NVIDIA FY 2016 Q2 Results: GPU Sales Are Strong But Write Downs Hurt Bottom Line
by Brett Howse on August 7, 2015 12:10 AM EST- Posted in
- GPUs
- NVIDIA
- Financial Results
Today NVIDIA released its quarterly results for the second quarter of their fiscal year 2016 (yes, 2016) and they had excellent sales of their GeForce GPUs, but have decided to write down their Icera modem business, which hit their operating expenses to the tune of around $90 million. Revenue for the quarter was up 5% though as compared to Q2 2015, and came in at $1.153 billion for the quarter. On a GAAP basis, gross margin was 55%, down 110 bps over last year and down 170 bps since last quarter. Net income was just $26 million, down 81% sequentially and 80% year-over-year. This resulted in diluted earnings per share of $0.05, down 77% from Q2 2015’s $0.22.
| NVIDIA Q2 2016 Financial Results (GAAP) | |||||
| Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y | |
| Revenue (in millions USD) | $1153 | $1151 | $1103 | flat | +5% |
| Gross Margin | 55.0% | 56.7% | 56.1% | -1.7% | -1.1% |
| Operating Expenses (in millions USD) | $558 | $477 | $456 | +17% | +22% |
| Net Income | $26 | $134 | $128 | -81% | -80% |
| EPS | $0.05 | $0.24 | $0.22 | -79% | -77% |
A big factor in this was the write down of their Icera modem division. NVIDIA had been looking for a buyer for their modem unit, but was unable to find a suitable buyer for the business and is therefore winding down operations in this unit. This caused a hit of $0.19 per diluted share. Also during the quarter, NVIDIA announced a recall of their SHIELD tablets due to overheating batteries, and there have been two cases of property damage due to this. This caused another hit of $0.02 per diluted share. They also had $24 million in expenses related to the Samsung and Qualcomm lawsuit.
| NVIDIA Q2 2016 Financial Results (Non-GAAP) | |||||
| Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y | |
| Revenue (in millions USD) | $1153 | $1151 | $1103 | flat | +5% |
| Gross Margin | 56.6% | 56.9% | 56.4% | -0.3% | +0.2% |
| Operating Expenses (in millions USD) | $421 | $425 | $412 | -1% | +2% |
| Net Income | $190 | $187 | $173 | +2% | +10% |
| EPS | $0.34 | $0.33 | $0.30 | +3% | +13% |
NVIDIA’s non-GAAP results “exclude stock-based compensation, product warranty charge, acquisition-related costs, restructuring and other charges, gains and losses from non-affiliated investments, interest expense related to amortization of debt discount, and the associated tax impact of these items, where applicable” which means that they do not reflect either the Icera write-down, nor the tablet recall. On a non-GAAP basis, gross margin was up 20 bps to 56.6%, with net income up 10% to $190 million. Diluted earnings per share were $0.34, up 13% from Q2 2015’s $0.30 non-GAAP numbers. Despite a significant write-down and a recall, the core business is still doing very well.
For the quarter, NVIDIA paid out $52 million in dividends and repurchased $400 million in stock.
What is driving growth right now is its GPU business. Revenue for GeForce GPUs grew 51%, and NVIDIA has continued to see strength in the PC gaming sector. Fueled by the release of the GTX 980 and GTX 980 Ti, sales of high-end GTX GPUs “grew significantly” year-over-year. The Titan X would certainly fall in there as well, although unlikely at as high of volume. Maxwell has been a very strong performer, and gamers tend to go where the performance is. Souring the results somewhat is a decline in Tesla GPU sales, as well as Quadro GPU sales. Overall, GPU revenue was up 9% year-over-year to $959 million. Even as NVIDIA has tried to diversify with SoCs, their GPU business is still almost 85% of the company.
NVIDIA has found a niche in the automotive infotainment world, and that that area is still strong for them. Tegra has not taken off in the tablet or smartphone space in any meaningful way, but there was still growth in the automotive sales for Tegra. Overall Tegra processor revenue was down 19% year-over-year, which is mainly due to Tegra OEM smartphones and tablets. NVIDIA’s own Tegra sales in the Shield helped offset this loss somewhat, but as the recall filings showed, they only sold 88,000 SHIELD tablets. Margins are likely helped by the fact that they run their own SoC in it though.
