NVIDIA Corp.: Pixelated Profits

Aug. 20, 2008
Maker of graphic processor technologies records first quarterly loss in six years.

In the world of high-tech, manufacturers are constantly challenged to get their products out to market as quickly as possible. New products seem to have shorter and shorter shelf lives every quarter, and demand for the latest and greatest new version never seems to slow down.

For NVIDIA Corp., one of IndustryWeek's Best Manufacturers for 2008, the business of creating better graphics technologies for personal computing is constantly changing as well. NVIDIA recently blamed a "weakened" desktop PC market for the 5% loss incurred during the second quarter of fiscal 2009. And while the size of the loss wasn't necessarily significant, it's certainly worth mentioning that the company hadn't reported a quarterly loss in six years--which in their business, seems like a lifetime.

When the Santa Clara, Calif.-based makers of graphic processor technologies reported financial results for its second quarter, the company revealed that revenue had dropped to $892.7 million, compared with $935.3 million for the second quarter of fiscal 2008. President and CEO Jen-Hsun Huang called the results "disappointing," and in addition to citing the weak desktop PC market, he said the results also reflected the company's miscalculation of competitive price position.

"We have a great product line-up and, having taken the necessary pricing actions, we are strongly positioned again," Huang said. "Our focus now is to drive cost improvements and to further enhance our competitiveness through the many exciting initiatives we have planned for the rest of the year."

For the six months ended July 27, NVIDIA's revenue actually increased 15% to $2.05 billion compared with the same six-month period last year. However, a $196 million charge was recorded in the second quarter to cover costs related to a weak die/packaging material set in certain versions of the company's previous generation MCP (media and communications processor) and GPU (global processing unit) products used in notebook systems. The results also included a net loss of $120.9 million.

At A Glance

Santa Clara, Calif.
Primary Industry: Computers & Other Electronic Products
Number of Employees: 4,985
2007 In Review
Revenue: $4.09 billion
Profit Margin: 19.47%
Sales Turnover: 1.09
Inventory Turnover: 6.25
Revenue Growth: 33.534%
Return On Assets: 29.82%
Return On Equity: 39.75%

In comparison to its desktop PC side of the business, the rest of NVIDIA's segments actually fared relatively well. The notebook GPU, MCP, and Professional Solutions groups grew a combined 27% year-over-year. "Though we approach the near term with caution, we remain very optimistic about the expanding universe of visual computing and the exciting growth opportunities made possible by CUDA, our general purpose parallel computing architecture," Huang added.

In response to the most recent change in visual computing, the company last week introduced new drivers to meet the revised standards for OpenGL 3.0, a programming specification that directly impacts much of NVIDIA's product line. The standards were introduced by an industry consortium called the Khronus Group on Aug. 11; two days later the company released new beta drivers for the cross-platform, 3D graphics standard.

"OpenGL 3.0 is a significant advance for graphics standard and we're proud that NVIDIA has played a major role in developing it," said Barthold Lichtenbelt, manager of Core OpenGL Software at NVIDIA and chair of the OpenGL working group at Khronos. "Shipping drivers two days after this new specification is released demonstrates our strong commitment to the OpenGL developer community and our partners who rely on the standard."

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