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Key for Investors: Nvidia Posts Mixed Fiscal 1Q16 Results

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Nvidia’s fiscal 1Q16 review

A few days ago, Nvidia (NVDA) announced that its fiscal 1Q16 earnings failed to cheer its investors. The company marginally missed revenue estimates and posted mixed results.

In 1Q16, Nvidia’s non-GAAP (generally accepted accounting principles) revenue of $1.15 billion fell marginally short of consensus estimates of $1.16 billion. Its non-GAAP EPS (earnings per share) of $0.33 was better than analysts’ estimates of $0.26 per share in fiscal 1Q16.

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Nvidia’s 1Q16 revenue of $1.15 billion showed an increase of 4% on a YoY (year-over-year) basis. Growth in GeForce® GPUs (graphics processing unit), Tesla GPUs, and the automotive infotainment space drove the revenue growth. However, on a sequential basis, it registered a decline of 8%. It’s important to note that 1Q16 revenue marginally missed Nvidia’s projected revenue of $1.16 billion.

Since the company’s estimate for 1Q16 failed to meet Wall Street’s expectations, its shares fell by ~2.5% in aftermarket trading on May 7, 2015.

Decline in PC sales impacted Nvidia’s revenue growth

As the above chart shows, Nvidia generates the majority of its revenue from graphics processing chips used in high-end PCs. On a YoY basis, Nvidia’s 1Q16 revenue registered growth. However, it declined 8% on a sequential basis. The decline in 1Q16 revenue was due to the decline in GPU business—it was impacted due to the seasonal fall in consumer PCs.

The IDC (International Data Corporation) predicted that PC sales declined by 6.7% in 1Q15. Nvidia’s graphics chips and products cater to the majority of PC manufacturers including Dell, Hewlett-Packard (HPQ), Toshiba, and Sony (SNE). As a result, any slowdown in the PC market will impact its prospects. Many chip makers, including Intel (INTC) and AMD (AMD), are looking for new sources of revenue growth. The PC market is going through a sluggish phase.

Operating performance

In 1Q16, Nvidia’s GPU recorded revenue of $940 million—an increase of 5% on a YoY basis. On a sequential basis, it declined by 12%. In 1Q16, Tegra processors’ revenue was $145 million—an increase of 29% and 4% on quarter-over-quarter and YoY basis, respectively. The enterprise revenue was $190 million—a decline of 4% on a YoY basis due to softness in European (EZU) currencies.

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