SAN FRANCISCO -- Nvidia ( NVDA) offered investors the first glimpse of a comeback Thursday, even as the chipmaker reported that its profit tumbled 74% in the fiscal third quarter.

With a slew of new products hitting the market, and its chip production now moved to a more cost-efficient process, Nvidia executives said the company was well-positioned for the competitive and economic challenges ahead.

While warning that consumer spending in this holiday season is likely to be weak, Nvidia executives pointed to various initiatives that the company expect to nonetheless deliver growth in 2009.

Shares of Nvidia, which are down 80% in the past 12 months, jumped 10%, or 78 cents, to $8.40 in extended trading Thursday.

Nvidia ignited one of its new growth engines in the recently ended fiscal third quarter, with the release of the integrated graphics processor adopted by Apple ( AAPL) in its MacBook Pro and Air notebooks.

The new chip boosted sales in Nvidia's integrated graphics division up 19% sequentially and should allow the company to play a much larger role in the market for notebooks -- the fastest growing segment of the PC market -- as more PC makers adopt the chip.

"We now have exposure to the growth notebook market like we've never had before," said CEO Jen-Hsun Huang in a post-earnings conference call.

Overall, Nvidia's revenue in the three months ended Oct. 26 declined 20% year over year to $897.7 million, though the results came in slightly ahead of the $890 million expected by Wall Street analysts.

The extra kick of revenue, along with surprising strength in Nvidia's gross profit margin -- the company delivered gross margin of 41% vs. the 39.6% expected by analysts -- allowed Nvidia to clear the Street's EPS expectations.

Nvidia posted net income of $61.7 million, or 11 cents a share, in the three months ended October 26, down from $235.7 million, or 38 cents a share, at this time last year.

Excluding $8.3 million in restructuring charges, as well as $38 million in stock compensation expenses and a $4.5 million charge related to a royalty dispute, Nvidia said it earned 20 cents a share.

Analysts polled by Thomson Reuters were looking for 12 cents a share, excluding charges.

One of Silicon Valley's most successful chip firms, Nvidia has fallen upon hard times in recent months as the company struggled with increased competition and its own product glitches.

In August, Nvidia reported its first loss in six years as it took a $196 million charge to account for packaging defects that causes some of its graphics chips to overheat.

Last month, the company said it was cutting 6.5% of its workforce in order to shave $7 million to $8 million from its quarterly operating expenses.

Meanwhile, rival ATI, a unit of Advanced Micro Devices ( AMD), has taken market share from Nvidia, thanks to a new desktop graphics processor that offers impressive performance for its price.

In Thursday's conference call, Nvidia's Huang said that the company is now manufacturing its desktop graphics processors with circuits that measure 55 nanometers, instead of the 65 nanometers circuits in previous versions of the chip. Smaller circuit sizes allow chipmakers to reduce their manufacturing costs and improve the performance of a chip.

"We lost some market share recently because of our transition, and because our competitor surprised us with a significantly lower cost," Huang said. "We were caught off guard and we shouldn't have been. But we're not caught off guard now, and it time for us to go get our share back."

In the third quarter, Nvidia's desktop graphics processor shipments declined 12% sequentially, which is something of an improvement from the 40% drop it suffered in the second quarter.

Of course, Nvidia's efforts to reclaim market share are taking place against a backdrop of a slowing economy that could cause consumers to stop buying PCs, and expensive add-on processors, from any company.

At a technology conference in San Francisco earlier Thursday, Intel ( INTC)CEO Paul Otellini described the economic recession as the deepest he'd seen in his lifetime. Intel, along with just about every chip firm, has issued a financial forecast for the fourth quarter well below typical levels.

Nvidia finance chief Marvin Burkett said it would be unrealistic to expect any sort of robust Christmas spending by consumers this year.

He said that Nvidia expects revenue to be down sequentially in the fourth quarter, with the midpoint of the expected range to be down 5%, which translates to $852.8 million.

That's lower than the average analyst expectation of $909.9 million, although investors have generally considered Wall Street estimates to be artificially high for the fourth quarter.

Burkett said Nvidia's gross margin would be relatively flat, as would its operating expenses in the current quarter.

Asked whether Nvidia sees any more opportunity for cost-cutting in the future, Burkett said it wasn't part of the plan.

"The intention is to hold the line on operating expenses and grow revenue," he said. "We have some significant opportunities and we don't want to jeopardize those by doing something foolish in operating expenses."