NVIDIA shows signs ... [2008 - 2017]

[jimbo75]

LOL, you are confused. $1 billion revenue per year is not the "break-even" point where Tegra becomes profitable! $1 billion revenue per year is the point where it makes sense to develop multiple SKU's for Tegra.

So at what revenue levels does Tegra become profitable?

http://seekingalpha.com/article/1288671-some-thoughts-on-nvidia-s-tegra-strategy

This guy has been long Nvidia as long as I can remember, but it's clear from reading that article that he's in full-on wishful-thinking mode.

Financial Uncertainty Likely To Pressure Shares
It does not seem particularly clear that Nvidia will be able to narrow the losses due to its Tegra investment, let alone breakeven. 1H 2013 will admittedly be weak for Tegra, and while management seems optimistic that 2H 2013 should be better, we still have very little clarity into how this heated 2H momentum will translate into sales. I do not expect Windows RT based designs to sell particularly well, especially as Intel's "Bay Trail" (22nm Atom) will be shipping in volume by then. The Android space will essentially be a 3-way deathmatch between Intel's "Bay Trail", Qualcomm's Snapdragon 800, and the Tegra 4. The quality and popularity of the design wins will be the key metric to determine the "winner" here, and so I do not blame management for keeping quiet on full year predictions here. The company cited "more" design wins than Tegra 3, but this means nothing if the designs do not sell well.
Ultimately, investors need to wait until 2014 for Nvidia's Tegra strategy to get to the phones if they are to see the kinds of volumes necessary to bring the division to breakeven, let alone profitability.

Conclusion
I am on-board with and encouraged by the GPU business, but I am dubious as to whether Nvidia's focus is in the right place on Tegra.

That hasn't got me inspired to run out and buy a shedload of Nvidia stock.

 

[ams]

So at what revenue levels does Tegra become profitable?

Expenses are variable, so the revenue needed to ensure profitability is variable too. In FY 2011-2013, NVIDIA needed anywhere between 10-25% higher Tegra revenue to cover all expenses (including sunk/fixed/variable costs). That said, these percentages are a bit misleading because they include expenses such as sunk costs where the expense has been realized but the revenue has not been realized yet (as in Icera baseband modem, Tegra 4i, Tegra 4, Tegra 5, etc).

 

[nAo]

People thinking Nvidia is in trouble now remind of people who thought Nvidia was in trouble vs 3dfx.

My guess is that very few thought that

 

[ninelven]

LOL, well the sales results ended up speaking for themselves, but I do remember quite a few doomsayers harping on the superiority of RGMSAA. Of course, they were technically correct on that particular issue but a bit myopic in the grander scheme of things.

SSDD.

 

[silent_guy]

I guess it depends on what you mean by "short", I mean mostly only big investors (/financial institutions) can actually do "short selling", it is plain usury as they sell a bunch of shares they don't own, enough to affect the quotation of a given company and then buy back shares (/ circumstances can increase the effect).

By short I meant selling short. There's nothing usury or big investors about it. I've done it in the past, long time ago when I was young and stupid, and I can assure you I'm not a big investor. And for the usury part: I loan shares to sell them. The one who loans them gets a fee. Nothing wrong with it. Big shorters moving in onto a security are the best canary in the coal mine: they usually do a much better and thorough job than those going long.

You can also go short by buying put options (which at least puts a maximum on your potential downside) or writing calls (which would be even riskier than simple shorting if you do it uncovered.)

 

[jimbo75]

I would not rush out to sell Nvidia either tbh because they keep making money almost in spite of themselves.

I would be very worried about the Tegra bloat sinking them in the long run however. This is no longer the nimble gpu company of 5 years ago. Think about how much money they'd have now had they not gone down the Tegra route.

 

[silent_guy]

Tegra 3 was clearly sold at a loss ...

How about you start by elaborating this statement?

This is a financial thread, in which 'selling at a loss' means 'negative gross margins'

I would love to see your analysis on how they manage to lose money on a small die on a super mature process, and, even more, why a company that is so focused on overall gross margins would even want to do that for a $700M business.

Or maybe you were also including NRE? If so, then why are polluting a financial thread if you can't even get basic terminology right?

 

[jimbo75]

How about you start by elaborating this statement?

This is a financial thread, in which 'selling at a loss' means 'negative gross margins'

I would love to see your analysis on how they manage to lose money on a small die on a super mature process, and, even more, why a company that is so focused on overall gross margins would even want to do that for a $700M business.

Or maybe you were also including NRE? If so, then why are polluting a financial thread if you can't even get basic terminology right?

