01—Abstract
Summary
Summary of the 10-Q filed November 19, 2009. Cited figures are marked; the original filing is the authoritative source.
NVIDIA Corporation's third quarter fiscal year 2010 (ending October 25, 2009) report shows a slight increase in revenue to $903.2 milliona, up 1% year-over-year, but a significant 20% decrease for the nine-month period to $2.34 billion compared to $2.94 billion in the prior year.
This revenue performance was impacted by supply constraints on their new 40nm products. The company reported a net income of $107.6 millionb for the quarter, a substantial increase from $61.7 million in the prior year, leading to diluted EPS of $0.19. However, the nine-month period resulted in a net loss of $199.1 million, a reversal from a net income of $117.6 million in the prior year.
Despite the mixed revenue picture and the quarterly profit, investors should note the significant increase in operating expenses, particularly in Research and Development, which rose 7.5% for the nine-month period, partly due to stock-based compensation charges related to a stock option purchase. The company also experienced a substantial warranty charge of $164.5 millionc related to previous generation products, although some of this was offset by insurance reimbursements.
Liquidity remains strong, with $1.63 billiond in cash, cash equivalents, and marketable securities, and operating activities generated $418.6 million in cash for the nine-month period. The company is also facing ongoing legal disputes, notably with Intel regarding licensing agreements, which has led to a redirection of resources in their MCP business.
02—Key points
Key Highlights
- Revenue for Q3 FY2010 increased slightly by 1% to $903.2 million, but was down 20% to $2.34 billion for the first nine months of FY2010 compared to FY2009.
- Net income for Q3 FY2010 was $107.6 million, a significant increase from $61.7 million in Q3 FY2009, resulting in diluted EPS of $0.19.
- The company reported a net loss of $199.1 million for the first nine months of FY2010, a stark contrast to a net income of $117.6 million in the prior year's comparable period.
- Research and Development expenses increased by 7.5% for the nine-month period, influenced by stock-based compensation charges from a stock option purchase.
- A significant warranty charge of $164.5 million was recorded related to previous generation products, partially offset by insurance reimbursements.
- Strong liquidity position with $1.63 billion in cash, cash equivalents, and marketable securities as of October 25, 2009.
- The company is facing ongoing legal disputes, notably with Intel concerning a chipset licensing agreement, impacting strategic resource allocation in the MCP business.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2010, NVIDIA Corp kept $0.12.
- Revenue$903.2M100.0%
- Cost of revenue−$511.4M56.6%
- Gross profit$391.8M43.4%
- Operating costs−$283.9M31.4%
- Operating income$107.8M11.9%
- Interest, other & tax−$268,0000.0%
- Net income$107.6M11.9%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2010filed November 19, 2009Financial Statements
Q3 FY2010 against Q3 FY2009
| Line item | Q3 FY2010Q3 FY2009 | Change |
|---|---|---|
| Revenue | $903.21M$897.65M | +0.6% |
| Cost of Revenue | $511.42M$529.81M | −3.5% |
| Gross Profit | $391.78M$367.84M | +6.5% |
| R&D Expenses | $197.95M$212.36M | −6.8% |
| SG&A Expenses | $85.99M$90.35M | −4.8% |
| Operating Expenses | $283.94M$311.05M | −8.7% |
| Operating Income | $107.84M$56.80M | +89.9% |
| Net Income | $107.58M$61.75M | +74.2% |
| EPS (Basic) | $0.01$0.00 | +81.8% |
| EPS (Diluted) | $0.00$0.00 | +72.7% |
| Shares Outstanding (Basic) | 22.05M21.75B | −99.9% |
| Shares Outstanding (Diluted) | 22.98M22.58B | −99.9% |
05—Questions
Frequently Asked Questions
What drove the increase in revenue for the third quarter of fiscal year 2010?
Revenue increased by 1% to $903.2 million due to increased sales of desktop GPU products, driven by unit volume growth in high-end and mainstream segments as market demand began to recover from recessionary conditions. This was partially offset by decreased sales of notebook GPU products due to a decline in unit demand and average selling prices (ASPs) amid increased competition.
Why did the company incur a significant warranty charge?
NVIDIA recorded an additional net warranty charge of $164.5 million in the first nine months of fiscal year 2010 related to a weak die/packaging material set in certain previous generation products used in notebook systems, leading to higher than anticipated repair and replacement costs. While some costs were offset by insurance reimbursements ($44.5 million in Q2 and $24.1 million in Q3 FY2010), the total impact was substantial.
What is the current status of the legal dispute with Intel regarding the chipset licensing agreement?
Intel filed suit seeking to declare that NVIDIA's license does not extend to a new Intel processor architecture where the memory controller is integrated with the CPU, which could adversely impact NVIDIA's MCP products. NVIDIA has filed counterclaims asserting its rights under the agreement and seeking remedies for Intel's alleged breach. Due to this dispute, NVIDIA is redirecting MCP development resources to other programs, though they expect their chipset business to sustain itself through fiscal year 2011.
How is NVIDIA managing its liquidity and capital resources?
NVIDIA maintains a strong liquidity position with $1.63 billion in cash, cash equivalents, and marketable securities as of October 25, 2009. Operating activities generated $418.6 million in cash for the first nine months of FY2010. The company believes its current cash and anticipated cash flows will be sufficient to meet its operating, acquisition, and capital requirements for the next twelve months, though they acknowledge the possibility of needing additional financing.
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