.

"I wish we had more Fermis. I wish we had more GPUs of all kinds. There is still not enough 40 nanometer supply for the entire world, and so I expect that the 40 nanometer supply will remain constrained for sometime."

Huang said that over the long haul, Nvidia would be able to push gross margins to the mid-to-high 50s, because the new Tesla, Quadro, and Tegra product lines are all north of 50 points now and would be representing a larger part of the revenue mix, implying that Nvidia will become more profitable. (The Tegra graphics chips are used in the popular Android handhelds and could rocket Nvidia's revenues northward as that device and others employ the Tegra chips.)

At least some on Wall Street seemed unimpressed by that big swing in gross margins. Maybe they were not happy that Huang would not call a formal end to the recession.

"Everybody has the same feelings about the overall market at the moment as we do," Huang explained. "There's some amount of cautiousness and there's some amount of enthusiasm." ®