Nvidia reports falling profit margins - stock gets hammered.

[kemosabe]

http://biz.yahoo.com/rc/030807/tech_nvidia_earns_3.html

Guidance calling for margins to remain flat or slightly lower. Analysts were hounding management about what were apparently Nvidia-specific 0.13u yield issues in the conference call, and didn't seem too impressed with the answers.

 

[digitalwanderer]

Ouchers!

More not happy news for nVidia.

Think there is actually a chance that there might be a management shake-up over there over this?

 

[Joe DeFuria]

Lol...I just heard this on the call:

"According to Futuremark's Hall of Fame 2003, the 5900 Ultra is the top performing DX9 GPU, delivering the best performance for one of the industry's most recognized benchmarks, 3DMark '03."

I have never had a more appropriate time to use this:

 

[Doomtrooper]

 

[WaltC]

Lol...I just heard this on the call:

"According to Futuremark's Hall of Fame 2003, the 5900 Ultra is the top performing DX9 GPU, delivering the best performance for one of the industry's most recognized benchmarks, 3DMark '03."

I have never had a more appropriate time to use this:

Giving the word "hypocrisy" a new dimension, eh? A bit more financial detail here:

http://www.thestreet.com/_yahoo/tech/kcswanson/10106862.html

 

[Mark]

They said several times that the .13u problems were not a yield issue, but a cost issue. They emphasized that TSMC was doing an excellent job.

 

[gkar1]

Wow, although i didn't expect it to be any different. Its kinda sad to see such blatant hypocrisy from a company taking your money(not mine tho, mind you).

 

[WaltC]

They said several times that the .13u problems were not a yield issue, but a cost issue. They emphasized that TSMC was doing an excellent job.

Yes, didn't take them too long to drop the "TSMC made us do it" PR bit... I'm glad nVidia is now acknowledging these things publicly as it portends the possibility that they might be getting their house in order.

If the cost issue relative to their .13 micron designs is not yield related, then this must be a referral to R&D design costs which they anticipate going forward, I'd imagine, to correct design problems impeding yields. But still, whether it's their design or TSMC's process that's to blame, yields were obviously affected (They just said--yesterday?--that their "yield" issues relative to nv35 production should be fixed by the end of August.) It's refreshing to hear some honesty coming out of there for a change, even if it's in painful, choking gasps, as Joe's post above illustrates... Let's just hope it isn't a temporary aberration brought on by the legal necessity of telling investors the truth (even if they seriously contradicted the truth by talking glowingly to investors of the 5900U's "success" in 3DMk03, a benchmark which nVidia lauds on one side and condemns on the other--depending on whichever group they're talking to at the time, it seems.)

I think, though, that savvy investors are a bit suspicious of M$'s role in propping up the profits of late. Last quarter it was M$'s "arbitration payment" of $40M that propped up most of their profits (which would have been scant indeed without it), and this quarter it was "unexpectedly brisk sales" of the xBox that weighed heavily in the profit picture, once again.

Of course, M$ has an interest in helping nVidia as it is currently the xBox supplier. I think this may be something investors and analysts are scrutinizing and may help explain the beating the stock is taking. I think everybody will heave a sigh of relief when nVidia's profits are a multiple of M$'s contribution, as opposed to M$'s contribution to the quarter being a nearly all of their profits (as was true last quarter.) I think that M$'s interests go beyond xBox, however, and the company may feel that its own stock will be negatively impacted by a downturn in nVidia's because of the xBox relationship.

 

[nelg]

Very insightful Walt. I wonder if we can infer anything about the Xbox2 contract from this.

 

[Jima13]

a little bit more

Another analyst believes the problems may reside at Nvidia--not TSMC. "The low yields on Nvidia's GPUs are largely due to its 'exotic' designs. Nvidia is known for its aggressive designs, but it is extremely weak in communicating its ideas to the foundries," according to one analyst. "The bottom line is that Nvidia's devices are driving everyone crazy in the foundry business."

http://www.siliconstrategies.com/article/showArticle.jhtml?articleId=12803413

 

[Geo]

Re: a little bit more

Another analyst believes the problems may reside at Nvidia--not TSMC. "The low yields on Nvidia's GPUs are largely due to its 'exotic' designs. Nvidia is known for its aggressive designs, but it is extremely weak in communicating its ideas to the foundries," according to one analyst. "The bottom line is that Nvidia's devices are driving everyone crazy in the foundry business."

http://www.siliconstrategies.com/article/showArticle.jhtml?articleId=12803413

In a digital business, what in the heck does this mean? They are using the wrong tools to transmit the design to the foundry? How can they be "extremely weak in communicating its ideas to the foundries" for a chip design??? They doing it in a narrative heavy on simile and analogy? Iambic pentameter? What???

