NVDA: Income Statement Analysis for the January 2011 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.29 per diluted share on a GAAP basis in the January-ending fourth quarter of fiscal 2011, up 27 percent from $0.23 in the same three months of the previous year. 

The latest quarter included a $57 million ($37 million after taxes) benefit related to a legal settlement.  Non-GAAP earnings, which exclude special items, were $0.23 per share.  Non-GAAP earnings per share were also $0.23 in the year-earlier quarter.

This post examines NVIDIA's Income Statement for the latest quarter and compares the entries on each line to our "look-ahead" estimates.  Because of the legal settlement, tax matters, and other reasons discussed below, reported earnings surpassed our forecast of $0.17 per share. 

The principal sources for the income statement analysis were the earnings announcement, the Chief Financial Officer's commentary [pdf], and the conference call transcript (available from Seeking Alpha).

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

NVIDIA is best known for its powerful Graphics Processing Units that rapidly perform the complex calculations required to produce hyper-realistic images for computers and video games.

The company's share price shot up earlier this year in a favorable response to announcements NVIDIA made in conjunction with the Consumer Electronics Show in Las Vegas.  NVIDIA proclaimed its latest chips for mobile devices, such as the dual-core Tegra 2, are being used in increasing numbers of notebook computers, tablets, and smartphones. 

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NVDA: Look Ahead to January 2011 Quarterly Results

This post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for fiscal 2011's fourth quarter, which will end on 30 January 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.

NVIDIA is best known for its powerful Graphics Processing Units that rapidly perform the complex calculations required to produce hyper-realistic images for computers and video games.

The company's share price shot up earlier this month in a favorable response to announcements NVIDIA made in conjunction with the Consumer Electronics Show in Las Vegas.  NVIDIA proclaimed its latest chips for mobile devices, such as the dual-core Tegra 2, are being used in increasing numbers of notebook computers, tablets, and smartphones.  NVIDIA also made known it would develop CPUs using technology from ARM Holdings (NASDAQ: ARMH) for a wide variety of other platforms.  This latter disclosure is significant because Microsoft (NASDAQ: MSFT) decided to enable a future version of the Windows operating system to work on ARM chips, allowing these devices to compete directly against the x86 devices developed by Intel (NASDAQ: INTC).

The ARM products, therefore, open another front in NVIDIA's rivalry with Intel.  NVIDIA has promoted the use of its parallel-processing GPUs for applications now run on Intel's general-purpose microprocessors.  Intel's latest generation of microprocessors, known as Sandy Bridge, includes sophisticated graphics capabilities that might eventually cut into sales of the discrete GPUs made by NVIDIA and Advanced Micro Devices (NYSE: AMD).

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NVDA: Financial Gauge Analysis for the October 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.15 per diluted share on a GAAP basis in the October-ending third quarter of fiscal 2011, down 22 percent from $0.19 in the same three months of last year. 

The earlier period benefited from a $24 million ($0.06 per share) insurance settlement. 

A previous article examined NVIDIA's Income Statement for the July quarter.  Reported GAAP earnings were $0.01 better than the $0.14 per share we had forecast. 

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for NVIDIA and the associated financial gauge scores.  The metrics were calculated using data from NVIDIA's current and historical financial statements, including those in the latest 10-Q.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

NVIDIA sells powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.

The market value of the company is currently around $8.5 billion.  In March 2010, NVIDIA extended for three years a program for repurchasing up to $2.7 billion of its common shares.

NVIDIA's operations are divided for financial reporting purposes into three businesses: GPU, Professional Solutions, and Consumer Products.  The GPU business, which in fiscal 2010 had Revenue of $1.7 billion (53 percent of the total), sells products for desktop and notebook personal computers.  NVIDIA GPUs are installed in computers made by Apple (NASDAQ: AAPL), Hewlett Packard (NYSE: HPQ), Dell (NASDAQ: DELL), and Lenovo.

