4 Big Takeaways From NVIDIA's Q1 Results

By Michael Comeau Graphics-chipmaker NVIDIA (NVDA) delivered its first-quarter earnings results after the close Thursday. Let's jump right into the headline facts and figures:

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1) The company reported a profit of 27 cents a share on $968 million in revenue, cruising past Wall Street's consensus EPS forecast of 19 cents on $948 million in sales. 2) Gross margins came in at a record 50.4%, marking three quarters in a row that the company achieved a new all-time high in that metric. 3) Strength in notebook graphics processing units (GPU) and a better-than-expected performance in desktop GPU's offset the continued phase-out of integrated-graphics chips. 4) NVIDIA's consumer-products division, which includes its Tegra smartphone and tablet processors, saw sales skyrocket 78% quarter-over-quarter to $123 million, or 13% of sales. The growth was attributed to customers like Motorola (MMI) and Dell (DELL) bringing new Google (GOOG) Android-powered products to market during the quarter.

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5) For Q2, NVIDIA sees sales coming in at $1 to $1.02 billion, just ahead of the consensus forecast heading into the report NVIDIA's stock initially popped 5% to $21.50 before settling back under $20. This was a surprise to me because there has been rampant speculation on Wall Street that the tablet industry has been overproducing relative to demand. NVIDIA's impressive Tegra sales puts a small crack to that theory. But technically, Tegra only did slightly better than analysts forecasted, and those expectations were likely tempered due to the aforementioned oversupply worries. So I'd say that tablet-inventory worries are likely to still act as an anchor on the stock. Nonetheless, let's take a look at what we learned from NVIDIA this quarter:

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1) The Semis Are Still Doing Pretty Well The Philadelphia Semiconductor Index is up 9% year-to-date, slightly outpacing the Nasdaq Composite. NVIDIA's solid results and guidance imply that the good times are still rolling due to strong continued demand for gadgets like smartphones and tablets. The mobile-computing boom is holding the industry up, and doing a darn fine job of it. 2) Still not a Bad Piece of Smartphone News to be Found As I noted on Wednesday, there just doesn't seem to be a single piece of bad news related to smartphone-industry demand. NVIDIA's strong Tegra results and solid Q2 guidance add two more entries to the endless list of datapoints supporting the runaway bull market in smartphones. 3) The Jury's Still Out on the Supply/Demand Balance For Tablets NVIDIA didn't provide much color on the mix between smartphones and tablets within the Tegra unit. Therefore, it's still awfully difficult to determine how quickly demand is ramping for tablets not called the Apple (AAPL) iPad 2. However, I imagine that if tablets were really booming, NVIDIA's management team would be rushing to spread the good news. So, score one minor point for the tablet bears.

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