Publish date:

Nvidia's Profit Jumps

The company beats analysts' estimates.

Updated from 4:54 p.m. EDT

Brisk demand for graphics chips boosted


(NVDA) - Get NVIDIA Corporation Report

sales and profit in the first quarter, sending the company's shares up in extended trading.

Nvidia said its bottom line popped 44% year-over-year to $132.3 million in net income, or 33 cents a share.

Excluding stock option costs and the associated tax impact, Nvidia said it earned 42 cents a share, 3 cents higher than the average analyst expectation.

"With our continued focus on operational excellence, gross margins achieved a company record," said CEO Jen-Hsun Huang in a statement. "We maintained leadership in each of our core product lines, which positions us for continued growth throughout the year."

Shares of Nvidia were up 4.8%, or $1.58, at $34.40 in extended trading Thursday.

Having achieved its 45% gross margin target in the first quarter, Nvidia executives signaled that the company sees further opportunities to increase its profitability going forward.

Nvidia finance chief Marvin Burkett said the company was capable of logging 50% gross margins in the coming years, as the company expands into businesses beyond graphics chips for PCs. Burkett cited the company's business selling chips and workstations to corporations, including a new initiative to position the company's

graphics processor as engines for supercomputers, as one of the main paths to higher profit margins.

TheStreet Recommends

"The key factor is how big that business gets, how quickly," said Burkett.

Nvidia is investing and hiring in the so-called graphics processing computing division, as well as in a separate effort to break into the market for cell phone chips. This will mean a 3% uptick in operating expenses in the coming year.

For the three months ended April 29, Nvidia said the big performers were its stand-alone desktop graphics processors and notebook graphics chips.

Strong demand for these products helped Nvidia beat the Street on the top line, posting $844.3 million in revenue vs. the $836 million expected by analysts.

The one downer was Nvidia's chipset business, which suffered a 31% sequential drop in revenue. The company ascribed the poor showing to

Advanced Micro Devices

(AMD) - Get Advanced Micro Devices, Inc. Report

, whose microprocessors are typically sold in connection with Nvidia's chipset products.

AMD, of course,

had a dismal first quarter, with sales down 7% year-over-year.

But Nvidia executives said they expect AMD to regain market share in the second quarter, which will lead to a rebound in Nvidia's chipset business.

Nvidia expects that chipset rebound to be significant enough that it will offset the seasonally slow period of the year for PC sales. As a result, Nvidia projected flat-to-slightly increasing revenue in the current quarter, as well as flat to slightly increasing gross margins.

Analysts polled by Thomson Financial were looking for Nvidia to earn 39 cents a share on sales of $840.2 million in the current quarter.