Advanced Micro Devices (NYSE: AMD) is NVIDIA's most direct competitor.  However, Intel's (NASDAQ: INTC) Sandy Bride generation of microprocessors, expected early in 2011, includes a CPU and a Graphics Processing Unit.  This chip could raise the stakes in Intel's rivalry with NVIDIA. 

NVIDIA has promoted the use of its parallel-processing GPUs for computations now performed by Intel's general-purpose microprocessors. 

The company is starting to gain traction in the market for smartphones and other mobile devices.  NVIDIA's Tegra chips are becoming a popular choice for tablet computers produced by several major manufacturers, according to a DigiTimes report.

Additional background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.


In summary, NVIDIA's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 17 of 25 (down from 19 in July)
• Growth: 14 of 25 (unchanged)
• Profitability: 20 of 25 (unchanged)
• Value: 5 of 25 (down from 12)

• Overall: 51 of 100 (down from 63)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

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NVDA: Income Statement Analysis for the October 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.15 per diluted share on a GAAP basis in the October-ending third quarter of fiscal 2011, down 22 percent from $0.19 in the same three months of last year. 

The earlier period benefited from a $24 million insurance settlement.  Excluding this special item, earnings per share in the October 2009 quarter were $0.13 per share.  In other words, earnings per share on a non-GAAP basis increased from $0.13 last year to $0.15 in the most recent quarter.

This post examines NVIDIA's Income Statement for the latest quarter and compares the entries on each line to the "look-ahead" estimates.  Reported GAAP earnings were $0.01 better than the $0.14 per share we had forecast. 

The principal sources for the income statement analysis were the earnings announcement, the Chief Financial Officer's commentary [pdf], and the conference call transcript (available from Seeking Alpha).

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

NVIDIA sells powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.

Read the rest of this article

NVDA: Look Ahead to October 2010 Quarterly Results

This post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for fiscal 2011's third quarter, which will end on 31 October 2010.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.

NVIDIA sells powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.

NVIDIA reported net losses of $30 million and $68 million in fiscal 2009 and fiscal 2010, respectively.  Annual Revenue slipped from $3.4 billion to $3.3 billion.  Results in the more recent year were weighed down by a $140 million charge associated with the repurchase of stock options from employees and a $119 million warranty charge.

The market value of the company is currently around $6.5 billion, roughly one quarter of its peak in 2007.  In March 2010, NVIDIA extended for three years a program for repurchasing up to $2.7 billion of its common shares.

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NVDA: Financial Gauge Analysis for the July 2010 Quarter

NVIDIA (NASDAQ: NVDA) lost $0.25 per diluted share on a GAAP basis in fiscal 2011's second quarter, which ended on 1 August 2010.  In last year's comparable quarter, NVIDIA incurred a net loss of $0.19 per share.  Both periods included substantial charges due to product failures caused by the same "weak die/packaging material set."

Excluding special items in both periods, non-GAAP earnings per share rose from $0.02 to $0.03.

A previous article examined NVIDIA's Income Statement for the July quarter.  Our earnings estimate of $0.06 per share proved to be far too optimistic because we hadn't anticipated the loss-causing special charges.  Non-GAAP earnings were $0.03 below our earnings target.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.  This post reports on the metrics for NVIDIA and the associated financial gauge scores.  The metrics were calculated using data from NVIDIA's current and historical financial statements, including those in the latest 10-Q.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

NVIDIA is best known for the powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.

Prior to fiscal 2011 (the current year), NVIDIA's business was divided for reporting purposes into four segments: GPU, Professional Solutions, Media and Communications Processors, and Consumer Products.  The GPU and MCP segments have since been consolidated.  The GPU segment, which had Revenue of $1.7 billion in fiscal 2010 (53 percent of the total), sells products for desktop and notebook personal computers.

