Nvidia's Profit Falls Short

SAN FRANCISCO -- Nvidia(NVDA Quote) grew its bottom line 33% in the first quarter, but fell short of Wall Street estimates as the company's gross profit margin eroded slightly.

Nvidia executives blamed the margin weakness on "product transition" issues, as the company struggled to produce enough of its newest graphics chips.

"We had hoped and expected to make progress improving yields for new products. This did not happen," CFO Marvin Burkett said bluntly in a post-earnings conference call on Thursday.

He predicted that gross margin would recover in the current quarter, and said that the company expects sales this quarter to be in line with seasonal trends.

After initially tumbling 8% following the release of its earnings report, shares of Nvidia recovered and were off just 0.1%, or 3 cents, at $21.92 in extended trading Thursday.

The company's stock is down roughly 19% in the past three months on concerns that increasing competition and slowing demand could derail the chipmaker's record of supercharged growth.

Advanced Micro Devices(AMD Quote), which owns the rival graphics chipmaker ATI, has released new products targeted at notebook PCs that have won critical praise. And Intel(INTC Quote) is preparing to enter the market with a graphics processor dubbed Larabee.

Nvidia's first-quarter results reflected strength in the company's key businesses however.

Nvidia said sales of its graphics chips designed for PCs continue to outpace the growth of the overall PC market, with the company seeing a 42% jump in unit shipments compared to the year-ago period. The company's workstation PC business saw sales rise 21% sequentially.