Looking at the quarterly income statement for Nvidia ending Aug 1 2010 I noticed a few things. Revenue is down by almost 200 million versus the previous quarter and cost of revenue is up by about 120 million. This has droped gross profit margin from ~45.5% down to ~16.5%. In that period the GTX460 was released and the GTX 470 and 465 received price drops so it does make sense however this puts them in a bind since they are going to reduce prices again which will further reduce the gross profit margin.
When looking at the balance sheet you will also notice that the inventory has been going up by ~ 50million per quarter since the period ending Oct 25 2009. If this increase was for 1 quarter then it could suggest that they were preparing to launch something new but as its been ongoing for the previous 3 quarters it simply suggests that they are not selling everything they are making which does add credence to the rumour that they purchased extra capacity at TSMC to try and keep AMD supply constrained to reduce the market share gain.
The problem with loosing revenue is even if your gross profit margin remains fairly high you have to reduce operating costs to stay profitable which will eventually mean trimming the R&D budget which reduces the ability to compete. They claim to have massive margins on the Tesla and Quadro products but looking at the financials it seems like they are not selling enough to make up for the slim margins on the consumer products and those margins are about to slim even further.
When looking at the balance sheet you will also notice that the inventory has been going up by ~ 50million per quarter since the period ending Oct 25 2009. If this increase was for 1 quarter then it could suggest that they were preparing to launch something new but as its been ongoing for the previous 3 quarters it simply suggests that they are not selling everything they are making which does add credence to the rumour that they purchased extra capacity at TSMC to try and keep AMD supply constrained to reduce the market share gain.
The problem with loosing revenue is even if your gross profit margin remains fairly high you have to reduce operating costs to stay profitable which will eventually mean trimming the R&D budget which reduces the ability to compete. They claim to have massive margins on the Tesla and Quadro products but looking at the financials it seems like they are not selling enough to make up for the slim margins on the consumer products and those margins are about to slim even further.
That's because they had a one off payment of approx $200 million for the faulty laptop gpu's.
I'm sure MS is considering it, although a lot of that is going to depend on how much traction they can gain with their ARM native OS that they are spending a few hundred million to launch starting about now.
Given that the same rumors are circulating about AMD dropping 6xxx prices before they launch and knowing that AMD wasn't posting the fat profits with their 5xxx series that nVidia has had with Fermi it may be a rough season for them too.
All of that is true, as is ATi's 0.03% profit margin for the most recent reported quarter. Given all of the other evidence, I'd say GPUs had a bad quarter all around, nVidia just was capable of weathering it better.
I think that we are missing something with that report, I don't see how they could have made only $1million when the price hasn't moved for those cards, like at all.
Business is a *hell* of a lot more complicated then MSRP/die size= profits. As a generalized example, how are you handling your depreciated assets in relations to your capital gains on your balance sheets and how are you leveraging that for ideal tax purposes? For your inventory purposes, are you writing off your charges at point of sale, or are you holding them until you have sold through the produced product. Following your supply line down- are you supplying vendors based on a line of credit, if yes, what interest rate are you seeing returned and if not, what cashflow oppurtunities are you missing by keeping this money floating in a deflationary state versus how much potential lost revenue would there be if you were to remove this line or charge for it in line with the prime rate(at minimum). How much do you pay to get your floors cleaned?
All of those questions can seriously impact the bottom line. The last one was somewhat of a joke, but moving to an outside contractor versus internal staff can actually save you a couple million a year for a decent sized company once you factor in benefits cost etc. There are just a whole lot of factors to running a company. AMD has proven to us over the years that they have some very talented engineers. They have also proven to us that they have some very poor people handling the business end of their operations. I'm not saying that I could do it better, but simply looking over their financials and some of the boneheaded decissions they make, I wouldn't bet against it
BTW- the new ARM native version of Windows that launched today would have been a 100% AMD launch if they hadn't needed that quick $65 Million- now they get zip
That depends on how they account for it. A refund would debit sales so reduce revenue but if they class it as an expense then it would come after gross profit and have no effect. Also I am looking at the quarter ending 1 august 2010 and I am not sure when that cost wss incurred. It will be interesting to see this quarters report in mid november.
Ben, where are you getting 0.03% from? Operating income was 1 million but I cannot see a breakdown of revenue and gross profit for the graphics division so you cannot work out gross margin %. Company wide it was 46% which is in line with the other quarters
What is curious is the pre tax and interest earnings was 128 million and I don't think tax + interest is going to be 246 million so I wonder what the other expense was.
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They had it reported seperately, $390 Million was the revnue for the graphics division, can't find it now(although we had this discussion not that long ago).
IIRC they are floating $2Billion and change in debt(may be off, haven't checked in a while). Not saying that should cover the $246 Million, but they are likely dealing with considerable interest rates at this point(their credit rating wasn't the strongest when they were floating the fabs).
Based on that figure operating income was just over 0.25% of revenue so gross profit % must be higher.
The interest charge last quarter last quarter was 55 million on ~2.5 billion which is like 26% Apr but there is still 100+ million to account for which is like last quarter.
Yeah, I should have stated 0.3%, also of note- in their full annual report all R&D is charged to the CPU division, on their accounting the graphics chips pop into being without any engineers at all
Getting the full annual report sometimes fills in some of the gaps, but we won't know exactly how that works out until the end of this FY.
busydude
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Yeah, I should have stated 0.3%, also of note- in their full annual report all R&D is charged to the CPU division, on their accounting the graphics chips pop into being without any engineers at all
Well that should not affect gross profit margin of the graphics division but it does make me wonder how they apportion operating expenses.
Yea, thinking about it the extra expenses are probably to do with spinning off GF.
Busydude, I know the company wide margin is 46% but I was trying to get a figure for the gpu division to compare with Nvidias financial statements so we can have a more apples-apples comparison.
busydude
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Unfortunately AMD does not release any breakdown of numbers based on division, I don't remember seeing them unless its a full annual report.
There was a great post(s) made by IDC(Idontcare) in the CPU forums..
That is some great info and it does seem like AMD are shifting costs as the gross margin % has increased between 08 and 09. If GlobalFoundries were charging AMD a realistic price for wafers then I would expect AMD's cost of revenue to increase lowering gross profit % but that does not seem to be the case.
Looking and AMD's Q3 results compared to Q2 for graphics revenue is down by 50M but they still managed to make a profit of 1M so assuming the gross profit margin is about the same operating expenses for the division are higher in Q3 than Q2. It will be interesting to look at Nvidia's Q3 results to see how they compare revenue wise.
Looking and AMD's Q3 results compared to Q2 for graphics revenue is down by 50M but they still managed to make a profit of 1M so assuming the gross profit margin is about the same operating expenses for the division are higher in Q3 than Q2. It will be interesting to look at Nvidia's Q3 results to see how they compare revenue wise.
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