On 12 August 2010, NVIDIA reached a licensing agreement with Rambus (NASDAQ: RMBS) in which the latter grants NVIDIA "a non-exclusive, non-transferable, worldwide license for certain memory controllers."  This agreement comes after a fair amount of litigation between the two companies, and it does not necessarily settle all existing disputes.

Additional background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.


In summary, NVIDIA's latest quarterly results produced the following changes to the gauge scores:

• Cash Management: 19 of 25 (up from 18 in April)
• Growth: 15 of 25 (down from 20)
• Profitability: 20 of 25 (down from 22)
• Value: 12 of 25 (up from 3)

• Overall: 64 of 100 (up from 53)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Read the rest of this article

NVDA: Income Statement Analysis for the July 2010 Quarter

NVIDIA (NASDAQ: NVDA) lost $0.25 per diluted share on a GAAP basis in fiscal 2011's second quarter, which ended on 1 August 2010.  In last year's comparable quarter, NVIDIA incurred a net loss of $0.19 per share.  Both periods included substantial charges due to product failures caused by the same "weak die/packaging material set."

Excluding special items in both periods, non-GAAP earnings per share rose from $0.02 to $0.03.

This post examines NVIDIA's Income Statement for the latest quarter and compares the entries on each line to the "look-ahead" estimates we revised after the company's recent revenue-shortfall warning.  Since we hadn't anticipated the special charges that so greatly affected the GAAP results, our earnings estimate of $0.06 per share proved to be far too optimistic.  Non-GAAP earnings were $0.03 below our $0.06 earnings target.

The principal sources for the income statement analysis were the earnings announcement, the Chief Financial Officer's commentary, and the conference call transcript (available from Seeking Alpha).

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges.  The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.


Before getting into the details, we will take a step back to introduce the subject of today's analysis.

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NVDA: Revenue Shortfall Warning

On 12 August 2010 NVIDIA (NASDAQ: NVDA) will report its results for fiscal 2011's second quarter, which will end on 1 August 2010.  However, NVIDIA has already announced that Revenue in the quarter will be much less than the guidance the company provided on 13 May 2010.

The guidance, issued in conjunction with first quarter results, had been to expect second-quarter Revenue 3-to-5 percent below the first quarter's $1.0 billion.  These percentages translated into a Revenue guidance range of $950 million to $970 million.

NVIDIA's press release dated 28 July 2010 states that Revenue is now estimated at only $800 million to $820 million.  In other words, Revenue in the second quarter will be 18 to 20 percent less than Revenue in the first quarter.

They blamed the revenue shortfall on "increased memory costs and economic weakness in Europe and China [... that ...] led to a greater-than-expected shift to lower-priced GPUs and PCs with integrated graphics."


NVIDIA did not identify how the revenue shortfall would affect its bottom line, but we have made a (very) rough estimate.

In our "look-ahead" for NVIDIA's current quarter, posted 1 July 2010, we used the midpoint of the company's original Revenue guidance to forecast earnings of $120 million ($0.20 per share).

We have now revised our Income Statement model to reflect NVIDIA's lower estimates for Revenue.  We also reduced the expected Gross Margin from 46.5 percent to 41.5 percent because slumping sales often lead to production and distribution inefficiencies.  The 41.5-percent figure is just a guess. 

We assume there will be some minor savings in revenue-dependent marketing costs.

Leaving most other assumptions unchanged, our new estimate for the quarter is Net income of $35 million ($0.06 per share).


Please click here to see a full-sized, normalized depiction of the projected results next to NVIDIA's quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

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NVDA: Look Ahead to July 2010 Quarterly Results

This post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for fiscal 2011's second quarter, which will end on 1 August.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.

NVIDIA is best known for the powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.

NVIDIA lost $68 million on Revenue of $3.3 billion in fiscal 2010, which ended on 31 January.  In fiscal 2009, NVIDIA lost $30 million on Revenue of $3.4 billion.  Fiscal 2010 included a $140 million charge associated with the repurchase of stock options from employees, and it also included a $119 million warranty charge.

