The figures first
A look at NVIDIA's yearly performance figures reveals slow movement in the company's GPU business, mainly due to the stagnating shipments of personal computers, which rose by just 0.5% from the previous year. Still, it goes to the company's credit that it managed to increase this division's operating profits from just $30 million to more than $500 million.
At the same time, its consumer products division, which primarily deals with chips for smartphones and tablets, failed to churn out profits. However, it did record an almost 200% growth in revenue to $591 million.
While the above figures may evoke mixed feelings in investors, I see some definite reasons to smile going forward.
The computer isn't dead yet
While admittedly there is a trend toward tablets and smartphones, let's not forget that it will take a long time before their penetration level bypasses that of personal computers.
In fact, PC shipments are set to rise by 4.4% in 2012 to 368 million units, which should spell good times for NVIDIA's bread-and-butter GPU business. And more than that, it's the gamers who should provide a big boost to GPU sales. With big-ticket games such as Diablo 3, Assassin's Creed 3 and StarCraft 2 set to be released later this year, NVIDIA's GPUs should be on a roll.
At the same time, global smartphone sales are set to rise by 36% to 614 million units in 2012 and to 1.5 billion units by 2016. That's enough to judge why profitability is probably just a matter of time for NVIDIA's consumer products division. Even though the fact that NVIDIA does not supply its chips to Apple's iPhones and iPads may be a letdown for some, there's always Samsung, LG, and Motorola, among others, to compensate for the loss. All of the latter companies use NVIDIA's chips in their smartphones and tablets.
The real threat is from bigger players, such as Qualcomm
The Foolish bottom line
I feel NVIDIA has a bright future. With demand for smartphones and tablets set to skyrocket over the next few years, this segment could become NVIDIA's next cash cow as more devices start using its Tegra line of processors. And PCs are not on their way out just yet.
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Fool contributor Keki Fatakia does not hold shares in any of the companies mentioned in this article.
The Motley Fool owns shares of Qualcomm, Intel, and Apple. Motley Fool newsletter services have recommended buying shares of Intel, Apple, and NVIDIA. Motley Fool newsletter services have also recommended creating a bull call spread position in Apple and writing puts on NVIDIA. The Motley Fool has a disclosure policy.