I'm glad you're getting your panties in a twist over the terminology because that just proves that you don't have anything to back up your wishful thinking over Nvidia's long term future. Deflect more "silent_guy".

 

[silent_guy]

At this stage of the mobile revolution, you can either go all in or back out. ST and TI are backing out. Nvidia is obviously doing the opposite and investing a lot.

The profit or loss of a company or division is at same time a lagging and a leading indicator.

It's lagging wrt income from products that are on the market, but it's leading wrt investments for future products. In a long term stable business, it's a perfectly reasonable indicator about the overall health of the business. In a rapidly expanding one, it's anything but, especially if development lead times are very long.

Let's be magnanimous and assume that you don't actually believe that Nvidia is selling its silicon below cost. In that case, the rapidly expanding losses of the BU can only be explained by large new investments: after all, there wasn't anything substantial before Tegra 3 that made serious amount of money.

You see this loss as a strike against them. For an investor, those losses are a sign that Nvidia is not backing out but doubling down hard. There is no guarantee that Nvidia will prevail, but if they've proven one thing in that past it's that they know how to run a semiconductor business, which is something you can't say of many others.

Now just look at what they've introduced in just 3 months: quad core A15 with revamped GPU that should be good enough for most tablets, an LTE modem, quad core A9++ with integrated LTE modem. And they've got Logan still coming up early next year as well. That exactly what you'd expect when investments are going up.

They don't need all of them to be successful either: make enough chips and they'll get something very right eventually.

If you care about the future of this company, not making losses in this division, should be worrisome: it'd mean they're giving up on one of the only markets where they can actually make a difference. They can't fold back and focus on selling 74TTL series like TI.

 

[jimbo75]

I would be worried about Nvidia's future because I worry about their competence.

Lets just forget about Kepler - let's forget Kepler ever existed. Now look at this company in the past 4 years. It's an absolute abortion that makes even AMD look good.

Believe me that when it comes to the crunch, I'd much rather see Nvidia prosper compared to other companies like say intel or apple...but I just can't see it happening.

Nvidia's brand is not transferring to mobile computing. Brand is all they ever had over AMD anyway. Intel is spending $billions trying and generally failing to transfer that brand btw, so it's no slight on Nvidia that they are failing.

This market is as cut-throat as you'll get. AMD were wise to stay out of it. Nvidia can survive outside it as well, but this attempt at smartphone transformation has failed and it will never come to fruition.

 

[silent_guy]

Lets just forget about Kepler - let's forget Kepler ever existed.

How convenient! Why exactly should we forget Kepler if it shows that Nvidia has what it takes to design stellar silicon?

When my daughter comes home with a great report card today, I generally interpret this as a sign that she's on a good track. A good score now tends to correlate better with the future than a bad one 4 years ago.

Now look at this company in the past 4 years. It's an absolute abortion that makes even AMD look good.

I see a company that's by and large been rather profitable with a good, not great, product line that was marketed very well and sold decently. GF100 could have been better, but anything after that was pretty good.

This market is as cut-throat as you'll get. AMD were wise to stay out of it. Nvidia can survive outside it as well, but this attempt at smartphone transformation has failed and it will never come to fruition.

The transformation has only started. $700M revenue per year is nice start.

 

[Florin]

Aside from the pros and cons of the company's technical direction, the are clearly better risk/reward bets out there right now than this stock. It has been seriously underperforming the S&P500 for the better part of 2 years and has been stuck in sideways moving territory for most of the year while the market waits for new announcements. Unless they can substantiate their design win claims with more than a ZTE, there is little chance of a breakout on the upside in the short term.

However, being stuck in the sideways movement doldrums also means that shorting is a pretty stupid idea. This is a stock which is hardly unreasonably priced at a P/E of 13.88, which historically speaking isn't very high for the tech sector. The company has zero debt and healthy cash, and the departure of TI and STE hasn't hurt its competitive standing. Its purchase and rapid integration of Icera addressed what was arguably the biggest problem with their product portfolio.

Let's not mistake some opinionated rant on Seeking Alpha for a sensible trading idea.

Or put your money where your mouth is, and I'll be happy to lap up the short squeeze following shortly. I'm a little long NVDA (and QCOM, INTC for that matter). Let's see where they stand Q1 next year.

 

[trinibwoy]

This market is as cut-throat as you'll get. AMD were wise to stay out of it. Nvidia can survive outside it as well, but this attempt at smartphone transformation has failed and it will never come to fruition.

Their first baseband solution has yet to hit the market. They're still using 2005 era graphics. Their first custom ARM CPU isn't due for another 2 years.

It seems you've already declared failure when they haven't even tried They may not succeed in the end but let's not get ahead of ourselves. This is a long game and as the saying goes, you have to spend money to make money.