The company's current market capitalization is about $6 billion.  In March 2010, NVIDIA extended for three years a program for repurchasing up to $2.7 billion of its common shares

Prior to fiscal 2011 (the current year), NVIDIA's business was divided for reporting purposes into four segments: GPU, Professional Solutions, Media and Communications Processors, and Consumer Products.  The GPU and MCP segments have since been consolidated.

The GPU segment, which had Revenue of $1.7 billion in fiscal 2010 (53 percent of the total), sells products for desktop and notebook personal computers.  NVIDIA GPUs are also installed in computers made by Apple (NASDAQ: AAPL), Hewlett Packard (NYSE: HPQ), Dell (NASDAQ: DELL), and now Lenovo!  Advanced Micro Devices (NYSE: AMD), by purchasing ATI Technologies in 2006, became NVIDIA's most direct competitor in the marketplace for discrete GPUs and the computer graphics cards built around them.

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NVDA: FInancial Gauge Analysis for the April 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.23 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 2 May 2010.  The company reported a net loss of $0.37 per share in the comparable quarter of the previous year.

In our earlier review of NVIDIA's Income Statement, we compared the actual results to our "look-ahead" estimates.  Reported earnings were $0.02 per share better than the $0.21 per share we had forecast.

We have now updated the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value for NVIDIA.  This post reports on the metrics and the associated financial gauge scores.  The metrics were calculated using data from NVIDIA's current and historical financial statements, including the latest 10-Q report.


NVIDIA creates powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.  Additional background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.

In summary, NVIDIA's latest quarterly results produced the following changes to the GCFR gauge scores:

• Cash Management: 18 of 25 (down from 19 in January)
• Growth: 20 of 25 (up from 6)
• Profitability: 22 of 25 (up from 12)
• Value: 3 of 25 (down from 4)

• Overall: 53 of 100 (up from 39)

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Read the rest of this article

NVDA: Income Statement Analysis for the April 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.23 per diluted share on a GAAP basis in fiscal 2011's first quarter, which ended on 2 May 2010.  In last year's comparable quarter, NVIDIA incurred a net loss of $0.37 per share.

Non-GAAP earnings per share rose from ($0.13) to $0.23.  The non-GAAP figure for the earlier quarter excludes special charges, after tax, of $132 million ($0.24 per share) related to stock option purchases.

This post examines NVIDIA's Income Statement for the latest quarter and compares the entries on each line to our "look-ahead" estimates.  Reported earnings were $0.02 per share better than the $0.21 per share we had forecast.

The principal sources for the income statement analysis were the earnings announcement, and the Chief Financial Officer's commentary.

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

NVIDIA is best known for the powerful Graphics Processing Units that rapidly perform the huge numbers of calculations required to produce hyper-realistic images for computers and video games.  Additional background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.

Please click here to see a full-sized, normalized depiction of the actual and projected results for the just-concluded quarter, as well as the quarterly Income Statements for the last couple of years.  Please note that our organization of revenues, expenses, gains, and losses, which we use for all analyses, can and often does differ in material respects from company-used formats.  The standardization facilitates cross-company comparisons.

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NVDA: Look Ahead to April 2010 Quarterly Results

This post describes our model of NVIDIA's (NASDAQ: NVDA) Income Statement for the first quarter of fiscal 2011, which will end on 2 May.

The purpose of the model is to establish a baseline for identifying surprises, positive or negative, in the quarterly results the company will report.  Estimates for each line of the Income Statement are derived from management's guidance, the company's historical financial results, and other publicly available data.

We begin by reviewing background information about NVIDIA and the business environment in which it is currently operating.

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NVDA: Income Statement Analysis for the January 2010 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.23 per share in the fourth quarter of fiscal 2010, which consisted of the 14 weeks (one more than normal) that ended on 31 January 2010.  NVIDIA lost $0.27 per share in the same quarter of fiscal 2009.

The results were about the same on a non-GAAP ("pro forma" or "ex-items") basis.

