4 Takeaways From NVIDIA Earnings

Earlier this week, I posed four questions for NVIDIA (NASDAQ: NVDA  ) going into its second-quarter earnings announcement.

Sure enough, the graphics-chip specialist released its Q2 results after the market close Thursday, and NVIDIA stock promptly fell more than 2% in after-hours trading -- this despite the fact that revenue came in at $977.2 million, with GAAP net income of $0.16 per share, beating analyst estimates, which called for earnings of $0.13 per share on $976.4 million in sales.

Let's dig in, then, to see what NVIDIA had to say:

1. Tegra 4 is ready for primetime, but...
First, I wanted to know whether NVIDIA's groundbreaking Tegra 4 line of processors was gaining ground on the competition, especially considering the company told us early in 2013 that Tegra 4 already had more design wins than the previous Tegra 3 line had in total.

Even so, Tegra 4 shipments still haven't begun to truly ramp up yet, so it should come as no surprise that revenue for the Tegra segment fell 49% sequentially, and 71% year over year as the company scaled down Tegra 3 shipments.

That said, while the company is looking forward to a significant jump in Tegra sales as they begin shipping units from Tegra 4-based design wins, NVIDIA management also stated during the company's earnings conference call that, "Due to current dynamics in the mobile space, we believe it will be challenging for Tegra revenue to remain flat year over year as originally expected." 

In short, that's why NVIDIA turned in relatively light revenue guidance for the third quarter of approximately $1.05 billion (plus or minus 2%), which is below average analyst expectations of $1.10 billion.

2. "Shield is doing great." 
Next, I wanted to know whether the Tegra 4-powered Shield is living up to NVIDIA's expectations.

After all, while I've already written that I don't expect the new hand-held gaming device to move NVIDIA stock anytime soon, I couldn't help but wonder whether Shield would suffer after NVIDIA was forced to make the difficult decision to postpone its launch by over a month when they found a hardware defect in one of the final versions.

So, what did NVIDIA have to say? While the company's earnings press release only mentions the device one time to say it will soon move "beyond the U.S.," analysts wasted no time pressuring management for more details on how Shield shipments are faring.

Thankfully, NVIDIA CEO Jen-Hsun Huang chimed in to say:

Shield is doing great, and early reviews are fantastic. [...] Sales have been great, everything that we've shipped so far has sold out. We're just starting to ramp production, and we've only shipped out to our partners several thousand units -- so it's still quite early to tell -- but we're expecting to do quite well with Shield.

3. On the licensing biz...
Next, I wanted to know whether NVIDIA was seeing any movement regarding its recent decision to license its Kepler-based GPU cores and visual computing patent portfolio to device manufacturers.

Funny enough, while the press release once again offered little color, the second question from analysts revolved around -- you guessed it -- licensing.

Unfortunately, Huang offered no new details on when, exactly, we can expect licensing to translate to NVIDIA's top and bottom lines, but instead, he spent some time rehashing the reasons why NVIDIA made the move in the first place.

That's fair enough; after all, NVIDIA only made the initial announcement less than two months ago, so it's hard to expect significant progress by now.

4. On returning capital to shareholders
Finally, I was looking for any updates regarding NVIDIA's previously announced decision to return another $1 billion to shareholders this fiscal year.

As it turns out, in May, NVIDIA executed an accelerated share repurchase agreement with Goldman Sachs, through which NVIDIA paid Goldman $750 million in exchange for 36.9 million common shares of NVIDIA stock. What's more, when the agreement is settled, NVIDIA currently expects that Goldman will be required to deliver additional shares of common stock to NVIDIA per the terms of the ASR.

In addition, NVIDIA has also returned $190 million to shareholders in the form of dividends and traditional share repurchases so far in 2013, which means they've already returned $940 million to shareholders' pockets in the first two quarters.

Foolish takeaway
NVIDIA's report offered no big surprises, and though there's cause for concern over the painfully slow ramp-up in Tegra 4 devices, shareholders can look forward to accelerated growth in that crucial segment over the next few quarters.

But, as a shareholder myself, what am I doing?

Considering NVIDIA trades at a reasonable 15.5 times last year's earnings, and has around $2.9 billion in cash with no debt on their balance sheet (even after the aforementioned massive share repurchase agreement), I'm more than happy to hold onto my NVIDIA stock, collecting the healthy 2% dividend while I wait for their long-term plans to pan out.

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