When chipmaker NVIDIA Corporation (NASDAQ:NVDA) recently released its second-quarter results, it became clear that the company is struggling. It was not surprising to see the company’s revenue and earnings fall from the year-ago period, given the fact that the PC market has been on shaky ground and NVIDIA’s mobile initiative has failed to take off — rather it’s going downhill at the moment.
It is true that NVIDIA witnessed an 8% increase in revenue from its graphics processing unit (GPU) business, driven by the strength of its Kepler-based GPUs, but the fact that the overall PC market is declining cannot be overlooked. PC shipments slumped almost 11% in the June quarter, which means that NVIDIA Corporation (NASDAQ:NVDA)’s GPU business is growing in a market that’s actually shrinking.
However, the company is witnessing robust growth in its workstation and server GPU segments, the Quadro and the Tesla, respectively. However, the desktop GPU business has been climbing at a slow pace, growing 3.9% in the previous quarter. And when we come to the segment that was expected to be the next big growth driver of NVIDIA, the Tegra processors, things will look even worse.
A massive decline
Revenue from Tegra slumped alarmingly in the previous quarter, dropping a catastrophic 71% from the year-ago period to just $52.6 million. Well, then again, this is not at all surprising. The company lost its slot in those few major devices where it had managed to place its Tegra processor the last time — HTC’s flagship smartphone and the Google Inc (NASDAQ:GOOG) Nexus. NVIDIA fell behind the curve in integrating 4G LTE into its processor and QUALCOMM, Inc. (NASDAQ:QCOM) snapped up its key customers.
For instance, Google had selected NVIDIA Corporation (NASDAQ:NVDA)’s Tegra for the first generation Nexus 7, and the chipmaker’s happiness knew no bounds after it landed the design win. However, Google Inc (NASDAQ:GOOG) went with the Qualcomm Snapdragon Pro for the 2013 Nexus 7. This loss could be a major one for NVIDIA, as it further pushes it back in mobile processors and strengthens QUALCOMM, Inc. (NASDAQ:QCOM)’s hold.
Google Inc (NASDAQ:GOOG) was able to ship six million units of the first Nexus 7 in a year, and sources are expecting the current one to ship 3.5 million units this year. Reviewers put the current Nexus tablet ahead of its closest competitor, the iPad mini as it is cheaper and has a better screen, and this might lead to even better sales. But sadly, NVIDIA won’t be a part of the ride this time.
Behind the curve
NVIDIA is still optimistic that its Tegra 4 processor will bring back its mobile glory, and the drop in shipments in the previous quarter was due to a transition from Tegra 3 to the newer version. But, going back in time, one would see that this is not the first time that transition is hurting NVIDIA Corporation (NASDAQ:NVDA).