This post examines NVIDIA's Income Statement for the latest quarter compares the entries on each line to our "look-ahead" estimates.  NVIDIA surpassed our EPS target of $0.14 by a substantial $0.09 per share.

The principal sources for the income statement analysis were the earnings announcement, the Chief Financial Officer's commentary, and the conference call (transcript available from Seeking Alpha).

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

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NVDA: Look Ahead to January 2009 Quarterly Results

NVIDIA (NASDAQ: NVDA) earned $0.19 per share in the third quarter of fiscal 2010, which ended on 25 October 2009, up from $0.11 in the same quarter of last year.  On a non-GAAP ("pro forma" or "ex-items") basis, earnings fell from $0.20 to $0.19 per share.  A $25 million insurance reimbursement, a $23 million stock-based compensation expense, and the tax impacts of these two items are excluded from non-GAAP Net Income in the October 2009 quarter.

In November, we examined NVDIA's Income Statement for the October quarter and compared the entries on each line to our "look-ahead" estimates.  We later performed a financial gauge analysis of NVIDIA, which determined that the GCFR Overall gauge rose from 20 to 31 (recomputed) of the 100 possible points.

We have now modeled NVIDIA's Income Statement for fiscal 2010's 14-week fourth quarter, which will end on 31 January 2010.  The intent of this exercise was to produce a baseline for identifying deviations, positive or negative, in the actual data that the company will announce in February.  GCFR estimates are derived from trends in the historical financial results and guidance provided by company management.

First, we set the stage with some background information about NVIDIA and the business environment in which it is currently operating.

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NVDA: Financial Gauge Analysis for the October 2009 Quarter

In a previous article, we examined NVIDIA's (NASDAQ: NVDA) Income Statement for the third quarter of fiscal 2010 and compared the entries on each line to our "look-ahead" estimates.  Earnings in this period, which ended on 25 October 2009, increased from $0.11 to $0.19 per share. 

On a non-GAAP basis, Net Income fell from $0.20 per share to $0.19.

Using the financial statements in the earnings announcement and the more detailed 10-Q , we have now updated our usual set of Cash Management, Growth, Profitability and Value metrics.  This post reports on the metrics and the associated financial gauge scores.

NVIDIA Corporation designs powerful Graphics Processing Units that rapidly perform the intensive calculations required to produce hyper-realistic images for computers and video games.  Some background information about NVIDIA and the business environment in which it is currently operating can be found in the look-ahead.

In summary, NVIDIA's latest quarterly results produced the following changes to the GCFR gauge scores:

• Cash Management: 15 of 25 (up from 7 in July)
• Growth: 2 of 25 (up from 0)
  
• Profitability: 10 of 25 (up from 6)
  
• Value: 9 of 25 (up from 5)

• Overall: 39 of 100 (up from 20)
  

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.  Readers are encouraged to verify these figures and calculate others as they see fit using the filings available at the SEC's web site and elsewhere.

Read the rest of this article

NVDA: Income Statement Analysis for the October 2009 Quarter

NVIDIA (NASDAQ: NVDA) earned $0.19 per share in the third quarter of fiscal 2010, which ended on 25 October 2009, up from $0.11 in the same quarter of last year.

On a non-GAAP ("pro forma" or "ex-items") basis, earnings fell from $0.20 to $0.19 per share.  The net difference between GAAP and non-GAAP Net Income in the latest quarter was only $2.75 million.  However, this small figure masks a couple of substantial items that nearly canceled each other.

This post examines the Income Statement for the quarter in the earnings announcement, and it compares the entries on each line to our "look-ahead" estimates.  Our target for NVIDIA's Net Income in the latest quarter was only $0.05 per share.

Commentary published by the Chief Financial Officer helped us interpret NVIDIA's results.

In a second article, we will report NVIDIA's scores as measured by the GCFR financial gauges. The follow-up post will also provide the latest figures for the various financial metrics we use to analyze Cash Management, Growth, Profitability and Value.

