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| Nvidia’s got game |
Nvidia reported revenue from all platforms up for the quarter and beat Wall Street’s expectations. The company’s GPU business revenue was $2.6 billion, up22% from last quarter, but down 8% from last year. The quarter was the fourth consecutive decline in year-over-year sales.
“Our gaming business and demand from hyperscale customers powered Q3’s results,” said Jensen Huang, founder, and CEO of Nvidia. “The realism of computer graphics is taking a giant leap forward with Nvidia RTX.”
For the fourth quarter, Nvidia expects revenue of $2.89 billion to $3.01 billion, up from revenue of $2.21 billion in the year-ago period, which would end four straight quarters of revenue decline. Analysts, however, had forecast a little more, with a revenue consensus of $3.07 billion.
The quarter’s results
GPU business revenue was $2.6 billion, up 22% sequentially.
Tegra processor business revenue—which includes Automotive, SOC modules for gaming platforms, and embedded edge AI platforms—was $449 million, up 10% from a year ago and down 5% sequentially.
Gaming revenue was $1.66 billion, down 6% from a year ago and up 26% sequentially.
Professional Visualization revenue was $324 million, up 6% from a year earlier and up 11% sequentially. The year-on-year and sequential growth reflects strength across mobile workstation products.
Data Center revenue was $726 million, down 8% from a year ago and up 11% sequentially. The year-on-year decline reflects lower enterprise revenue due to a different mix of products including lower DGXsales, partially offset by an increase in hyperscale demand. The sequential increase was driven by hyperscale demand.
Automotive revenue was $162 million, down 6% from a year earlier and down 22% sequentially. The year-on-year decrease reflects lower revenue from legacy infotainment modules and autonomous vehicle solutions, partially offset by growth in AI cockpit solutions. The sequential decrease reflects a large non-recurring development services agreement closed in the prior quarter.
OEM and Other revenue were $143 million, down 3% from a year ago and up 29% sequentially. The sequential increase was primarily due to growth in entry-level GPUs for notebook PCs.
GAAP gross margin for the third quarter was 63.6%, up 320 basis points from a year earlier and up 380 basis points sequentially. The year-on-year and sequential increases are primarily driven by improved margins on GeForce GPUs for gaming reflecting the sale of previously written-off components and lower components.
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| Nvidia’s financial results for 12 quarters. (Source: Nvidia) |
During the third quarter, Nvidia announced that Microsoft will feature ray tracing in Minecraft.
Super versions of GeForce GTX GPUs with GeForce GTX 1650 Super, and GeForce GTX 1660 Super, were announced as the successor to the popular GeForce GTX 1060. The company also introduced the RTX Broadcast Engine, which uses the AI capabilities of GeForce RTX GPUs to enable virtual greenscreens, filters and AR effects in live streaming.
Two new models of the Shield TV streaming media player were introduced, and the company expanded the reach of GeForce Now game streaming, with Taiwan Mobile and Russia’s Rostelcom with GFN.ru, which joined Korea’s LG U+ and Japan’s SoftBank.
The company launched the Nvidia EGX Intelligent Edge Computing Platform to bring accelerated AI to retail, manufacturing, telecommunications, logistics and other industries, with Walmart, BMW, NTT East, Procter & Gamble and Samsung Electronics among early adopters. And Nvidia collaborated with Microsoft to provide an optimized hybrid-cloud platform combining Microsoft Azure software with Nvidia EGX powered by Nvidia T4 GPUs to address edge-computing demand.
In collaboration with Ericsson, Nvidia entered the 5G telecom market by offering virtualized 5G radio access networks using GPUs.
Nvidia also worked with VMware to accelerate its VMware Cloud on AWS using Nvidia T4 GPUs and introduced the new Nvidia Compute Server software for enterprises to run AI workloads on GPU servers in virtualized environments.
During the quarter the United States Postal Service revealed it will use Nvidia AI technology to improve its package data-processing efficiency.
More than 40 creative and design applications were announced during the quarter, including three from Adobe—Adobe Dimension, Substance Alchemist and Premiere Pro, accelerated by RTX ray tracing.
And, the company introduced Jetson XavierNX, which Nvidia claims is the world’s smallest, most powerful AI supercomputer for robotic and embedded computing devices at the edge.
Outlook
Nvidia says their outlook for the fourth quarter of fiscal 2020 does not include any contribution from the pending acquisition of Mellanox and is as follows:
- Revenue is expected to be $2.95 billion, plus or minus 2%. They expect strong sequential growth in Data Center, offset by a seasonal decline in GeForce notebook GPUs and SoC modules for gaming platforms.
- GAAP and non-GAAP gross margins are expected to be 64.1% and 64.5%, respectively, plus or minus 50 basis points.
- GAAP and non-GAAP operating expenses are expected to be approximately $1.02 billion and $805 million, respectively.
- GAAP and non-GAAP other income and expense are both expected to be an income of approximately $25 million.
- GAAP and non-GAAP tax rates are both expected to be 9%, plus or minus 1%, excluding any discrete items. GAAP discrete items include excess tax benefits or deficiencies related to stock-based compensation, which are expected to generate variability on a quarter by quarter basis.
- Capital expenditures are expected to be approximately $130 million to $150 million.
The company will return to repurchasing its stock after closing the acquisition of Mellanox Technologies, Ltd. Although discussions with the European Union and China regulatory bodies are progressing and closing the acquisition is possible by the end of this calendar year. Nvidia believes the closing will likely occur in the early part of the calendar 2020.
What do we think?
Once again, Gaming buoyed up Nvidia’s sales more than enough to overcome the decline in Automotive—the company had a great quarter with annualized sales putting them at over $12 billion a year. When they add in Mellanox’s revenue next year they will add another billion.
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| Change in sales channel and industry for Nvidia. (Source: Nvidia) |
Pro Viz was the second-highest performer quarter-to-quarter, and Datacenter sales were the second-highest contributor for the quarter. All in all, Nvidia is running like a well-oiled clock showing fantastic results in a very shaky economy.
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| Rate of change of Nvidia’s business centers over five years. (Source: Nvidia) |
The numeric values are shown in the following table.
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| Nvidia quarterly revenue trend by markets. (Source: Nvidia) |
GPU includes GPU revenue in the datacenter, GeForce, Quadro, Tesla, and OEM. Gaming includes GeForce DT/NB, Switch, Other like GeForce Now, G-SYNC, Nvidia includes its Nintendo (Switch) business in its gaming revenue as well.
Nvidia continues to enjoy a high P/E ratio (47.3 on 15 Nov) and the announcement of the acquisition of Mellanox shows Nvidia’s continued commitment to shift the company’s business beyond PC and gaming by increasing revenues from the datacenter, a strategy also being followed by AMD and Intel.
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| AMD, Intel, and Nvidia’s share price relative to NASDAQ |
Nvidia’s launch of its Super versions of the RTX was supported with a steady increase in ray-traced enabled games has lifted its gaming business after a slight decline in Q2 due mostly to release cycles of notebooks. The company is on track to turn around its year-to-year decline from the highs it enjoyed from crypto mining.