NVIDIA’s “Other” segment is a fixed 66 million licensing payment from Intel, and as always, that is flat and does not change. This is from the 2011 settlement of a licensing dispute, and will end in 2017.
| NVIDIA Quarterly Revenue Comparison (GAAP) | |||||
| In millions | Q2'2016 | Q1'2016 | Q2'2015 | Q/Q | Y/Y |
| GPU | $959 | $940 | $878 | +2% | +9% |
| Tegra Processor | $128 | $145 | $159 | -12% | -19% |
| Other | $66 | $66 | $66 | flat | flat |
For Q3 2016, NVIDIA is expecting revenue to be $1.18 billion, plus or minus 2%, with margins of 56.2% to 56.5%.
NVIDIA is obviously a giant in the GPU space, and that is going very well for them. Sales are very strong, and PC gaming has been a strong point in an otherwise weakening PC market. They are attempting to diversify to mobile, but have found out just how difficult that can be, and had to write down their modem division completely. Without a good integrated modem, it will be difficult to gain traction in the smartphone space, but NVIDIA’s current SoC offerings don’t seem well suited to smartphones anyway. Their strength in GPU knowledge has certainly helped them with the GPU side of the equation, but their first attempt at CPU design has not been as strong. We shall see what their plans are for the SoC space going forward, but for now they are riding a wave of strong GPU sales, and that is a good thing for NVIDIA.
Source: NVIDIA Investor Relations
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karthik.hegde - Friday, August 7, 2015 - link
NVIDIA has diversified its investments, a lot into Deep learning. In the upcoming years, Machine Learning is going to be ubiquitous and NVIDIA will play a huge role in it.AMD needs to leverage its capability to have CPU & GPU developed in house, and come up. I sincerely hope, NVIDIA doesn't become Intel of GPUs.
R0H1T - Friday, August 7, 2015 - link
"NVIDIA doesn't become Intel of GPU" ~ that usually happens when enthusiasts don't punish Nvidia for the stunt they pulled with the GTX 970, Gameworks, Kepler performance et al. Even with the latest Fury (Non X) you have an unlockable card & excellent VFM product, but as always the value proposition that Nvidia brand brings to the table for'em is hard to quantify.For Enterprise you could assume the value of CUDA & Nvidia's software/hardware ecosystem playing a crucial role for their dominant role in that part of the market segment. However no Enterprise customer would let Nvidia off the hook with that ~3.5GB fiasco, the question is why do normal users put up with that kind of schtick?
Oxford Guy - Friday, August 7, 2015 - link
Samsung was hit with a fine for astroturf, hiring people to post comments favorable to its products and unfavorable competitors'. I think a certain other company is doing this more successfully.yannigr2 - Friday, August 7, 2015 - link
Yeap, I see certain green people posting multiple comments and multiple sites every day. Those people either don't need to work, don't have a life, or they are just getting payed for doing that.But forum posters is one thing, the tech press is another. For the same things, they will take part in damage control or downgrade the importance of the bad news if it has to do with Nvidia, they will start shouting all over the place, post articles and analysis, if it has to do with AMD.
Nvidia driver problems with browsers and Windows 10. NOTHING.
Shield problems with it's battery? Nothing to see here.
AMD long period between WHQL drivers. FULL analysis, AMD failed, a sign that AMD is going bankrupt. No mention about the beta drivers that where posted and where also stable.
Nvidia lying about the specs of a card. Period of lies. 6 months at least. Damage control, full acceptance of Nvidia's excuses.
AMD pump problem in the first batch. AMD fixes it immediately. Full scale articles, pump noise compared to a train, conclusion, AMD and Fury X a failure.
I could write more. Never mind.
Achaios - Friday, August 7, 2015 - link
"Nolifers" are extremely common, much more common than you may think. A very large percentage of World of Warcraft gamers are "nolifers" for example. I can easily picture a WoW nolifer and NVIDIA fanboi alt+tabbing from WoW to write down a panegyric on his NVIDIA GPU.The_Assimilator - Friday, August 7, 2015 - link
"Shield problems with it's battery? Nothing to see here."Outright lie. Every hardware news site has covered this. But when it's affected a grand total of FOUR people, it's hardly newsworthy.
"AMD long period between WHQL drivers. FULL analysis, AMD failed, a sign that AMD is going bankrupt. No mention about the beta drivers that where posted and where also stable."
I think you might want to check up on the definition of the word "beta" in relation to the word "stable".
"Nvidia lying about the specs of a card. Period of lies. 6 months at least. Damage control, full acceptance of Nvidia's excuses."
nVIDIA has apologised and said the same thing won't happen again. And the "3.5GB" issue doesn't affect performance anyway, so again it's not newsworthy. The GTX 970 was sold as a card with 4GB of addressable memory, and it is.
"AMD pump problem in the first batch. AMD fixes it immediately. Full scale articles, pump noise compared to a train, conclusion, AMD and Fury X a failure."
