10-QPeriod: Q2 FY2011

NVIDIA CORP Quarterly Report for Q2 Ended May 2, 2010

Filed May 21, 2010For Securities:NVDA

Summary

NVIDIA Corporation reported a significant turnaround in its financial performance for the first quarter of fiscal year 2011, ending May 2, 2010. Revenue surged by 51% year-over-year to $1.00 billion, a substantial increase from $664.2 million in the prior year period. This growth was driven across all segments: GPU, Professional Solutions (PSB), and Consumer Products (CPB), with notable contributions from the recovery in demand post-recession and the introduction of new products like the Fermi architecture GPUs. The company also demonstrated a dramatic improvement in profitability. Income from operations swung from a loss of $231.0 million in the prior year quarter to a profit of $147.4 million. This operational improvement, coupled with a more favorable product mix and enhanced manufacturing yields, led to a strong rebound in gross margin to 45.6% from 28.6% in the comparable prior year period. Diluted earnings per share improved to $0.23 from a loss of $0.37, reflecting the company's return to profitability and operational efficiency.

Financial Highlights

46 data points
Beta

Revenue

$1.00B

45.6% Gross Margin

Net Income

$137.59M

13.7% Net Margin

EPS (Diluted)

$0.01

Total Assets

$3.80B

Cash & Equivalents

$447.26M

Free Cash Flow

-$5.40M

Financial Statements
Beta
Revenue$1.00B
Cost of Revenue$545.44M
Gross Profit$456.38M
R&D Expenses$218.10M
SG&A Expenses$90.88M
Operating Expenses$308.98M
Operating Income$147.39M
Net Income$137.59M
EPS (Basic)$0.01
EPS (Diluted)$0.01
Shares Outstanding (Basic)22.69M
Shares Outstanding (Diluted)23.64M

Key Highlights

  • 1Revenue increased by 51% to $1.00 billion compared to the prior year quarter, indicating strong market demand and recovery.
  • 2Income from operations turned positive, reaching $147.4 million, a significant improvement from a loss of $231.0 million in the prior year period.
  • 3Gross margin significantly improved to 45.6% from 28.6% year-over-year, driven by better product mix and manufacturing efficiencies.
  • 4The GPU business saw robust revenue growth of 43%, supported by new product launches and market recovery.
  • 5Professional Solutions Business (PSB) revenue grew by 79%, driven by both Quadro and Tesla product lines.
  • 6Consumer Products Business (CPB) experienced exceptional growth of 192%, primarily from royalties and embedded product shipments.
  • 7The company maintained a strong liquidity position with $1.76 billion in cash, cash equivalents, and marketable securities.

Frequently Asked Questions

The revenue increase of 51% to $1.00 billion was primarily driven by a broad-based recovery in demand across all key segments following the prior year's recessionary conditions. New product introductions, such as the GeForce GTX 480/470 GPUs based on the Fermi architecture, and improved performance in products like the GeForce 320M chipset for Apple, also contributed significantly to growth in the GPU segment. The Professional Solutions Business benefited from enterprise demand, while the Consumer Products Business saw substantial growth from royalties and embedded product shipments.

Profitability improved significantly due to a combination of factors. Revenue grew substantially, leading to higher gross profit. More importantly, the gross margin expanded to 45.6% from 28.6%, attributed to better manufacturing yields (particularly for 40nm products), cost reductions, and a more favorable product mix. Operating expenses also decreased by 27% year-over-year due to lower stock-based compensation charges related to the prior year's option tender offer, and a decrease in R&D and SG&A expenses in absolute terms, although as a percentage of revenue, they were reduced due to higher sales.

NVIDIA continues to accrue liabilities for estimated warranty, repair, return, and replacement costs related to a weak die/packaging material set in certain older generation MCP and GPU products used in notebooks. While the company has recorded significant charges in prior periods and received some insurance reimbursements, it acknowledges the ongoing litigation and the potential for further costs or undiscovered defects. The company states it intends to support customers and seeks further insurance coverage but notes there's no assurance of full recovery or that other defects won't be found. The related class action lawsuits and securities litigation are ongoing, with certain claims being dismissed but others proceeding.

NVIDIA maintains a strong liquidity position, with $1.76 billion in cash, cash equivalents, and marketable securities as of May 2, 2010. The company's investment policy focuses on top-tier investment-grade securities with diversification and limits on portfolio duration and credit exposure. Most investments are in government agencies and government-sponsored enterprises. The company reported no 'other than temporary' impairment charges for its investment portfolio in this quarter, though it noted a previous impairment related to an investment in the Reserve International Liquidity Fund, which is still subject to litigation for redemption. NVIDIA expects its current cash and anticipated cash flows to be sufficient for at least the next twelve months.