What Factors Enabled NVIDIA to Outperform in Fiscal 1Q17?



NVIDIA outperformed the PC industry in fiscal 1Q17

According to the IDC (International Data Corporation), global PC shipments fell 9.6% YoY (year-over-year) in 1Q16. Surprisingly, Intel’s (INTC) 1Q16 earnings missed analysts’ estimates, and Advanced Micro Devices (AMD), which has been facing losses, beat estimates.

NVIDIA (NVDA) outperformed the PC (personal computer) industry, posting strong fiscal 1Q17 earnings results along with even stronger fiscal 2Q17 guidance. Both topped analysts’ consensus estimates. The earnings announcement saw the company’s stock break its 52-week high of $37.46 and hover around $42 on May 16, 2016.

What sets NVIDIA apart from its competitors?

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NVIDIA stands apart from its competitors

NVIDIA had exposure of about 42% in the PC space with its Tegra processor in 2013. However, the increasing popularity of smartphones and tablets started replacing PCs. NVIDIA, AMD, and Intel bucked the trend and tried entering the smartphone space. However, they couldn’t withstand the dominance of Qualcomm (QCOM) and the pricing pressures built by low-cost competitors.

While Intel kept fighting for the mobile space, NVIDIA exited that market and focused on its four high-growth areas, namely gaming, professional visualization, data center, and automotive, where there were fewer headwinds.

Even AMD channeled its focus toward semi-custom chips for gamers. This is the segment of the PC market that’s willing to buy components worth the price of a standard laptop in order to gain the ultimate gaming experience.

NVIDIA’s four growth platforms contributed 87% to the company’s revenue in fiscal 1Q17 compared to 81% in fiscal 1Q16. Their total contribution is likely to grow further as the company launches its Pascal architecture, which will act as a growth catalyst for virtual reality, deep learning, and gaming.

Fiscal 1Q17 updates

Recently, NVIDIA launched its GTX 1080 and 1070 GPUs (graphics processing units) based on its next-generation Pascal architecture. GTX is the world’s first GPU to be built on Taiwan-based (EWT) TSMC’s 16nm (nanometer) FinFET (fin-shaped field effect transistor) technology compared to the 28nm node on which current GPUs are built. Pascal’s launch before the launch of AMD’s Polaris GPU came as a surprise.

NVIDIA gave another surprise to its investors by announcing a settlement with Samsung (SSNLF) over a patent lawsuit just hours before the announcement of the court verdict.

In this series, we’ll look at each of the above surprises in detail and understand the company’s performance in fiscal 1Q17.


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