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NVDA: Look Ahead to October 2009 Quarterly Results

The GCFR Overall Gauge of NVIDIA (NASDAQ: NVDA) was nearly unchanged at 20 of the 100 possible points after July, when the second quarter of fiscal 2010 ended.  Our income statement, financial gauge, and gauge update analyses explained in some detail how the score was attained.

NVIDIA lost $0.19 per share during the July quarter, which was a slight improvement over the loss of $0.22 in the same period of 2008.  On a non-GAAP ("pro forma" or "ex-items") basis, Net Income fell from $0.13 per share to $0.07.  The non-GAAP results exclude a warranty charge of $119 million and certain other items.

Revenue in the quarter was 13 percent less than last year, but it was a surprising 17 percent more than in the immediately preceding (April 2009) quarter.  Semiconductor sales in the spring were recovering from late 2008's awful slump.


We have now modeled NVIDIA's Income Statement for fiscal 2010's third quarter, which will end on 25 October 2009.  The intent of this exercise was to produce a baseline for identifying deviations, positive or negative, in the actual data the company will announce in November.  GCFR estimates are derived from trends in the historical financial results and guidance provided by company management.

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NVDA: Financial Gauge Analysis for the July 2009 Quarter (Update)

We previously posted NVIDIA's (NASDAQ: NVDA) preliminary Financial Gauge scores for the July 2009 quarter. 

Data from NVIDIA's latest earnings announcement were used to calculate the scores, but NVIDIA later filed a more complete 10-Q report.  For our purposes, Balance Sheet details and a Cash Flow statement, which was not included in the original report, were the most important additions. 

We have now updated the financial metrics that determine our scores to take advantage of the new information.

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NVDA: Financial Gauge Analysis for the July 2009 Quarter

In an earlier post, we examined NVIDIA's (NASDAQ: NVDA) Income Statement for the July quarter and compared the figures to our "look-ahead" estimates.  In this period, the second quarter of fiscal 2010, NVIDIA lost $0.19 per share.  The company lost $0.22 in the comparable period of 2008.

On a non-GAAP basis, Net Income fell from $0.13 per share to $0.07.  The most substantial expense excluded was a $119 million charge to resolve product faults.


NVIDIA builds Graphics Processing Units that perform the intensive computations required to produce realistic images for video games and other applications.   NVIDIA GPUs can also take on other processing chores. 

We have now mined the financial statements in NVIDIA's earnings announcement to update the metrics we use to assess Cash Management, Growth, Profitability and Value.  This post reports on these metrics and the Financial Gauge scores.

The press release included an Income Statement, a condensed Balance Sheet, but only a single statement was made about Cash Flow: "Free cash flow was a positive $117.5 million during the quarter."

Since some undisclosed details are needed to compute accurate gauge scores, we had to make certain estimates for this analysis.  We will adjust the scores after NVIDIA files a complete 10-Q report with the SEC.

In the mean time, NVIDIA's preliminary GCFR gauge scores are as follows:

• Cash Management: 7 of 25 (unchanged from April)
• Growth: 0 of 25 (down from 1)
  
• Profitability: 5 of 25 (up from 4)
  
• Value: 5 of 25 (down from 7)

• Overall: 19 of 100 (up from 21)
  

The current and historical values for the financial metrics that determine the gauge scores are listed below, with some brief commentary.

Cash Management	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Current Ratio	2.4	2.9	2.5	3.1
LTD/Equity	1.1%	1.1%	0.0%	0.1%
Debt/CFO (years) (1)	0.1	0.1	0.0	0.0
Inventory/CGS (days)	70.9	72.6	53.0	69.1
Finished Goods/Inventory	N/A	63.2%	52.9%	55.0%
Days of Sales Outstanding (days)	66.8	59.4	49.7	50.2
Working Capital/Invested Capital	158.3%	131.1%	167.0%	176.4%
Cash Conversion Cycle Time (days)	59.9	65.2	49.1	61.1
Gauge Score (0 to 25)	7	7	16	13

1. Based on estimated data for the July 2009 quarter.

With nearly $1.5 billion in Cash and Short-term Investments, $1.3 billion in Working Capital, and minimal debt, NVIDIA has considerable liquidity.

