Updated from 7:34 a.m. EST
delivered a third-quarter profit well above expectations, helped along by adoption of its new high-end graphics chips, the company said after the bell today. Cheering Wall Street further, its revenue outlook surpassed consensus estimates.
In early Friday trading, shares jumped $2.56, or 16.6%, to $17.97. The stock was raised to neutral from reduce at UBS Friday morning.
The Santa Clara, Calif.-based graphics chipmaker reported net income of $25.9 million or 15 cents a share, up from last year's levels of $6.4 million or 4 cents a share. The EPS number stands well above the analyst consensus estimate of 9 cents a share.
Nvidia's quarterly revenue clocked in at $515.6 million, up 6% from last year's levels and above the consensus estimate for $509 million.
Sales were at the high end of Nvidia's upwardly revised guidance. In a
mid-quarter update on October 25, the company raised its guidance to between $510 million and $515 million, up from the previous range of $470 million to $502 million.
At the time, Nvidia attributed the sunnier outlook to a product-mix shift and share gains in its GeForce graphics processor product line.
Gross margin stood at 32.3%, up from 30.7% in the prior quarter.
On a post-close conference call, Nvidia acknowledged a report from market research firm Mercury showing the company lost share in the third quarter in low-end graphics processors. But executives said significant share gains in high-end graphics chips, which offer gross profits up to 30 times bigger than entry-level chips, helped offset the loss and boosted Nvidia's quarterly results.
Sierra Tech Research analyst Steve Allen said the outperformance didn't come as a shock. Nvidia's business has finally started to turn around after the company lost a string of design wins (and market share) over the past couple of years to
. "One way they lost was to
which chose ATI in the phone business, but they fought back and won
. They've been knocked out of some desktop business at
but recently reclaimed some of that," he pointed out. Nvidia has also benefited from its deal to supply chipsets to
, whose Opteron chip has steadily gained a following.
"I think Nvidia's starting to claw back; it's a climb, though," said Allen. "By no means am I a raging bull on Nvidia. Only in the last month have I changed my mind that Nvidia can mount a challenge and come back."
In the fourth quarter, now underway, Nvidia said revenues should be flat to slightly up from third-quarter levels of close to $516 million. The guidance stands well above the consensus estimate for $502 million in sales. Analysts expected a dime in earnings off the lower sales base but Nvidia didn't issue earnings guidance on Thursday.
The company said Xbox revenues will decline about $80 million in the fourth quarter, in line with normal seasonal patterns (last year Xbox revenues fell $89 million in the same period). Nvidia believes its core products will see growth of over 20%, led by chips sold into the handheld market. It said revenues from its GeForce 6 family should more than double and could account for more than 50% of graphics processor sales in the fourth quarter.
Gross margin should improve by about 100 basis points from third-quarter levels.