Operating performance and margins
As we saw earlier in this series, Nvidia (NVDA) reported revenue of $1.15 billion in fiscal 1Q16—an increase of 4% on YoY (year-over-year) basis. In 1Q16, Nvidia’s GPU (graphics processing unit) recorded revenue of $940 million—an increase of 5% on a YoY basis. On a sequential basis, it declined by 12%.
Within Tegra, the automotive segment is the fastest growing sub-segment. Apart from being a fast-growth segment, it offers higher gross margins—compared to mobile, tablets, and connected devices.
In 1Q16, Nvidia’s gross margin stood at 56.7%—compared to 54.8% in 1Q15. High margin offerings—like GeForce GPU and automotive “infotainment” systems—contributed to margin expansion and Nvidia’s revenue growth.
If you are bullish about Nvidia, you could invest in the VanEck Vectors Semiconductor ETF (SMH) and the PowerShares QQQ Trust (QQQ) to gain exposure to Nvidia. SMH and QQQ invest about 1.94% and 0.22% of their holdings in Nvidia.
Cash, debt, and cash flows
In 1Q16, Nvidia recorded $4.79 billion in cash and cash equivalents—compared to $4.64 billion in 4Q15. The company’s long-term debt stood at $1.404 billion. In 1Q16, the FCF (free cash flow) and GAAP (generally accepted accounting principles) CFO (cash flow from operations) stood at $216 million and $246 million, respectively.
Nvidia’s high investment in R&D
The semiconductor industry is cyclical. It forces its players to focus on cost efficiency. It’s easy for companies to resort to reducing R&D (research and development). This allows them to achieve cost efficiency.
In 1Q16, Nvidia invested about 29.5% of its revenue in R&D. Other companies in the industry, AMD (AMD) and Intel (INTC) invested 22%–24% and 20%–21% of their revenue in R&D. AMD is trying to achieve the same cost efficiency as it’s undergoing a restructuring phase.