Nvidia's financials show Surface RT-shape hole
August 9, 2013 | 09:19
Companies: #arm #microsoft #nvidia
Nvidia's latest financial figures show that its Tegra division is hurting from Microsoft's inability to convince buyers that Windows RT is an idea with legs, but that improved GPU sales have lessened the sting.
That Microsoft's Surface RT - the company's first mainstream Windows version to support ARM architecture processors, taking the form of a cut-down and tablet-centric version of Windows 8 without legacy compatibility - hasn't been a stellar success for the company is no secret. Its latest financial figures, following a $900 million write-down on unsold inventory, revealed that sales of all Surface devices have failed to even cover the cost of advertising, and its hardware partners continue to cancel their own Surface RT product lines.
Obviously, such matters concern Microsoft - but it's not the only company to be hurt by what is turning out to be a significant misjudgement of consumer demand. Nvidia is one of just a handful of ARM system-on-chip (SoC) vendors to have its product, Tegra, certified for Windows RT. It's also the company chosen for Microsoft's own Surface RT, with its Tegra 3 T30 quad-core Cortex-A9 SoC powering the company's own-brand tablet.
With Surface RTs sitting in Microsoft's warehouse unsold, however, that's not a good thing - and Nvidia's financials show a hole where predicted Surface RT revenue should be, albeit one the company refused to blame by name. 'We don't expect as much return from the [Windows RT] investment as we had hoped,' admitted Nvidia president and chief executive Jen-Hsun Huang during the company's latest quarterly earnings call. '[But] it's a very important platform that also derived from it a lot of design wins.'
Design wins in products that don't sell are not necessarily a 'win.' Accordingly, Huang admitted that Tegra revenue predictions for the company's financial year - which is now half-over - will need to be lowered by up to $300 million, based on a second-quarter year-on-year decrease in revenue of a whopping 70.7 per cent. That's a disastrous decline, but one Huang is pinning on the phasing out of Tegra 3 in favour of 'Logan,' its successor. As companies pick up Tegra 4 parts in the second half of the year, Huang claimed, revenue will return - but not in a high enough volume to avoid the shortfall.
Things weren't all bad for Nvidia, however: the company's overall revenue grew 2.4 per cent quarter-on-quarter to $977.2 million helped by increasing interest in its GPU products. 'The GPU business continued to grow, driving our fourth consecutive quarter of record margins,' crowed Huang. 'We also began shipping GRID virtualised graphics, which puts the power of Nvidia GPUs into the datacentre.' Huang has previously indicated that GRID, along with the company's Tesla accelerated co-processing cards, is one of Nvidia's highest-margin products, helping to push the company's overall margin for the quarter up by four percentage points year-on-year.
Despite boosted margins and quarter-on-quarter growth, however, the financial results aren't all they could be. A 7.5 per cent year-on-year boost in GPU revenue to $798.6 million for the quarter has been unable to mask the 70.7 per cent drop in Tegra revenue, resulting in a 6.4 per cent year-on-year drop in overall income for the quarter.
Following the publication of the results, Nvidia's share price dropped 1.35 per cent in pre-market trading to $14.50.
That Microsoft's Surface RT - the company's first mainstream Windows version to support ARM architecture processors, taking the form of a cut-down and tablet-centric version of Windows 8 without legacy compatibility - hasn't been a stellar success for the company is no secret. Its latest financial figures, following a $900 million write-down on unsold inventory, revealed that sales of all Surface devices have failed to even cover the cost of advertising, and its hardware partners continue to cancel their own Surface RT product lines.
Obviously, such matters concern Microsoft - but it's not the only company to be hurt by what is turning out to be a significant misjudgement of consumer demand. Nvidia is one of just a handful of ARM system-on-chip (SoC) vendors to have its product, Tegra, certified for Windows RT. It's also the company chosen for Microsoft's own Surface RT, with its Tegra 3 T30 quad-core Cortex-A9 SoC powering the company's own-brand tablet.
With Surface RTs sitting in Microsoft's warehouse unsold, however, that's not a good thing - and Nvidia's financials show a hole where predicted Surface RT revenue should be, albeit one the company refused to blame by name. 'We don't expect as much return from the [Windows RT] investment as we had hoped,' admitted Nvidia president and chief executive Jen-Hsun Huang during the company's latest quarterly earnings call. '[But] it's a very important platform that also derived from it a lot of design wins.'
Design wins in products that don't sell are not necessarily a 'win.' Accordingly, Huang admitted that Tegra revenue predictions for the company's financial year - which is now half-over - will need to be lowered by up to $300 million, based on a second-quarter year-on-year decrease in revenue of a whopping 70.7 per cent. That's a disastrous decline, but one Huang is pinning on the phasing out of Tegra 3 in favour of 'Logan,' its successor. As companies pick up Tegra 4 parts in the second half of the year, Huang claimed, revenue will return - but not in a high enough volume to avoid the shortfall.
Things weren't all bad for Nvidia, however: the company's overall revenue grew 2.4 per cent quarter-on-quarter to $977.2 million helped by increasing interest in its GPU products. 'The GPU business continued to grow, driving our fourth consecutive quarter of record margins,' crowed Huang. 'We also began shipping GRID virtualised graphics, which puts the power of Nvidia GPUs into the datacentre.' Huang has previously indicated that GRID, along with the company's Tesla accelerated co-processing cards, is one of Nvidia's highest-margin products, helping to push the company's overall margin for the quarter up by four percentage points year-on-year.
Despite boosted margins and quarter-on-quarter growth, however, the financial results aren't all they could be. A 7.5 per cent year-on-year boost in GPU revenue to $798.6 million for the quarter has been unable to mask the 70.7 per cent drop in Tegra revenue, resulting in a 6.4 per cent year-on-year drop in overall income for the quarter.
Following the publication of the results, Nvidia's share price dropped 1.35 per cent in pre-market trading to $14.50.
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