Three months ago, Nvidia Corp. (Nasdaq: NVDA) looked like the technology leader and future king of the computer graphics industry. Today, it moved another step closer to its coronation.
The company reported its second-quarter results this morning, and they looked really good.
- Revenue jumped 118% to $170 million -- that's totally organic growth, not boosted by acquisitions.
- Gross margins improved to 37.4%, up 100 basis points from last year's level.
- Operating expenses fell to 20% of revenue, down from 24% a year ago.
- Net income hit $22.5 million on margins of 13.2%, well above last year's 8.6%.
It's true that Nvidia had $4 million in interest income this year, which added 3.5 cents to earnings per share (EPS) after tax, compared to $369,000 or 0.5 cents per share last year. That may be the reason the stock got beaten down today -- though Nvidia beat estimates by two cents, its interest income was about a penny higher than expected.
Whatever. The company is sitting on $200 million of Microsoft's (Nasdaq: MSFT) money, an advance payment for Nvidia's work on the X-box, Microsoft's answer to Sony's Playstation game console. Nvidia will realize that deferred revenue as it delivers chips and licensed technology to Microsoft. It may not be able to deliver, or Microsoft may cancel the contract and get half of its money back (plus preferred stock), but Nvidia has the money to use until then. More power to it if it earns more than expected from the float.
Nvidia's performance is all the more impressive when compared to its competitors. ATI Technologies (Nasdaq: ATYT), the big player in the industry, saw sales drop 5% year-over-year and 30% sequentially last quarter. Gross margins also fell dramatically, down to 19.6% from 37% in the prior year. Its $0.10 loss per share was a full three cents below already-lowered estimates. Ouch.
3dfx Interactive (Nasdaq: TDFX) also continues to spiral downward. The company subtlely indicated last week that its earnings for the quarter would fall well short of estimates. Though final results won't appear until August 29, 3dfx said that revenue would come in around $65 million, less than half the $134 million that analysts expected in May. Double ouch. The company said the shortfall is due to component shortages and "competitive and retail seasonality factors."
Nvidia doesn't seem to suffer from those same factors. While ATI and 3dfx make excuses for underperformance, Nvidia continues to expand its market share. Its sales were 26% of ATI's in the second quarter last year; this year, they are 59%. Nvidia's stock is up about 500% in the last year, while ATI and 3dfx near 52-week lows.
It's not hard to see who's the king here.
Your Turn:
Stop by the Nvidia discussion board to talk about the future of this up-and-coming monarch.
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