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Could NVIDIA’s Gross Margin Overtake Intel’s?


Dec. 29 2017, Updated 9:03 a.m. ET

Profit margins

NVIDIA (NVDA) is known for its advanced GPU (graphics processing unit) technology, which has made it a dominant player in the PC (personal computer) gaming segment. This technology advantage gives NVIDIA the power to charge a premium for its products.

Intel (INTC) enjoys a similar position as NVIDIA in the CPU (central processing unit) market, which helps it command higher prices for its products. Meanwhile, rival Advanced Micro Devices (AMD) is surviving in the GPU and CPU markets by charging lower prices. But higher ASPs (average selling prices) help NVIDIA and Intel report higher profit margins.

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Gross margin

In fiscal 3Q178, NVIDIA’s non-GAAP (generally accepted accounting principles) gross margin improved to 59.7%, which is higher than its guidance of 58.8%. This margin was driven by the addition of the $150,000 Tesla V100, but NVIDIA is still behind Intel in terms of its gross margin because the latter manufactures its chips in house.

At the same time, Intel has the most advanced process node, but this technology gap is shrinking, with third-party foundries moving to smaller nodes before Intel. According to Moore’s law, every two years, the size of the chip will shrink, the number of transistors will double, and the cost and power consumption will reduce. With the Volta, NVIDIA marked its shift from TSMC’s (TSM) 14 nm (nanometer) process node to the 12 nm node.

In coming quarters, NVIDIA will likely realize the cost-benefit of shifting to the 12 nm node, improving its margins even further. The chip supplier expects its gross margin to rise to 60% in fiscal 4Q18, but others expect the company to report a gross margin above 60% as this quarter could see strong seasonal sales of the $3,000 Titan V GPU and the $150,000 Tesla V100.

Meanwhile, higher ASPs are bringing NVIDIA’s gross margin closer to that of Intel. If Intel loses its advantage of advanced process node to TSMC, there’s a possibility that NVIDIA could overtake Intel in terms of gross margin.

Now let’s assess NVIDIA’s operating margin.


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