 

[digitalwanderer]

Re: a little bit more

Another analyst believes the problems may reside at Nvidia--not TSMC. "The low yields on Nvidia's GPUs are largely due to its 'exotic' designs. Nvidia is known for its aggressive designs, but it is extremely weak in communicating its ideas to the foundries," according to one analyst. "The bottom line is that Nvidia's devices are driving everyone crazy in the foundry business."

http://www.siliconstrategies.com/article/showArticle.jhtml?articleId=12803413

In a digital business, what in the heck does this mean? They are using the wrong tools to transmit the design to the foundry? How can they be "extremely weak in communicating its ideas to the foundries" for a chip design??? They doing it in a narrative heavy on simile and analogy? Iambic pentameter? What???

Not enough emoticons I'd wager, they need to add more smilies...

 

[Dave Baumann]

If the cost issue relative to their .13 micron designs is not yield related, then this must be a referral to R&D design costs which they anticipate going forward, I'd imagine, to correct design problems impeding yields. But still, whether it's their design or TSMC's process that's to blame, yields were obviously affected (They just said--yesterday?--that their "yield" issues relative to nv35 production should be fixed by the end of August.)

No, the cost issue is a yield issue - one of the analyst forced it out of them.

They were talking a point of technicality sying that because the only buy working chips, technically they yeild they recieve from TSMC is 100%. But, that does not mean the yeild per wafer is 100% or anything of the sort. If the yield per wafer is low obviously TSMC is going to have to make some money and so they are charging NVIDIA a high price per working chip - and one of the analyst got them to admit, if the yield per wafer increases then TSMC would charge them less per chip.

 

[indio]

anyone have a link to the conference call?

 

[CorwinB]

Lol...I just heard this on the call:

"According to Futuremark's Hall of Fame 2003, the 5900 Ultra is the top performing DX9 GPU, delivering the best performance for one of the industry's most recognized benchmarks, 3DMark '03."

I have never had a more appropriate time to use this:

Can someone pass me the bucket ? Thanks...

 

[Joe DeFuria]

anyone have a link to the conference call?

http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=NVDA&script=2100

You have to *cough* "register"...

 

[WaltC]

No, the cost issue is a yield issue - one of the analyst forced it out of them.

They were talking a point of technicality sying that because the only buy working chips, technically they yeild they recieve from TSMC is 100%. But, that does not mean the yeild per wafer is 100% or anything of the sort. If the yield per wafer is low obviously TSMC is going to have to make some money and so they are charging NVIDIA a high price per working chip - and one of the analyst got them to admit, if the yield per wafer increases then TSMC would charge them less per chip.

Thanks for clearing that up, Dave. I was trying to roll with Ratchet's interpretation just to see where that would take us. Yes, it's more than a little strange to hear a company talk about costs related to yield which have nothing to do with the yield itself.... Glad they pinned them down on it. It's interesting that they'd say just a couple of days ago that their yield issues relative to nv35 would be solved by the end of August, but then in the conference call they gave a less than optimal "yield-expense" forecast for the coming quarter. Hmmm...

 

[Himself]

NVIDIA seems rather Enron-esque to me.

 

[RussSchultz]

NVIDIA seems rather Enron-esque to me.

Do you mean they're both companies that engaged in illegal activity like setting up shadow companies to transfer money back and forth to and claim as income, hence padding their bottom line to investors?

Or do you mean they're both companies you dislike?

 

[WaltC]

Very insightful Walt. I wonder if we can infer anything about the Xbox2 contract from this.

I'd hesitate to do that at this stage. We really have no idea what M$'s plans might be--their actual intentions currently might be 180-degrees out from popular assumptions. Sometimes in these situations, especially when it involves large companies being scrutinized by investors and the SEC, and especially when it involves M$ these days, things can be "orchestrated" behind the scenes to create impressions which seem to butress various activities which are undertaken for distinctly different purposes than those which are made publicly apparent.

There just seem to be too many unanswered questions here, seething below the surface, to be able to piece together a coherent picture of future xBox directions, if any. It would be really interesting to know whether ATi has discussed any xBox issues of importance with M$ in the last six months. The answer there would be very revealing either way, but I don't expect we'll be finding out any time soon.