NVIDIA Beats on EPS, Revs Dip

NVIDIA Corp. (NVDA - Analyst Report) reported first quarter 2013 adjusted earnings per share of 11 cents, surpassing the Zacks Consensus Estimate of 10 cents.

Revenues

The company reported total revenue of $924.9 million in the quarter, down 3.9% from $962.0 million in the year-ago quarter.

The company reported recent first quarter revenue with the company’s notebook GPUs top to bottom with the launch of the GeForce 600M series. The efficiency of GeForce 600M notebook GPUs helped the production of new efficient notebooks form factors like that of the Acer Aspire Ultrabook M3. The company is of the opinion that the strong growth will continue for our notebook.

Within business segments, the company’s Graphic Processing Unit business was down 6.7% sequentially as a result of shortage in supply of the 28-nanometer, which had an impact on the high-end desktop business as well as shorted supply for our new Kepler GPUs for notebook. Our Professional business was down modestly 4.2% from the fourth quarter, as a result of normal seasonal effect.

The Consumer business moved up by 20.8% on the strength of the company’s Tegra business as the company launched Tegra 3 for smartphones and tablets, offset to a considerable extent by the decrease in our embedded business.

Operating Results

Gross margin on a GAAP basis was 50.1% versus 51.4% in the previous quarter. Gross margin was at the top end of the company’s outlook, again on the strength of our new Kepler GPUs and desktop and notebook. On a non-GAAP basis, gross margin was 50.4%, which declined from 52.5% reported in the previous quarter.

GAAP operating expense in the quarter stood at $348.0 million down 7.0% from $325.2 million in the previous quarter.

The company reported a net income of $60.4 million or 10 cents per diluted share on a GAAP basis, compared with $116.0 million or 19 cents a share in the previous quarter.

Excluding special one-time items but including stock-based compensation expenses, adjusted net income was 11 cents per diluted share compared with 26 cents per share in the year-earlier quarter.

Balance Sheet & Cash Flow

The company exited the quarter with cash, cash equivalents and marketable securities balance of $3.5billion, up from $3.1billion in the previous quarter. Balance for inventories during the quarter stood at $342.7 million, up from $340.3 million in the previous quarter.

Guidance

For the second quarter of fiscal 2013, revenue was in the range of $990.0 million to $1.05 billion, whereas gross margin of 51.2% plus or minus 1 percentage point, operating expense is expected to be $418 million. The company also expects depreciation and amortization in the range of $55.0 million to $57.0 million and capital expenditures in the range of $35.0 million to $45.0 million. Diluted shares are expected to be approximately 628 million.

Our Take

As expected NVIDIA delivered mixed first quarter results with EPS surpassing our expectations, but revenue declining sequentially and year-over-year. The company refreshed its notebook GPUs from top to bottom with the launch of the GeForce 600M series.

The company expects to benefit from the integration of the new Tegra 3, and a strong growth in the notebook segments.

Moreover, NVIDIA’s performance may be tempered slightly by the economic slowdown in Europe. Again, advanced chips developed by Intel Corp. (INTC - Analyst Report) and Advanced Micro Devices Inc. (AMD - Analyst Report) may increase competition for the company.

Currently, NVIDIA holds a Zacks #3 Rank, implying a short-term Hold rating.