Graphics processing unit, or GPU, specialist NVIDIA's (NVDA 3.46%) fourth-quarter results proved to be a pleasant surprise. At $1.14 billion, the company's revenue stayed ahead of the Street's expectation of $1.05 billion, and net income of $0.25 per share also managed to beat analyst estimates of $0.24 per share. NVIDIA also provided estimate-beating revenue guidance for the current quarter, prompting a 3.6% rise in the share price.

However, the real picture was a bit different. NVIDIA's net income actually fell by a substantial 16% on a year-over-year basis, a fact that can be attributed to increased operating costs that obviously did not lead to positive results. Having faced a recent slowdown of its core GPU business, which catered to the now fast-fading personal computer industry, NVIDIA was quick to change gears by shifting its focus to developing graphics products for mobile devices instead. However, it has, until now, failed to gain a secure foothold in the face of stiff competition from mobile chip market giants Qualcomm (QCOM -0.26%) and Samsung.

This raises a big question: Does it pay to put faith in NVIDIA's prospects anymore? 

Game on, folks!
While the PC industry as a whole recorded a steady decline, the real life-saver for NVIDIA was the PC gaming segment. This became evident when the company recorded a substantial 14% YoY increase in revenue from sales of its GeForce graphics chips targeted at high-end gamers, the majority of whom use desktop machines. That's a very good sign, considering that almost 40% of the global gaming market is comprised of desktop PC users. Incidentally, NVIDIA's graphics cards cater to nearly 70% of that market.

This can also lead to further opportunities for the company in emerging markets like China and India, where cost-conscious consumers use PCs to play high-end games, instead of buying expensive game consoles from vendors like Sony and Microsoft.

However, the recent launch of new high-end GPU's by competitor Advanced Micro Devices has compelled NVIDIA to lower prices on some of its products. AMD has witnessed increasing revenue from its game console business and has even launched a new graphics API code named Mantle.

Long-term concerns about decreased profit margins for NVIDIA should be eliminated with the planned launch of its new GPU architecture, which should significantly improve the performance of its next-generation graphics products. 

The Tegra story
While gaming GPUs certainly look set to be a lucrative future source of revenue, NVIDIA simply cannot afford to ignore the booming smartphone and tablet revolution, which is where its Tegra line of chip sets comes into focus. However, its Tegra business has failed to gain significant market share and has instead posted a 37% decline in revenue during the fourth quarter.

A prime reason for this seems to be NVIDIA's continued inability to match up to the high standards of the integrated LTE-enabled chips manufactured by rival Qualcomm. In fact, Qualcomm has been making such chips for over two years and is the undisputed market leader with over 97% share of global LTE-based revenue.

However, things may not be all that bad, as NVIDIA recently launched its next-generation Tegra K1 chip, based on its Keplar graphics technology, which has primarily been used in making high-end components for PCs. With the company promising mobile enthusiasts a PC-like gaming experience with the use of this chip, NVIDIA's prospects should brighten considerably when the product actually shows up in devices toward the end of this year.

The wheels are rolling
The company is also making an effort to focus on the automotive industry and is marketing its Tegra K1 processors as being ideally suited for the development of car navigation and entertainment systems. In fact, NVIDIA has already begun promoting its Tegra processors with major car manufacturers such as Audi, Tesla and BMW.

Anything else on the menu?
Two other initiatives worth mentioning include the Shield and its GRID technology for the cloud computing space. While the former is a purely Android-based handheld gaming device with the capability to play streaming video games, NVIDIA's GRID technology leverages the power of the cloud to allow multiple users to virtually share the computing power of a single GPU. This eliminates the need for expensive on-site equipment, a big potential advantage for NVIDIA. With companies such as Amazon already planning to offer GRID-based GPU's as a part of their overall cloud offerings, NVIDIA's technology has the potential to develop into a big success story.

Foolish final thoughts
NVIDIA can continue to play a smart game and increase revenue through clever planning to offset current disadvantages in the mobile devices segment. Apart from its GeForce graphics chips and GRID technology, the company's increased focus on the automotive segment can also lead to major revenue gains.

While this may not be the time to make any fresh acquisitions, investors should certainly keep a close watch on where NVIDIA is headed to by the end of this year.