During NVIDIA®‘s Q1 2015 Earnings Conference Call, Mr. Jen-Hsun Huang, Co-founder and CEO, fielded a question presented by Mr. Mike Burton of Brean Capital about the components of the performance of one of the company’s products. Mr. Burton’s question was on the subject of NVIDIA’s Tegra Processor. He asked about the details of the sales performance, by market segment (smart phones, tablets, and automotive) for this product for Q1 2015.
Mr. Huang did not include a lot of specific detail in his answer, which rolled smart phone and tablet customers for this product into a category named “devices”, while automotive customers were presented as a separate group, with a different profit margin.
If NVIDIA management is unwilling to breakout the specific components of the sales performance for Tegra, how does it make sense, if at all, for analysts to project levels of market penetration for it? One may argue the information can be compiled from customer comments about the product. But for every customer reporting information relative to likely purchases of Tegra processors (for example, Microsoft’s rumored decision to replace Tegra with Qualcomm’s SnapDragon processor for a new model of the Surface tablet), there are many other customers not reporting anything at all, at least not publicly.
So, in my opinion, forecasting the performance of Tegra in the tablet market, at least for the latest reported quarter, and for every quarter, going forward, where management does not provide specific sales detail, will be a very difficult task. The end result, in turn, will not be credible, at least as I see it.
Are sales of Tegra processors to mobile customers in the tablet and smart phone markets an important indicator of NVIDIA’s future performance? Perhaps, if one considers the potential market size represented by these mobile customers to be dynamic, and expansive. In contrast, the same position may consider sales of NVIDIA’s hardware GPUs to the PC gaming market less significant, and less of a reliable forward looking indicator as the result of the comparatively static, and contracting nature of the global market for PCs.
But, in my opinion, NVIDIA’s very strong performance in the latter category for the quarter, when put together with their well attended developer conference for their hardware GPUs, is more of a useful indicator of the health of the business.
Nevertheless, what management does with the revenue, and the rationale behind these actions, is, unfortunately, another subject.
Disclaimer: I recently completely closed a long position in NVIDIA
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