01—Abstract
Summary
Summary of the 10-Q filed May 21, 2010. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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 millionb 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.
02—Key points
Key Highlights
- Revenue increased by 51% to $1.00 billion compared to the prior year quarter, indicating strong market demand and recovery.
- Income from operations turned positive, reaching $147.4 million, a significant improvement from a loss of $231.0 million in the prior year period.
- Gross margin significantly improved to 45.6% from 28.6% year-over-year, driven by better product mix and manufacturing efficiencies.
- The GPU business saw robust revenue growth of 43%, supported by new product launches and market recovery.
- Professional Solutions Business (PSB) revenue grew by 79%, driven by both Quadro and Tesla product lines.
- Consumer Products Business (CPB) experienced exceptional growth of 192%, primarily from royalties and embedded product shipments.
- The company maintained a strong liquidity position with $1.76 billion in cash, cash equivalents, and marketable securities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, NVIDIA Corp kept $0.14.
- Revenue$1.00B100.0%
- Cost of revenue−$545.4M54.4%
- Gross profit$456.4M45.6%
- Operating costs−$309.0M30.8%
- Operating income$147.4M14.7%
- Interest, other & tax−$9.8M1.0%
- Net income$137.6M13.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed May 21, 2010Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $1.00B$776.52M | +29.0% |
| Cost of Revenue | $545.44M$619.80M | −12.0% |
| Gross Profit | $456.38M$156.72M | +191.2% |
| R&D Expenses | $218.10M$192.85M | +13.1% |
| SG&A Expenses | $90.88M$73.97M | +22.9% |
| Operating Expenses | $308.98M$266.83M | +15.8% |
| Operating Income | $147.39M-$110.11M | +233.9% |
| Net Income | $137.59M-$105.30M | +230.7% |
| EPS (Basic) | $0.01$-0.00 | +226.3% |
| EPS (Diluted) | $0.01$-0.00 | +221.1% |
| Shares Outstanding (Basic) | 22.69M21.87M | +3.8% |
| Shares Outstanding (Diluted) | 23.64M21.87M | +8.1% |
05—Questions
Frequently Asked Questions
What drove the significant revenue increase in the first quarter of fiscal year 2011?
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.
How did NVIDIA improve its profitability so dramatically compared to the prior year?
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.
What is the status of the product defect litigation and warranty provisions?
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.
How is NVIDIA managing its cash and investments?
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.
06—Continue