NVIDIA FY 2016 Q2 Results: GPU Sales Are Strong But Write Downs Hurt Bottom Line
by Brett Howse on August 7, 2015 12:10 AM EST- Posted in
- GPUs
- NVIDIA
- Financial Results
Today NVIDIA released its quarterly results for the second quarter of their fiscal year 2016 (yes, 2016) and they had excellent sales of their GeForce GPUs, but have decided to write down their Icera modem business, which hit their operating expenses to the tune of around $90 million. Revenue for the quarter was up 5% though as compared to Q2 2015, and came in at $1.153 billion for the quarter. On a GAAP basis, gross margin was 55%, down 110 bps over last year and down 170 bps since last quarter. Net income was just $26 million, down 81% sequentially and 80% year-over-year. This resulted in diluted earnings per share of $0.05, down 77% from Q2 2015’s $0.22.
| NVIDIA Q2 2016 Financial Results (GAAP) | |||||
| Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y | |
| Revenue (in millions USD) | $1153 | $1151 | $1103 | flat | +5% |
| Gross Margin | 55.0% | 56.7% | 56.1% | -1.7% | -1.1% |
| Operating Expenses (in millions USD) | $558 | $477 | $456 | +17% | +22% |
| Net Income | $26 | $134 | $128 | -81% | -80% |
| EPS | $0.05 | $0.24 | $0.22 | -79% | -77% |
A big factor in this was the write down of their Icera modem division. NVIDIA had been looking for a buyer for their modem unit, but was unable to find a suitable buyer for the business and is therefore winding down operations in this unit. This caused a hit of $0.19 per diluted share. Also during the quarter, NVIDIA announced a recall of their SHIELD tablets due to overheating batteries, and there have been two cases of property damage due to this. This caused another hit of $0.02 per diluted share. They also had $24 million in expenses related to the Samsung and Qualcomm lawsuit.
| NVIDIA Q2 2016 Financial Results (Non-GAAP) | |||||
| Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y | |
| Revenue (in millions USD) | $1153 | $1151 | $1103 | flat | +5% |
| Gross Margin | 56.6% | 56.9% | 56.4% | -0.3% | +0.2% |
| Operating Expenses (in millions USD) | $421 | $425 | $412 | -1% | +2% |
| Net Income | $190 | $187 | $173 | +2% | +10% |
| EPS | $0.34 | $0.33 | $0.30 | +3% | +13% |
NVIDIA’s non-GAAP results “exclude stock-based compensation, product warranty charge, acquisition-related costs, restructuring and other charges, gains and losses from non-affiliated investments, interest expense related to amortization of debt discount, and the associated tax impact of these items, where applicable” which means that they do not reflect either the Icera write-down, nor the tablet recall. On a non-GAAP basis, gross margin was up 20 bps to 56.6%, with net income up 10% to $190 million. Diluted earnings per share were $0.34, up 13% from Q2 2015’s $0.30 non-GAAP numbers. Despite a significant write-down and a recall, the core business is still doing very well.
For the quarter, NVIDIA paid out $52 million in dividends and repurchased $400 million in stock.
What is driving growth right now is its GPU business. Revenue for GeForce GPUs grew 51%, and NVIDIA has continued to see strength in the PC gaming sector. Fueled by the release of the GTX 980 and GTX 980 Ti, sales of high-end GTX GPUs “grew significantly” year-over-year. The Titan X would certainly fall in there as well, although unlikely at as high of volume. Maxwell has been a very strong performer, and gamers tend to go where the performance is. Souring the results somewhat is a decline in Tesla GPU sales, as well as Quadro GPU sales. Overall, GPU revenue was up 9% year-over-year to $959 million. Even as NVIDIA has tried to diversify with SoCs, their GPU business is still almost 85% of the company.
NVIDIA has found a niche in the automotive infotainment world, and that that area is still strong for them. Tegra has not taken off in the tablet or smartphone space in any meaningful way, but there was still growth in the automotive sales for Tegra. Overall Tegra processor revenue was down 19% year-over-year, which is mainly due to Tegra OEM smartphones and tablets. NVIDIA’s own Tegra sales in the Shield helped offset this loss somewhat, but as the recall filings showed, they only sold 88,000 SHIELD tablets. Margins are likely helped by the fact that they run their own SoC in it though.
NVIDIA’s “Other” segment is a fixed 66 million licensing payment from Intel, and as always, that is flat and does not change. This is from the 2011 settlement of a licensing dispute, and will end in 2017.
| NVIDIA Quarterly Revenue Comparison (GAAP) | |||||
| In millions | Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y |
| GPU | $959 | $940 | $878 | +2% | +9% |
| Tegra Processor | $128 | $145 | $159 | -12% | -19% |
| Other | $66 | $66 | $66 | flat | flat |
For Q3 2016, NVIDIA is expecting revenue to be $1.18 billion, plus or minus 2%, with margins of 56.2% to 56.5%.
