Earnings reports for NVIDIA (NASDAQ:NVDA) have been largely non-events over the last year. The company has consistently been on target for revenue, thanks to a recovering workstation GPU business, a booming HPC business, and a solid PC gaming environment. Product mix has largely been favorable, especially as the company's Tegra revenue stalled during the year. The most recent earnings report was no different -- in-line results for the quarter and in-line guidance. However, while the financial results were mostly as expected, there were some interesting points brought up on the most recent call.
Tegra 4i certified, but not coming to the U.S.
In mobile and, in particular, cellular modems, it's not enough just to get the design done and then call it a day. These devices need to be put through the wringer in rigorous certification tests by cellular carriers. On the call, CEO Jensen Huang confirmed that the company's Tegra 4i, -- which is an integrated Cortex A9r4, GeForce GPU, and Icera i500 integrated on a single piece of silicon -- has completed AT&T's certification process.
Huang added that investors would see product announcements in the first quarter, with products both in devices and on the market no later than Q2. This is good news, as a previously unseen revenue stream will then be added to NVIDIA's top line. NVIDIA has had "super-phone" wins in the past, which have involved pairing other companies' modems with its apps processors, but this is the first time NVIDIA will be able to service the high-volume, low-cost smartphone market.
Unfortunately, NVIDIA's cellular modems do not support CDMA -- a cellular standard for which rival chipmaker, Qualcomm (NASDAQ:QCOM) holds many key patents, and is a key driver of the royalty stream in its QTL business. Interestingly, while Huang noted that this would largely prohibit NVIDIA's entry into the U.S. market for phones, neither AT&T nor T-Mobile uses CDMA technology, so it's unclear why Tegra 4i devices couldn't conceivably come to either of those networks.
Project "Logan" coming soon
NVIDIA's management noted that Project Logan (this is likely the Tegra 4 apps processor with a new Kepler-based GPU block swapped in) would be coming to market less than a year after the Tegra 4 launch. Tegra 4 first appeared in commercial devices in late July, which suggests that the next generation Tegra could hit the market in the second quarter of 2014. This should be ahead of Intel's (NASDAQ:INTC) next generation Cherry Trail processor, which is likely to launch in Q3 2014, and it could even beat the successor to Qualcomm's Snapdragon 800.
NVIDIA was largely derided for missing out on the Nexus 7 that it had in the Tegra 3 generation. The timing of Logan suggests that NVIDIA has a real shot at winning back this socket. Further, designs like the next-generation Amazon Kindle Fire HDX now become open to NVIDIA. However, competition here will be fierce, as Intel and Qualcomm should be well into the ramps of their own next-generation processors, preparing for the timeframe needed for this design. At any rate, NVIDIA's Tegra division will likely do much better in FY2015 than it did in FY2014.
Capital allocation helps make the wait easier
NVIDIA was once notorious for its very shareholder-unfriendly capital allocation scheme -- it simply let cash pile up on the balance sheet. However, the company has done a superb job with its capital allocation process over the last year. Not only did it initiate a dividend last year, as well as announce a significant buyback, but the company raised the dividend to $0.34 per share and announced that it would be returning an additional $1 billion to shareholders via both the dividend and a renewed buyback authorization.
While buybacks and dividends are no substitute for organic growth, they are great at keeping investors calm during the wait for major growth initiatives to kick in. NVIDIA has been a tough stock to own over the last couple of years, but if management can finally deliver on the Tegra promise, and if it can continue to drive leadership in its core GPU business, then there's no reason why shares shouldn't trade much higher a year from now.