Nvidia reported a sharp drop in revenue from its Tegra mobile chipset division in its fiscal second quarter, which the company said was expected, but the weak results indicate the silicon maker will have a tough hill to climb as it works to compete with Qualcomm (NASDAQ:QCOM), Samsung and other heavyweights.
Nvidia said that Tegra revenue was down 49 percent sequentially and 71 percent year-over-year, to just $52.6 million. As CNET pointed out, that is less than the $66 million in revenue Nvidia received from its patent license agreement with Intel.
Overall, Nvidia reported total revenue of $977.2 million for the second quarter, down 6.4 percent compared to the year-ago quarter. The company posted net income of $96.4 million, which was off 19 percent from a year ago.
Nvidia's interim CFO, Karen Burns, said on the company's earnings conference call that Nvidia had expected a drop as last-generation Tegra 3 product sales fell off and ahead of Tegra 4 shipments. Nonetheless, she said Nvidia was disappointed with the size of the decline.
"Due to current dynamics in the mobile space, we believe it will be challenging for Tegra revenue to remain flat year-over-year as originally expected," she said, according to a Seeking Alpha transcript. "That said, we anticipate Tegra revenue to be up significantly in Q3 from Q2, as we start to ship Tegra 4 base design wins and Shield, our Nvidia-branded gaming and entertainment portable. We expect further growth in Q4 as more Tegra 4 OEM products come to market."
Nvidia launched its Tegra 4 chip in January and introduced its Tegra 4i product, which includes an integrated LTE modem, a month later. CEO Jen-Hsun Huang said on the call that Nvidia had expected the second quarter to be the low point in the year for its Tegra business.
"But overall I would say that Tegra 4 is going to ramp up very nicely this coming quarter," he said. "There is tablets from Asus, Toshiba and HP. There is Shield that's ramping up and there are new devices that are going into production that are quite exciting."
Huang said that Tegra revenue fell off in part because of weak sales of tablets running Microsoft's (NASDAQ:MSFT) Windows 8 RT software. He said "this particular platform just didn't do as well as we or frankly anybody in the industry had hoped, we don't expect as much returns on that investment as we originally hoped." Still, Huang told CNET that his company is "working really hard" on chips for the second-generation Surface RT tablet, and he said he hopes it will be more successful than its predecessor.
Huang also said Nvidia is continuing to work to get its LTE modems certified for use in products, and that the company is working with AT&T Mobility (NYSE:T) to get the Tegra 4i product certified for use in smartphones.
Huang said the data modem certification process is proceeding as expected, and that the voice certification for LTE is coming around the end of the year. "The reason why we do AT&T is because it's the most rigorous and if we get through AT&T, you're pretty much set on just about vastly the Western world's open markets," he said. "So that's the reason why we focus on AT&T first." Nvidia expects products using the Tegra 4i chip to ship early in 2014.
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