AMD promised that the liquid cooler would make the Fury X the quietest card ever. The pump noise rendered that claim false. AMD probably would've got a pass on that issue, if not for the fact that they outright lied about Fury X's performance and overclocking abilities as well.
yannigr2 - Friday, August 7, 2015 - link
About Shield, you downgrade it yourself. The same did the press. Just reporting it, no extra sauce. Excuses.AMD's beta drivers didn't came with problems. WHQL drivers from Nvidia where having problems with Chrome browser, leading to crushes of the GPU driver. Maybe you should explain us what is Nvidia's definition for "WHQL driver". Double standards.
Nvidia apologize? REALLY? REALLY? Should I sell you something different from what I advertise you and then try to get away with a simple apology? Again covering Nvidia from your part.
About the pump. AMD fixed that problem instantly. Again you accept a simple apology from Nvidia while accusing AMD. Double standards again.
By the way, it was CoolerMaster's mistake with the pump, but OK let's make it AMD's. Even blaming AMD here, this whole story was about the first cards. It was fixed instantly. You are doing what the press did. You took a minority of some cards and make it look like all the cards are having pumps that make noise. That's why the tech sites rush to provide full analysis on the issue. They wanted to have ready articles about this before AMD fixes it. Now and in the future all these articles, will be there for people to google them and read them In 6 months from now when the problem on Fury's pump will be non existent. That was the whole idea. That's why there was full analysis and videos and everything.
The_Assimilator - Saturday, August 8, 2015 - link
"About Shield, you downgrade it yourself. The same did the press. Just reporting it, no extra sauce. Excuses."So you're agreeing it's a nonissue.
"AMD's beta drivers didn't came with problems. WHQL drivers from Nvidia where having problems with Chrome browser, leading to crushes of the GPU driver. Maybe you should explain us what is Nvidia's definition for "WHQL driver". Double standards."
While I agree that the Chrome TDR issue was a nVIDIA f**kup, the fact is that Microsoft certified those buggy drivers, so they should share the blame.
"Nvidia apologize? REALLY? REALLY? Should I sell you something different from what I advertise you and then try to get away with a simple apology? Again covering Nvidia from your part."
Nothing excuses that nVIDIA c**ked up conveying the specs of the 970's memory partitioning, but it doesn't affect performance for the vast, vast majority of people (including me) who bought that card. Which makes it a nonissue unless you're routinely maxing out the GTX 970's VRAM, in which case you will almost certainly find a 980/Ti or Fury/X to be a better purchase.
"About the pump. AMD fixed that problem instantly. Again you accept a simple apology from Nvidia while accusing AMD. Double standards again.
By the way, it was CoolerMaster's mistake with the pump, but OK let's make it AMD's. Even blaming AMD here, this whole story was about the first cards."
If I buy a Ford vehicle with an nVIDIA Tegra computer in it, and the computer breaks because of a manufacturing defect, do I return the vehicle to nVIDIA? Does nVIDIA get the bad press? No, the blame (rightly or wrongly) falls on Ford. It's all about perception. Similarly, in the case of Fury X, AMD was perceived to have a "faulty" product, even though the fault lies with Coolermaster. Personally I find the pump noise to be a nonissue, but when AMD was selling Fury X as the quietest high-end card in town, and then not delivering the quietest card, it was low-hanging fruit for the tech press to grab. That doesn't make it right, but scandal sells...
yannigr2 - Saturday, August 8, 2015 - link
Don't put words in my mouth. I don't agree. But I like your post. It's not the typical fanboy BS, but a more balanced approach.As you can see, things that you also call "Nvidia's f**kups" don't end up a ten page analysis on tech sites. Things about AMD do.
Kjella - Friday, August 7, 2015 - link
Because real people care about real performance and none of the benchmarks results changed? It was even tested in SLI @ 3840x2160 before the news broke without any obvious signs of trouble:http://www.guru3d.com/articles_pages/geforce_gtx_9...
When you consider that AMD rebrand GCN 1.0 cards as new in 2015, I'd rather take a honest mistake over AMD's intentional dishonesty any day. The GTX 970 is still a kick ass card with corrected specs, why do you think it's the most popular dGPU on the market and the sales keep accelerating?
http://store.steampowered.com/hwsurvey/videocard/
As usual, all the AMD fans can do is wank over the powerpoint presentations that show Zen and the R9 Nano will be great, now that we know Fury is barely 980 Ti-ish despite all the hype. Wake up and smell the coffee, people don't buy spec sheets and powerpoints they buy products. And there nVidia has delivered and AMD been utter disappointments the last few years.