The late 1990s saw a 3-D revolution in computer graphics, with two companies emerging as the clear technical leaders. NVIDIA (NASDAQ:NVDA) is one of them, and its first-quarter results from fiscal 2007 show no sign that the company's palette is drying up.

Compared with year-ago earnings and sales of $0.18 a share and $584 million, the graphics giant earned $0.29 per share (excluding one-time items) on revenue of $682 million. That's much better than the $0.23 per share the analyst community expected, and management believes the best is yet to come.

CFO Martin Burkett forecast flat sequential sales for the next quarter. The second quarter typically sees a revenue drop, since the gaming demographic seems to prefer playing outside over the summer. The unusually strong expectations are based on growth in handheld graphics chips and system chipsets, areas where NVIDIA has been making acquisitions lately.

After chipset stalwart ULI got absorbed back in December, this quarter saw iReady join the NVIDIA ranks, bolstering the company's expertise in networking and SCSI device communications. Handset graphics expert Hybrid Graphics also stepped on board in March, giving NVIDIA access to a new client roster, a bit of fresh technology, and an outpost in Hybrid's native Finland.

Why is the Finnish connection important, you ask? It's the homeland of worldwide cell phone leader Nokia (NYSE:NOK), and NVIDIA saw a chance to get a foot in the door with that potentially huge client. Hybrid did have a relationship with Nokia, but it looks like NVIDIA's main competitor ATI (NASDAQ:ATYT) got the last laugh in Finland after all.

The Canadian designer of graphics chips recently snapped up Bitboys Oy, another tiny, Finnish firm with links to Nokia. Only Bitboys had deeper connections with the phone company than Hybrid did, and ATI announced a Nokia partnership within days of that acquisition. It was a major coup for ATI, but just the latest in a long series of the two companies one-upping each other.

ATI and NVIDIA mirror each other to an almost eerie extent. Besides trading blows in the PC graphics market, both companies are now looking to system chipsets and portable devices as drivers of future growth. ATI powers Microsoft's (NASDAQ:MSFT) Xbox 360 and the upcoming Nintendo Wii console, while NVIDIA got the contract for the PlayStation 3 from Sony (NYSE:SNE). It's a constant battle for supremacy, but it looks like NVIDIA has the upper hand for the moment.

The rivals are pulling in comparable revenue streams, but ATI is having a hard time turning the sales into profit. NVIDIA, on the other hand, is growing margins across the board and reporting actual profits. Right now, NVIDIA's best weapon is the recently introduced GeForce 7 line of graphics cards, selling for premium prices but made relatively cheaply thanks to an advanced 90nm manufacturing process. In return, NVDA shares are priced for perfection, while ATYT is selling at a discount.

Take your pick -- value-priced shares or financial performance -- and look for this battle of the titans to continue. David Gardner cast his lot with NVIDIA, picking the company for the Motley Fool Stock Advisor newsletter. Sign up for a free 30-day trial to see why.

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Fool contributor Anders Bylund is GPU-agnostic and doesn't own any of the stocks mentioned. His mother tells him that he used to know Finnish as a toddler, but that was a long time ago. Microsoft is a Motley Fool Inside Value pick. The Fool's disclosure policy is rendered in real time.