Nvidia Closes Fiscal 2015 On A Strong Note: Growth Driven By Gaming, Automotive, Data Center & Cloud

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Leading GPU processor developer, Nvidia (NASDAQ:NVDA) closed its fiscal 2015 (ended Jan’15) on a strong note, with Q4 2015 revenue and gross margin beating the company’s guidance by a wide margin. In addition to beating its Q4 2014 guidance, Nvidia’s Q1 2016 revenue outlook (mentioned below) is slightly above the consensus estimate of $1.16 billion. The company seems to be making excellent progress on its strategy of creating an ecosystem in gaming, enterprise graphics, accelerated computing and automotive.

Nvidia’s focus on addressing the top 30% of the market (mainly those vertical segments where visual computing matters the most) is clearly paying off and has helped it outpace the PC market (where it has always had a significant exposure). A decade back, PC original equipment manufacturers (OEMs) accounted for almost 100% of Nvidia’s business. PC OEMs now account for less than 20% of the company’s business. Over the years, Nvidia has transitioned into a software centric company primarily serving four key markets – gaming, automotive, enterprise graphics, and  high-performance computing (HPC). Its gaming business is growing at over 30%. In Q4 2014, its automotive, Tesla cloud computing, enterprise computing and GRID businesses almost doubled year on year.

Qucik Snapshot Of The Q4’15 Results

Nvidia’s Q4 2015 revenue increased 9% annually and 2% sequentially, to a record $1.25 billion, with growth being driven by the company’s increasing strength in gaming, data center, cloud and the automotive segments. At 55.9%, the company-wide GAAP gross margin was up 70 basis points sequentially, as the strength in margins from  gaming and accelerated computing was partially offset by those from Tegra processors and certain inventory provisions for prior Tegra architectures. GAAP earnings per diluted share of $0.35 increased 40% year on year, reflecting net income growth and share repurchases. For fiscal 2015, Nvidia’s revenue grew 13% to a record $4.68 billion. Profitability as measured by earnings per diluted share increased 51% in fiscal 2015, as revenue and gross margin growth continued to outpace investment and expenses.

Our price estimate of $20 for Nvidia is slightly below the current market price. We are in the process of updating our model for the Q4 2015 earnings release.

See our complete analysis for Nvidia

The Maxwell Refresh Drives Growth In PC Gaming

Nvidia completed the product transition to Maxwell based GPUs (desktop, notebook and workstation) in Q3 2015. Maxwell is Nvidia’s 10th generation GPU architecture, offering 2X the performance power of the Kepler architecture, which the company had touted as the most energy-efficient GPU ever built by it. Backed by the Maxwell refresh and the seasonal increase in consumer PCs, Nvidia’s GPU business grew 13% and 11% year on year in Q4 2015 and fiscal 2015, respectively.

The gaming platforms grew more than 30% year on year in Q4 2015, driven by strong uptake of the Maxwell processor and the vibrant gaming market. Nvidia added the GTX 960 processor to its Maxwell lineup last quarter, bringing the Maxwell platform to the $199 segment, which the company considers to be the gaming market sweet spot. The GTX 960 enables gamers to enjoy the latest games at quality and performance greater than even the best gaming consoles at half the price. [1] There are now more than 50 million PCs with GeForce Experience, which aims to bring the simplicity and the community benefits of the console to the PC. In the month of November alone, GeForce Experience users downloaded Nvidia drivers over 30 million times.

PC gaming represents almost 40% of the worldwide gaming market, which is higher than consoles, phones, tablets or any other individual gaming segment. [2]

Tegra: The SHIELD Tablet & Rising Automotive Demand Offset Lower Mobile Revenue

Nvidia’s Tegra processor sales were down 15% year on year in Q4 2015, as growth in the automotive segment (which more than doubled in the quarter) and SHIELD devices was more than offset by lower revenue from smartphone and tablets. Smartphone and tablet designs reached the end of their product life cycle in Q4 2015).

Nvidia powered the holiday season’s two best-reviewed Android tablets, the Google Nexus 9 and its own SHIELD Tablet. More than a dozen media outlets recommended SHIELD in their holiday gift giving guides. Over the course of the quarter, SHIELD, which has pioneered a premium gaming experience for tablets, became one of the very first devices to be upgraded to the Google’s latest OS, Android 5.0 Lollipop. [1]

NVIDIA’s automotive platforms remain on a sharp upward trajectory with over 7.5 million cars using Nvidia’s technology at present, up from 4.7 million a year ago. The automotive market is the fastest growing sub-segment in the Tegra division. Automotive electronics is a large market and it is going through a transition  as cars have increased computing capability in both the drive train and the dashboard. Increasingly,  dashboard functionality within cars (infotainment system, digital cluster and automatic driver assistance) are being computerized. Strategy Analytics expects the market for Advanced Driver Assistance Systems to be worth around $15 billion by 2016, with a CAGR of 23%. [3]

The Data Centers Business Witnessed Expanison In Multiple Ways In 2014

The NVIDIA GRID graphics virtualization platform continued to gain momentum in Q4 2015, with more than 300 companies worldwide testing the product in recent months. Over 1,000 enterprises worldwide have evaluated the GPU server platform though the tri-grid online demonstration, up from just 400 a year ago. Nvidia launched a program with VMware for early customer access to GRID virtualized GPUs in August last year. The program is drawing wide global interest, and some of the early customers include: the aircraft maker Airbus, the international construction group CH2M Hill, healthcare provider MetroHealth, Villanova University and Halliburton. About a week back, VMware rolled out the latest version of its vSphere virtualization software, including full support for Nvidia’s GRID vGPU graphics virtualization technology.

The Quadro professional graphics continue to maintain market leadership. Nvidia refreshed the Quadro lineup in Q3 2015, and the same is now being shipped in all major OEMs. For the sixth year in a row, every film nominated for an Academy Award for special effects was made using Quadro.

Nvidia’s accelerated computing platform also performed very strongly in Q4 2015, with Tesla revenue growing by more than 50% from a year ago, as HPC customers and cloud service providers continue to deploy large GPU-enabled systems. During the quarter, the company introduced its new flagship Tesla offering (Tesla K80 Dual-GPU) which provides nearly twice the performance and double the memory bandwidth of its predecessor, the Tesla K40. The U.S. Department of Energy recently announced that its next generation of supercomputers will utilize Tesla GPU accelerators in conjunction with NVIDIA NVLink high-speed interconnect technology.

Q1 2016 Outlook

– Revenue of $1.16 billion, +/- 2%.

– GAAP and non-GAAP gross margin to be 56.2% and 56.5%, respectively, +/- 50 basis points.

– GAAP and non-GAAP operating expenses of $478 million and $425 million, respectively.

– GAAP and non-GAAP tax rate of 20%, +/- 1%.

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NVIDIA just announced that the 32GB LTE variant of the Shield is now available for pre-order. $399 buys the unlocked LTE tablet in its own right, but NVIDIA tells us that AT&T will be offering it for $299 on contract.
Notes:
  1. Nvidia’s Q4 2015 Earnings Call Transcript, Seeking Alpha, February 11, 2015 [] []
  2. Nvidia’s CEO Discusses F3Q 2014 Results – Earnings Call Transcript, Seeking Alpha, November 7, 2013 []
  3. as cited in Nvidia’s CEO Discusses F4Q2014 Results – Earnings Call Transcript, Seeking Alpha, February 12, 2014 []
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