10-QPeriod: Q3 FY2009

NVIDIA CORP Quarterly Report for Q3 Ended Aug 21, 2008

Filed August 21, 2008For Securities:NVDA

Summary

NVIDIA Corporation (NVDA) reported its second-quarter results for the fiscal year ending January 27, 2009, with the period ending August 20, 2008. The company experienced a significant revenue decline in the three months ended July 27, 2008, compared to the prior year, dropping from $935.3 million to $892.7 million. This revenue decrease, coupled with a substantial increase in cost of revenue, led to a dramatic shift in profitability. Gross profit fell sharply from $424.0 million to $149.9 million, and operating expenses, particularly R&D and SG&A, also increased. Consequently, NVIDIA reported an operating loss of $155.4 million for the quarter, a stark contrast to the $184.8 million operating income in the same period last year. The net loss for the quarter was $120.9 million, or $0.22 per diluted share, compared to a net income of $172.7 million, or $0.29 per diluted share, in the prior year. The six-month period also showed a decline in revenue and profitability compared to the prior year. Revenue increased to $2.05 billion from $1.78 billion, but the cost of revenue rose disproportionately, leading to a lower gross profit of $664.8 million compared to $804.1 million. Operating expenses also increased significantly, resulting in operating income of $47.6 million for the six months, down from $326.0 million in the prior year. The net income for the six months was $55.9 million, or $0.09 per diluted share, a considerable decrease from $305.0 million, or $0.51 per diluted share, in the prior year. Investors should note the significant increase in inventory levels and the substantial growth in R&D expenses as key areas of focus.

Financial Highlights

27 data points
Beta

Revenue

$897.65M

41.0% Gross Margin

Net Income

$61.75M

6.9% Net Margin

EPS (Diluted)

$0.00

Cash & Equivalents

$461.25M

Free Cash Flow

$43.00M

Financial Statements
Beta
Revenue$897.65M
Cost of Revenue$529.81M
Gross Profit$367.84M
R&D Expenses$212.36M
SG&A Expenses$90.35M
Operating Expenses$311.05M
Operating Income$56.80M
Net Income$61.75M
EPS (Basic)$0.00
EPS (Diluted)$0.00
Shares Outstanding (Basic)21.75B
Shares Outstanding (Diluted)22.58B

Key Highlights

  • 1Revenue for the three months ended July 27, 2008, decreased by 4.5% year-over-year to $892.7 million.
  • 2Gross profit for the quarter plummeted by 64.4% to $149.9 million, compared to $424.0 million in the prior year's quarter, due to a significant increase in cost of revenue.
  • 3The company reported an operating loss of $155.4 million for the three months ended July 27, 2008, a significant deterioration from an operating income of $184.8 million in the same period last year.
  • 4Net loss for the quarter was $120.9 million, or -$0.22 per diluted share, a sharp reversal from a net income of $172.7 million, or $0.29 per diluted share, in the prior year.
  • 5For the six months ended July 27, 2008, revenue increased 15.0% year-over-year to $2.05 billion, but net income declined by 81.7% to $55.9 million.
  • 6Operating expenses, particularly R&D and SG&A, increased by 27.7% for the quarter and 29.1% for the six-month period compared to the prior year.
  • 7Inventories increased by 20.6% to $432.3 million as of July 27, 2008, compared to January 27, 2008, indicating potential inventory management challenges.

Frequently Asked Questions

The primary driver for the sharp decline in profitability, including the operating loss and net loss, is a substantial increase in the cost of revenue. This led to a drastic reduction in gross profit, even though revenue saw only a modest year-over-year decrease for the quarter. Increased operating expenses, particularly in research and development, also contributed to the negative performance.

For the three months ended July 27, 2008, revenue declined by 4.5% to $892.7 million compared to the prior year's quarter. However, for the six-month period ended July 27, 2008, revenue actually increased by 15.0% to $2.05 billion compared to the same period last year, indicating a stronger performance in the first quarter of fiscal 2009.

The filing indicates a challenging quarter with a significant loss, primarily driven by a surge in the cost of revenue. While revenue grew for the six-month period, profitability was severely impacted. The increase in R&D expenses suggests continued investment in future products. Investors should closely monitor the cost of revenue and the company's ability to translate its R&D investments into profitable sales in future periods. The increase in inventory levels also warrants attention.

NVIDIA adopted SFAS No. 157, 'Fair Value Measurements,' and SFAS No. 159, 'The Fair Value Option for Financial Assets and Financial Liabilities,' effective January 28, 2008, with no significant impact reported. The company also adopted EITF 07-3 for R&D advance payments. Notably, the company experienced a significant increase in its estimated annual effective income tax rate for fiscal year 2009, which was later offset by favorable impacts. The company also disclosed the closure of an IRS review for fiscal years 2004-2006 with no material changes, though it remains subject to future examinations.