Back in February, graphics-chip maker NVIDIA
At the same time, the company gave a better-than-expected revenue outlook for the second quarter that led to a spike in its share prices. So what's making the market upbeat about NVIDIA? Let's find out.
Figuring it out
NVIDIA's first-quarter revenue fell 4% from the prior-year period to $924.9 million, mainly caused by supply constraints in the 28-nanometer chip manufacturing process that have developed at foundry partner Taiwan Semiconductor Manufacturing
Although its core GPU business took a hit, thanks to the TSMC short supply, the company's revenue was partly boosted by the success of its consumer products division, which includes the Tegra 3 line of processors. Another bright spot was NVIDIA's gross margins, which were able to maintain the 50% level seen in the earlier quarter, thanks to strong demand for its high end Kepler-based GPUs.
Keeping it efficient with Kepler
NVIDIA's newest GPUs based on the Keplar architecture are known to be more powerful, compact, and efficient than any of their predecessors, which makes them a great feature in ultrabooks. Small wonder, then, that the Kepler-based GPUs have sailed through OEM design wins on Intel's
But NVIDIA isn't the only one with 28-nanometer chip-manufacturing problems. Bigger rival Qualcomm
But apart from Kepler GPUs, NVIDIA stands to gain a lot from the sale of its Tegra 3 processors, thanks to the booming smartphone and tablet market. Moreover, unlike the Kepler GPUs, these mobile-based processors don't face supply-side issues, as they're manufactured using a special 40-nanometer-based process.
Things aren't going to be that easy for NVIDIA, though, given that competition is gearing up as well. Apart from Qualcomm, there's always Intel to contend with. With Intel's Medfield chips posing a serious challenge for NVIDIA and for the ARM ecosystem as a whole, the mobile processor wars are going to heat up even further.
The Foolish bottom line
I stated in a previous article that NVIDIA does have a bright future, and I stand by that call. While the company does need to iron out the supply-side issues for its graphics processors, it also has the opportunity to cash in on the mobile-chip segment, which could very well turn out to be the next cash cow.
At the same time, Kepler GPU's should keep NVIDIA's core GPU business abuzz with better margins. With Gartner expecting PC shipments to increase this year by about 4.4%, there's plenty of hope on the horizon for NVIDIA yet.
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Fool contributor Keki Fatakia holds no shares in any of the companies mentioned in this article. The Motley Fool owns shares of Qualcomm, Apple, and Intel. Motley Fool newsletter services have recommended buying shares of NVIDIA, Intel, and Apple, writing puts on NVIDIA, and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.