Nvidia's Profits, Market Share Take Hit In Q3

Nvidia's outlook going forward after a down third-quarter performance was decidedly grim Thursday, matching the bleakness of so many other high-tech companies reporting earnings in recent weeks. The graphics chip maker offered guidance towards as much as a 5 percent drop in business for the fourth quarter, traditionally a revenue-friendly season for computer hardware due to the holidays.

Nvidia saw third-quarter profits sink 74 percent to $61.7 billion from $235.7 billion in the same quarter a year ago, as revenue also fell 20 percent year-on-year, the Santa Clara, Calif.-based company reported. Nvidia reported $897.7 million in third-quarter revenue, down from $1.12 billion last year, but beating analysts' projections of about $890 million for the quarter.

"We have to recapture our market share. We recently lost some of our share and we have to get that back," said Nvidia CEO Jen-Hsun Huang, attributing his company's less-than-stellar quarterly performance to gains made by the chip maker's main discrete graphics card rival, Advanced Micro Devices.

"We absolutely will regain market share. This is a segment where performance matters, where technology matters, where architecture matters. Our challenge was that we were caught flat-footed at 65 nanometers and our GPU and board solution was too expensive," Jen-Hsun said, referring to Sunnyvale, Calif.-based AMD's transition to the 55nm process for graphics processors ahead of Nvidia.

Nvidia's share of the global GPU market slipped from 31.4 percent in the second quarter to 27.8 percent in the third quarter, according to Tiburon, Calif.-based market research firm Jon Peddie Research. Over the same time period, AMD grew the market share of its ATI graphics products from 18.1 percent to 20.6 percent, while market leader Intel of Santa Clara, Calif. also cut into Nvidia's business with a market share gain from 47.4 percent to 49.4 percent.

Intel, which sells its graphics products as integrated chipsets on motherboards that support the company's central processors, saw the greatest year-on-year GPU growth at 81.4 percent. But Jen-Hsun's remarks about being caught "flat-footed" by a competitor seemed to be a reference to the discrete graphics maker's rivalry with AMD, which grew its GPU business 22.8 percent year-on-year, according to Jon Peddie Research, while Nvidia shrunk by 6.4 percent.

Beginning in late June, AMD released its ATI Radeon R700 series of graphics cards, including the Radeon HD 4870 X2, which was quickly named the top-performing discrete graphics product on the market in many quarters.

Nvidia did see one major win in the third quarter, when the company's new GeForce 9-Series motherboard GPUs were selected by Apple as the graphics processors for the Cupertino, Calif.-based computer maker's new MacBook notebook line, nosing out integrated graphics from Intel.

Nvidia also expects its GeForce 9300M and 9400M chipsets for desktop PCs to see major growth in the fourth quarter and beyond, cutting into Intel's share of the integrated graphics market, Jen-Hsun said.

The Nvidia CEO promised his company would regain the discrete graphics performance edge over AMD as its "fabulous new processor" emerges in 2009, but also as Nvidia's 55nm process transition ramps in the coming months.

Jen-Hsun also indicated that a recent $196-million write-down and product recall associated with poorly packaged notebook GPUs is likely the end of that painful episode for Nvidia.

"We have completely transitioned out of that material set [for the mobile products that have caused problems]. We won't know until we're done, but nothing we've seen so far suggests that we should change it at this time," he said, answering a financial analyst's question Thursday as to whether the $196 million would cover the recall charge entirely.