NVIDIA is obviously a giant in the GPU space, and that is going very well for them. Sales are very strong, and PC gaming has been a strong point in an otherwise weakening PC market. They are attempting to diversify to mobile, but have found out just how difficult that can be, and had to write down their modem division completely. Without a good integrated modem, it will be difficult to gain traction in the smartphone space, but NVIDIA’s current SoC offerings don’t seem well suited to smartphones anyway. Their strength in GPU knowledge has certainly helped them with the GPU side of the equation, but their first attempt at CPU design has not been as strong. We shall see what their plans are for the SoC space going forward, but for now they are riding a wave of strong GPU sales, and that is a good thing for NVIDIA.
Source: NVIDIA Investor Relations
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yannigr2 - Friday, August 7, 2015 - link
GT 730 DDR3 version is based on Fermi. It is a rebranded GT 430. It was also GT 630 before becoming GT 730.The funny thing is that there are multiple versions of low end Nvidia cads with the same model number that are NOT the same cards. So there are two more versions of GT 730 with Kepler GPUs. Nvidia has made it a habit to mislead people about it's cards specs. You see three GT 730's and they all perform differently to each other. Until Nvidia provides a DX12 driver for the Fermi cards, one of those GT 730's it isn't even DX12 compatible.
But ignore these things. It's Nvidia's rebranding, Nvidia's misleading, Nvidia's lies, so it is perfectly fine. I am pretty sure that you will respond will plenty of excuses.
JDG1980 - Friday, August 7, 2015 - link
The GT 730 is technically available at retail, but essentially no one buys it. It's basically an OEM-only card. And for that reason, the tech specs don't much matter. It's basically just there to provide low-end video output to systems that don't have an iGPU.There's a big difference between rebranding one ultra-low-end product, and rebranding basically your entire product stack. No one cares if AMD wants to rebrand the old 5450 chip for $19.99 OEM cards, but when they bring back Pitcairn from 2012 and try to seriously position it as a viable gaming product in 2015, this is when they start to get pushback - and rightly so.
Crunchy005 - Friday, August 7, 2015 - link
Pitcairn was an OEM rebrand so according to you no one cares(although apparently you do). The olands are part of the very low powered r7 and r5 OEM lines as well. Also only retail pitcairn card that is for gaming was the r9 370 and thats a pitcairn refresh, R9 370 is entry level realm of GPUs it does fine there.yannigr2 - Friday, August 7, 2015 - link
GT 730 is a retail card.I get 35 models on a Greek site that compared prices. I bet if I try a US site I will find more models. Prices start at over 50 euros going over 90 euros. Not exactly $19.99.
There are Fermi based models, Kepler based models, DDR3, GDDR5, 64bit, 128bit, with 1GB, 2GB or 4GB.
The difference in performance between the Kepler based 64bit DDR3 (14.4 GB/sec) and the Kepler based 64bit GDDR5 (40GB/sec) is just huge.
The third DDR3 model with the Fermi based GPU (only 96 CUDA cores compared to 384 on the Kepler models) isn't even DX12 capable today.
The differences between these three models is scandalous at least. You buy one card and you get something totally different if you don't know.
http://www.geforce.com/hardware/desktop-gpus/gefor...
Nagorak - Saturday, August 8, 2015 - link
Well, the thing is, Pitcairn is a viable gaming product. That's why the "outrage" over the rebrands is ridiculous. All of the rebrands are still competitive. Why should AMD create a whole new architecture when they can just move the previous one down? They're all on the same process node anyway. Once we finally get a new process node the story may be different, but right now there is not really that much to be gained by pumping out a new architecture for the mid to low end.Oxford Guy - Sunday, August 9, 2015 - link
Neither company should be permitted to do rebrands. It's not clear/obvious fraud like the 970's false specs, but it's not good business.Oxford Guy - Friday, August 7, 2015 - link
"The GTX 970 is still a kick ass card with corrected specs"Do you mean Nvidia has now finally changed their website to no longer claim the impossible 224 GB/s 4 GB of VRAM?
Because the last times I looked it was still wrong.
As for being "kick-ass"... The 970 was intentionally hobbled with a partition that operates at a ridiculously slow 28 GB/s -- half the speed of the VRAM of the 8800 GT from 2007. There is no excuse for that in an enthusiast card, period.
Nvidia probably has games fill that partition with cached information to hide the massive performance problem associated with it -- effectively rendering the 970 a 3.5 GB card without people knowing it. Convenient for those who specifically purchased two for SLI on the idea that it wasn't a good value to buy the 980 because it shipped with the same amount of VRAM. Too bad for them!
medi03 - Saturday, August 8, 2015 - link
Did you check that steam page dude?970 is 2.49% of the steam users, cough. Is that serious?
AMD's 7900 is 2.43%, for comparison.
Michael Bay - Friday, August 7, 2015 - link
M-muh 970 memory is literally a non-issue. Not so with rebrandeon electric boogaloo.Oxford Guy - Friday, August 7, 2015 - link
28 GB/s with XOR contention is not a non-issue.It us purposefully sabotage of an enthusiast-level card coupled with fraudulent marketing claims.