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Nvidia's Q4 padded with Intel cash

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Nvidia is facing some inconvenient market transitions and business shifts, but luckily, it has a $1.5bn patent settlement from Intel to help smooth the ride.

In the fourth quarter of fiscal 2011 ended January 30, Nvidia booked revenues of $886.5m, down 9.8 per cent from the year ago quarter. Gross margins jumped 3.4 points to 48.1 per cent, and the chipmaker boosted net income by 31 per cent to $171.7m. The quarter included a $57m credit, part of the Intel settlement, that was booked as operating expenses (not as revenue). That translated to $37.1m of extra black ink once the tax man took his cut. Basically, the Intel dough is the main reason Nvidia's profits went up.

For the full year, Nvidia's revenues were $3.54bn, rising 6.5 per cent, and the company swung from a $68m loss to a $253.1m profit.

In the quarter, GPU revenues were $614m, up 5.5 per cent sequentially from the third quarter of fiscal 2011 ended in November. Desktop and laptop discrete GPU sales were "particularly strong," said David White, the company's chief financial officer, in a conference call with Wall Street analysts.

Nvidia said that when Intel resumes shipments of the Cougar Point chipset for its Sandy Bridge family of 2nd Generation Core chips for PCs and laptops, it expects to gain share in discrete graphics, but did not elaborate on what the impact of the integrated graphics for the Sandy Bridge chips might have on discrete graphics attachment going forward. Nvidia said that Intel's delays with Cougar Point, which has a bug in its electronics for controlling some of its SATA ports, did not affect its sales in Q4.

Nvidia's Professional Solutions business unit, which sells workstation graphics cards and Tesla coprocessors, had $203.6m in revenues in fiscal Q4, down 3.1 per cent sequentially. The culprit here was the transition to the latest Fermi GPUs in the high-end graphics-card line. White said that Tesla sales were strong, and "significantly up" from the third quarter.

Nvidia confirmed that it had done around $100m in sales of Tesla GPU coprocessors in its fiscal 2011 year, and Jen-Hsun Huang, the company's president and CEO, would not be drawn into making predictions about what would happen in fiscal 2012, except to say that Nvidia "should grow very nicely this year" with the Tesla products.

Nvidia hardly shipped any Tegra 2 chips for smartphones and tablets in Q4, and the revenue derived from the shipments was not enough to make up the fall in sales of server and workstation chipsets, a business that Nvidia is exiting. That said, the Consumer Products division at Nvidia rose by 32.6 per cent sequentially to $68.8m, and White said that Tegra 2 sales would crest above chipset sales in the first quarter of fiscal 2012 and start ramping up from there.

How far Tegra 2 can grow remains to be seen, since no one knows how far and how fast the tablet market will grow. But Huang is ebullient about Nvidia's prospects here, and says that for smartphones and tablets the only chip that matters is one based on the ARM architecture, and that with Windows coming in alongside Android and iOS, all of the operating systems that matter are aligned for ARM chips.

"The market for tablets is much, much larger than we expected," Huang said on the call. "They are just wonderfully delightful to use and to carry around. It is an easy product to buy and easy to use, and my sense is that we are going to be surprised by the size of the tablet market."

Tablet makers were no doubt surprised by Nvidia's revelation at the Mobile World Congress this week that its kicker to the Tegra 2, the Kal-El quad-core chip made with Taiwan Semiconductor Manufacturing Corp's mature 40 nanometer processes, would ship for production this year. A number of ARM chip designers were hoping to wait for the 28 nanometer transition next year, but Nvidia jumped the gun and has decided to stick with 40 nanometer wafer-baking processes and get the jump on them.

"Some of our competitors seemed panicked to launch a product in their PowerPoint slides," Huang said with a laugh. "We actually detailed a product that is sampling."

The plan for the Kal-El chip is to have wafer starts in the early part of Q2 so that Nvida's fab partner, TSMC, can get parts into production in Q3. Huang said that using a tick-tock approach with an annual cadence was the right way to do it, particularly with 40 nanometer processes "yielding fabulously."

He also said that in terms of power efficiency, having "four cores working less hard consumes less energy than one or two cores working their butts off," and reminded everyone not to get the wrong idea that this chip wouldn't pack some punch. Kal-El is expected to have about five times the performance of the Tegra 2, which is made in the same 40 nanometer processes.

Looking ahead to the first quarter of fiscal 2012. White said that Nvidia's notebook GPUs would "grow nicely" and that the Quadro professional graphics cards would also grow. Tegra 2 revenues will start ramping in smartphones and tablets, too. And so the company is projecting revenues to grow somewhere between 6 and 8 per cent sequentially. ®

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