In the NVIDIA calendar, the next fiscal quarter ended on July 26, but some trends of the past period were predetermined in the past. As expected, the consolidation of financial statements with the recently acquired Mellanox company made the server segment the locomotive of NVIDIA’s financial health – it accounted for 45% of consolidated revenue.
Image Source: International Business Times
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At the same time, it cannot be said that the game direction is much inferior to the server one. If in the latter case, NVIDIA’s revenue reached $ 1.752 billion, then in the gaming sector it reached $ 1.654 billion. Moreover, by the end of the third quarter, the company expects the restoration of previous priorities – gaming revenue should exceed the server revenue. Server component demand in the third quarter will not allow core revenue to grow more than 2-4%, according to the forecasts of NVIDIA CFO Colette Kress. But the entire second half of the year for the gaming segment will be extremely successful, as expected by the founder of the company Jensen Huang – perhaps the most successful in the history of NVIDIA.
Image source: NVIDIA
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Dynamics of changes in revenue in the server segment impressed mainly due to the addition of Mellanox reporting, although structurally this acquisition did not have such a strong effect on NVIDIA’s consolidated revenue – the Israeli developer of high-speed network interfaces formed no more than 14% of the company’s total revenue, and in the server segment it provided more than 30% of revenue. In any case, NVIDIA’s data center revenues in the last quarter reached a record $ 1.752 billion, increasing sequentially by 54%, and adding 167% in a year-on-year comparison. As explained by the CFO of NVIDIA, the expansion of computing accelerators with the Ampere architecture also provided positive revenue dynamics in the server direction.
Gaming revenue in the second quarter did not exceed $ 1.65 billion, increasing sequentially by 24% and 26% year-on-year. In the latter case, the growth driver was the demand for gaming GPUs. It also drove revenue up in a sequential comparison, but an additional factor was the increase in sales of NVIDIA components for Nintendo Switch game consoles. As you may remember, self-isolation in the first half of the year spurred the demand for game consoles of the Japanese brand, they were even in short supply, after which NVIDIA was forced to increase the supply of core components.
Image source: NVIDIA
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Nvidia’s two business segments failed to boast of positive revenue dynamics in the second quarter. These are solutions for professional visualization, which reduced revenue by 30% YoY to $ 203 million, as well as automotive components, which almost halved revenue (47%) compared to the same period last year. The specificity of the automotive segment lies in long development cycles of new products, so all those gains that NVIDIA talks about in the present will be expressed in an increase in revenue in this area only in a couple of years. For example, it will not be until 2024 that Mercedes-Benz cars will be supplied in large quantities with NVIDIA components for active driver assistance systems.
The OEM segment brought no more than $ 146 million in revenue, but the dynamics of its change was positive: plus 6% sequentially and plus 32% in annual comparison. According to Colette Kress, the segment’s performance has improved amid growing demand for entry-level discrete GPUs for notebook computers.
But success in the gaming and server areas was enough to increase the consolidated revenue of NVIDIA consistently by 26% and immediately by 50% in annual comparison, to $ 3.86 billion. This figure exceeded the expectations of industry analysts, like many others. The profit margin rose to 66% against expectations of 64.5%. Net income rose 13% YoY to $ 622 million, although it declined 32% consecutively. Operating income varied proportionally: it rose 14% to $ 651 million YoY, but declined 32% consecutively. NVIDIA’s EPS rose 10% year-on-year to $ 0.99, but is down 33% sequentially.
In the third quarter, the company looks optimistic, not hesitating to announce the forecast for the period, in contrast to some companies in the semiconductor sector. Revenue may grow to $ 4.4 billion, the rate of return will range from 62.5 to 65.5%, depending on the calculation methodology.
Looking ahead, I would like to note that the founder of the first company did not comment on the rumors about NVIDIA’s interest in buying Arm assets, but positively described the activities of the British holding. NVIDIA itself ended the quarter with $ 10.98 billion of free funds in accounts, although in the quarter before last, this amount reached $ 16.35 billion. On the one hand, the company issued bonds in the amount of $ 5 billion, and on the other hand, it was forced to pay for Mellanox assets. In other words, NVIDIA doesn’t have much free funds for further acquisitions.
It should be added that the takeover of Mellanox changed the structure of NVIDIA’s reporting. Now the revenue is broadly divided into two areas of activity: “graphics” ($ 2.085 billion) and “computing and network solutions” ($ 1.781 billion). So far, the graph outweighs in monetary terms, but it is obvious that the second direction also concentrated promising markets with high revenue growth rates.
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