uploads///A_Semiconductors_NVIDIA_Q Gaming Revenue

Nvidia’s Gaming Revenues: News High in Fiscal 4Q17?

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Feb. 7 2017, Updated 10:40 a.m. ET

Nvidia’s gaming segment at a glance

Nvidia (NVDA) witnessed record revenue in fiscal 3Q17, driven by strong demand for its next-generation Pascal GPUs (graphics processing units) in the gaming segment. In the first three quarters of fiscal 2017, the gaming segment’s YoY (year-over-year) revenue growth rate moved from 17%–18% to 63%. This strong growth helped the gaming segment surpass the $1 billion revenue mark to reach ~$1.2 billion in fiscal 3Q17.

The company is likely to maintain double-digit growth in fiscal 4Q17 as it supplies Tegra processors for Nintendo’s Switch console, which is due to launch in March 2017.

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Gaming revenue estimates

For fiscal 4Q17, Nvidia’s revenue from gaming could rise 20% sequentially to ~$1.5 billion. Rival Advanced Micro Devices (AMD) reported 27% sequential growth in its Computing and Graphics revenue in fiscal 4Q16, driven by strong demand for Polaris GPUs. But AMD’s Polaris failed to beat Nvidia’s Pascal GPUs in terms of performance, and so AMD used the water-drop strategy to tap market share.

In October 2016, Nvidia launched the cheaper variants of its Pascal GPU, including GeForce GTX 1050 and GTX 1050 Ti, priced at $109, giving tough competition to AMD’s RX 480 and 470, which are priced at $199.

Nvidia’s most expensive gaming GPU, Titan X, priced at $1,200, is also witnessing strong demand. All these products will likely drive Nvidia’s revenue in fiscal 4Q17, while its gaming revenue is unlikely to maintain a growth rate of 60%.

Nvidia may not be able to maintain 60% revenue growth

The Nintendo win will likely generate strong revenue growth for Nvidia in the first few months of the launch of Switch console. But beyond that, any revenue growth from Nintendo will likely come during the holiday season when game console sales are strong, and so Nvidia is unlikely to maintain a 60% growth rate.

According to Jon Peddie Research, the PC gaming hardware market is expected to grow at a CAGR (compound annual growth rate) of 6% between 2017 and 2019, after crossing the $30 billion mark in 2016. But Nvidia’s gaming revenue is likely to grow at a faster rate than the PC gaming hardware market due to its dominant position in the fast-growing segment of GPUs and high-end GPUs. Data from Jon Peddie Research showed that the high end accounted for 43% of the gaming hardware revenue in 2016.

All this could help Nvidia report double-digit growth in gaming, but a 60% growth rate is unlikely due to increasing competition from AMD.

Now let’s take a closer look at the competition between AMD and Nvidia.

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