On Nov. 10, graphics specialist NVIDIA (NVDA 3.65%) reported financial results for the third quarter of its fiscal year 2017. NVIDIA says it generated $2 billion in revenue, up 54% year over year, crushing the midpoint of the $1.68 billion revenue guidance it gave last quarter and the $1.69 billion analyst consensus.
Image source: NVIDIA.
NVIDIA also blew away its margin forecast of 57.8% on a GAAP basis, turning in GAAP gross margin of 59% of revenue. Non-GAAP diluted earnings per share were $0.94 for the quarter, growing 89% year over year and handily cruising past analyst consensus of $0.57.
For the coming quarter, things look even better. NVIDIA is calling for revenue to grow to $2.1 billion, up $100 million sequentially, with gross profit margin expected to be 59% on a GAAP basis. Analyst consensus had called for NVIDIA's revenues to stay flat quarter over quarter off a lower base, so this is a significant beat as well.
Let's take a closer look at what drove these results.
Substantial growth in three major businesses
NVIDIA's gaming business surged to $1.24 billion, growing 59% from the prior quarter and a whopping 63% from the year-ago quarter. Considering this is NVIDIA's largest business by a significant margin, it's an impressive showing.
The company's data-center efforts, which was a source of significant upside last quarter, saw revenue growth of 59% from the prior quarter and 193% growth (that's not a typo) from the year-ago quarter. Total revenue for this business was $240 million.
And, finally, the company's automotive business enjoyed significant growth as well, climbing 7% sequentially but a full 61% year over year.
Of NVIDIA's four major growth businesses, three were up more than 60% year over year during the quarter.
NVIDIA's professional visualization, the fourth of the company's core businesses, declined 3% sequentially but grew 9% year over year. This is the least exciting of NVIDIA's major business, at least from a growth perspective, but it's encouraging to see it continue growing as it did in the prior two quarters of the current fiscal year.
OEM and IP business down a smidgen
Although NVIDIA's largest and most important businesses enjoyed robust growth, the company's OEM and IP business grew 40% sequentially but contracted 4% year over year, falling from $193 million to $186 million.
NVIDIA management has indicated in the past that this business should generally track the overall personal-computer market. If we exclude the $66 million in royalty payments NVIDIA receives in this business, then the year-over-year decline in this business was approximately 5.5%. Gartner says PC shipments declined by 5.7% year over year during the third quarter, so this business truly is tracking the personal-computer market.
Overall, a great quarter
It's hard to find anything not to like in these results; the businesses that are important to NVIDIA's future are growing extremely quickly. They're also very profitable, with the company's overall gross profit margin percentage now nearing 60%. Moreover, based on the company's guidance for its fourth fiscal quarter, the momentum doesn't appear to be slowing.
The area in which NVIDIA's results were weak -- OEM and IP -- is one that's expected to continue to be weak. Moreover, this business isn't expected to play a significant role in the company's long-term future, as the $66 million per quarter in royalty payments it currently receives will soon dry up, leaving only low-margin graphics processors sold into general-purpose personal computers.
