Chipmaker Nvidia's quarterly results beat Street

CALIFORNIA, USA: Nvidia Corp's third-quarter results beat estimates as the chipmaker refocuses on smartphones and tablets in a tepid personal computer market.

Anxious to move beyond its traditional business of designing graphics chips for personal computers, Nvidia has jumped into mobile devices and this week unveiled its new Tegra 3 processor.

"I'd expect Q1 to be the time when Tegra 3 ramps quite hard into phones and tablets and that ramp will continue through Q2," Nvidia Chief Executive Jen-Hsun Huang told Reuters. "Then starting in Q3 we'll see Windows 8 ramping up so we'll see what happens beyond that."

Nvidia had some successes early in 2011 with its Tegra 2 chips appearing in tablets made by Samsung Electronics and LG Electronics, although sales have grown less quickly than many investors had expected.

Huang in September said Tegra revenues would reach $1 billion next year, surprising some analysts.

Evercore Partners analyst Patrick Wang said he was concerned Nvidia is spending more to win customers for its new Tegra 3 chips after recently losing out to Texas Instruments in one or two tablet deals.

Nvidia said it expects $372 million in operating expenses in the current quarter, up from $360 million in the third quarter.

"They have a lot of different potential customers that they have to pitch and secure. What's happening is because they weren't able to get a couple of the high-volume models this time around they're spending more to make that happen," Wang said.

The company reported third-quarter net income rose to $178.3 million, or 29 cents per share, from $84.9 million, or 15 cents a share, in the same period a year earlier. Analysts on average had expected third-quarter EPS of 26 cents, according to Thomson Reuters I/B/E/S.

Nvidia's revenue for the quarter ending Oct. 30 rose 26 percent to $1.066 billion, a bit above analysts' average estimate of $1.062 billion.

Its Professional Solutions group, which includes graphics chips used in workstations, grew 9.5 percent sequentially in the third quarter.

"We're impressed with the growth in the work station business. That's high margin. We think that's why they beat on the bottom line," said Kevin Cassidy, an analyst at Stifel Nicolaus.

Nvidia said revenue in the fourth quarter would be up or down 2 percent from the third quarter. That implies revenue of $1.045 billion to $1.087 billion, compared with analysts' average forecast of $1.069 billion.

Nvidia said its mobile chip business would be flat in the current quarter and that its notebook business would be flat to slightly down.

Hard drive shortage

Emerging markets like China, where many families are buying their first personal computers, have supported sales of Nvidia and other PC chipmakers in recent quarters and helped offset slow demand in the United States and Europe.

Investors fear a slowdown in PC manufacturing late this year and in 2012 after flooding in Thailand disrupted production of hard drives, a key component in computers.

Goldman Sachs recently warned that global PC shipments in the December quarter are likely to fall 3 percent year over year, instead of rising 3.1 percent as it had previously expected.

Huang said the shortage of hard drives would have a little impact on Nvidia because the PCs its graphics chips are used in tend to be high-end, high-margin models that manufacturers will make to keep building.

Nvidia's Consumer Products group, which includes the Tegra chips, rose 14 percent sequentially to $191 million in the quarter.

Shares of Santa Clara, California-based Nvidia were up 2.3 percent in extended trade after closing up 1.05 percent at $14.47.