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Nvidia Reports Steep Drop In Tegra Sales

The company's second-quarter earnings report revealed steep dropoff in Tegra 3 sales, a much higher loss than expected
Nvidia's mobile processor business suffered a setback after the company reported a steep drop in Tegra sales for its second quarter.

The chip maker reported a 71 percent year-over-year decline in Tegra revenue for the quarter. Nvidia said the decrease in Tegra sales was greater than expected as the company phases out its Tegra 3 processor in favor of its recently released Tegra 4.

"We had expected a drop as discussed last quarter with the ramp-down of Tegra 3 products and ahead of Tegra 4 shipments. Nonetheless, we are disappointed with the size of the decline," said Karen Burns, Vice President and interim CFO, Nvidia, during the company's earnings conference call.

Nvidia's Tegra 3 chip powers several mobile Android and Windows devices, including the original Google Nexus 7 tablet, Microsoft's Surface tablet with Windows RT, the Asus VivoTab RT and the Lenovo Yoga 11 with RT. Jen-Hsun Huang, President and CEO, Nvidia alluded to a certain platform that yielded particularly harmful results for Nvidia.

"Because this particular platform just didn't do as well as we—or frankly anybody in the industry—had hoped, we don't expect as much returns on that investment as we originally hoped," Huang said.

Although Huang did not specify the platform was Windows RT, continued failure of Windows RT is not a foreign concept in the mobility world. Lenovo pulled the Yoga 11 with RT from its mobile device lineup in July while Asus has recently detached itself from the operating system completely. Windows has continued to lower prices on its own Surface tablets with RT in order to unload stock and minimize damage.

Huang said Tegra's overall revenue for 2013 could be down between $200 million and $300 million from last year.

In summary, Nvidia reported $977.2 million in revenue, an 8 percent year-over-year decrease. While Tegra revenue sunk 71 percent from the previous year, GPU sales were up 8 percent.

Burns said Nvidia anticipates a significant increase in Tegra revenue in the third quarter as Tegra 4 hits the market, specifically with Nvidia's new gaming portable console SHIELD. Further, Nvidia expects more Tegra 4 wins in the fourth quarter as more OEM products are released.

Nvidia said it expects third-quarter revenue to be in the range of $1.05 billion, plus or minus 5 percent.
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