 

[willardjuice]

Okay folks I think we have all made our Tegra opinions abundantly clear at this point. Let's not let things get out of hand...

 

[Exophase]

On the topic of nVidia's big investments, wouldn't the development of Project Denver be a massive one that has yet to see returns? Does anyone know what division they are filing that expense under; is it part of Tegra? If so that'd be a big contributor to their expenses. But PD is expected to play a big role in their high-margin compute division (whether or not this stands a chance anyway is anyone's guess).

 

[Silent_Buddha]

You see this loss as a strike against them. For an investor, those losses are a sign that Nvidia is not backing out but doubling down hard. There is no guarantee that Nvidia will prevail, but if they've proven one thing in that past it's that they know how to run a semiconductor business, which is something you can't say of many others.

For an investor those losses would certainly be worrying if not for Nvidia's assurances that they are continuing to be committed to Tegra. Which in term implies that losses generated can be attributed to investments in that direction.

As well, they've only proven they can succeed at designing GPUs and to a lesser extent system chipsets. Similar to Intel they have yet to prove they can successfully design something out of their historical expertise. Well, except in Intels case, they've also been successful with designing NAND silicon in partnership with Micron.

So, there's nothing to indicate that Nvidia will fare particularly better with CPU design than Intel has with GPU design.

If you care about the future of this company, not making losses in this division, should be worrisome: it'd mean they're giving up on one of the only markets where they can actually make a difference. They can't fold back and focus on selling 74TTL series like TI.

Which isn't necessarily true. It is entirely possible to make a profit while investing in and growing a new product line. Doing so means that you're product is successful.

That said, losses don't necessarily mean that things are going the wrong direction, but they don't necessarily mean that things are going the right direction either. They just mean the company is still working on getting the right product out the door, assuming they are continuing to invest.

At some point they are going to have to get some significant design wins however. They are now on their 4th generation of this IP, if this also turns out to be a loss generator without significant wins in products that sell, then things certainly start to look grim. In theory they could have pointed to the Microsoft Surface RT as a big win. But that would have assumed that not only would it eventually sell well, but that Microsoft didn't likely choose Tegra 3 due to it likely being the cheapest option (lowest risk) out there. I won't go so far as to say they are selling it at a loss, but I wouldn't be at all surprised if it was selling in the single digits for margins in order to try to get into some products.

It certainly didn't take them this long when they entered a similarly crowded GPU market with a dominant player and multiple other players. Nv1 was going down the wrong road. But their 2nd and 3rd gen products were enough to drive the company into profitability.

In many ways entering the Arm CPU market is easier with less competition and a less dominant player with the market growing faster than when they entered the GPU market.

I'm not ready to write Tegra off as a failed investment, but I'm certainly not up on it.

Regards,
SB

 

[trinibwoy]

In many ways entering the Arm CPU market is easier with less competition and a less dominant player with the market growing faster than when they entered the GPU market.

Gotta disagree there. The nascent market for 3D accelerators to play games was a joke compared to today's multi-billion dollar mobile industry. They're not even on the same map. There was far more opportunity to innovate and differentiate back then and barriers to entry were far lower.

 

[liolio]

So, there's nothing to indicate that Nvidia will fare particularly better with CPU design than Intel has with GPU design.
SB

Well thing is late Intel IGP are pretty great and have stellar compute performances.
I would almost go slightly out of topic on the matter of many cores vs GPU and wonder why Intel is not producing discrete GPU if GPU were actually that threatening.
One may wonder why most likely ARM invests way more on CPU than GPU and why the great Big Iron doesn't seem that concerned either /OT.

 

[Alexko]

Apparently the i500 modem won't be ready for production until Q4, which means OEMs can only make Tegra 4 tablets before then if they're OK with the lack of an LTE option. I don't know how many tablet makers will be interested in that in 2013.

And I thought Tegra 4i would be ready in late 2013, but Q1'2014 it is, then. That's about 6 months after S800, and with A9-R4 cores.

I could be missing something but this all looks pretty bad to me.

 

[Zaphod]

Apparently the i500 modem won't be ready for production until Q4, which means OEMs can only make Tegra 4 tablets before then if they're OK with the lack of an LTE option.

It means OEMs can only make Tegra 4 tablets before then if they're OK with the lack of an LTE option from Nvidia. They say phones will be shipping before then, so surely some other third party will be willing and able to sell a radio.

Now, single-sourcing all the core chips might be preferable to OEMs, and might thus limit Tegra 4 uptake in term of design wins, but that's not to say they can't do it if Nvidia provides other advantages (for example on cost).