NVIDIA has made progress trimming its Inventory from 80 days, as measured by Cost of Goods Sold, in January to 71 days now.  But, the Inventory level is still much higher than last year.

The Days of Sales Outstanding, which is based on the Accounts Receivable, has jumped surprisingly.  We suspected this might be an artifact of declining Revenue, but we would not be surprised if NVIDIA has relaxed payment terms for its customers.

Growth	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Revenue growth	-35.4%	-33.4%	25.5%	10.7%
Revenue/Assets	77.7%	84.0%	124.8%	121.5%
Operating Profit growth	4.8%	13.3%	63.8%	26.1%
CFO growth (1)	-70.1%	-78.0%	-21.6%	1352.4%
Net Income growth	N/A	N/A	-4.6%	26.5%
Gauge Score (0 to 25)	0	1	4	13

Revenue, CFO, and Net Income growth rates compare the last four quarters to the four previous quarters.  The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.
1. Based on estimated data for the July 2009 quarter.

Although NVIDIA has bounced back from the abyss of the January quarter, comparisons of the last four quarters with the previous four still produce ugly results.  Special charges certainly haven't helped.

Profitability	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Operating Expenses/Revenue	106.1%	104.8%	82.7%	89.2%
ROIC	-16.9%	-11.3%	79.6%	44.0%
Free Cash Flow/Invested Capital (1)	7.7%	1.9%	57.0%	51.9%
Accrual Ratio (1)	-14.3%	-12.9%	11.4%	1.1%
Gauge Score (0 to 25)	5	4	14	14

1. Based on estimated data for the July 2009 quarter.

Operating Expenses in the last four quarters were 6 percent more than Revenue, and this is after we've excluded $287 million in special charges.  This is shows how far NVIDIA has been from reported profitability.

However, positive Free Cash Flow provides a ray of hope. 

Until the 10-Q is filed, the Accrual Ratio is suspect because it depends on Cash Used for Investments.  This value hasn't yet been disclosed.

Value	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
P/E	N/A	N/A	11.6	26.3
P/E vs. S&P 500 P/E	N/A	N/A	0.6	1.6
PEG	N/A	N/A	0.2	11.4
Price/Revenue	2.5	2.1	1.5	3.0
Enterprise Value/Cash Flow (EV/CFO) (1)	21.4	20.0	5.3	20.4
Gauge Score (0 to 25)	5	7	25	11

1. Based on estimated data for the July 2009 quarter.

NVIDIA's valuation ratios can be compared with other companies in the Specialized Semiconductor industry.  With earnings negative, the only relevant valuation metrics involve Revenue and Cash Flow.

At the end of January, NVIDIA shares sold for $7.95.  The price rose to $12.93 by the end of July. Given the lack of profits, it was inevitable that the share price increase would cause the contrarian Value gauge to fall.

Overall	Jul 2009	Apr 2009	Jul 2008	5-Yr Avg
Gauge Score (0 to 100)	19	21	72	50

This year's dramatic drop in the Overall Gauge illustrates the significant change for the worse in NVIDIA's fortunes.  None of our category gauges were stirred by the results from the July quarter.

The earnings announcement lists numerous highlights illustrating new uses for NVIDIA's GPUs and other products.  The list is truly impressive, we would not be surprised to see sales and profits rebound when IT market conditions are more favorable.  However, we have to be skeptical until we see the improvements in the financial data.  After all, NVIDIA is facing off against formidable and innovative competitors.  We also worry that product quality issues from last year will have longer-term effects on the company's brand.



Full disclosure: Long NVDA at time of writing.