Nvidia’s Q4’16 Earnings Preview: PC Gaming & Automotive To Drive Growth
Leading GPU manufacturer Nvidia (NASDAQ:NVDA) is set to announce its Q4 2016 and fiscal 2016 earnings on February 17th. (Fiscal years ends with January.) The company managed to successfully weather the slow PC market, performing strongly in the first nine months of the year. Q3 2016 was the second consecutive quarter in which Nvidia significantly exceeded its original guidance, and the strong performance in both quarters was mainly driven by the company’s increasing strength in PC gaming and the automotive market.
Nvidia remains focused on its strategy of creating strong platforms for the gaming, professional visualization, data center, and automotive sectors. The company has secured a well defined and strong position in each of these growth markets, which now account for almost 85% of its total revenue, compared to 71% a year ago. We expect the above mentioned four segments to drive the company’s growth going forward as well.
Read What To Expect From Nvidia’s Fiscal 2016 Earnings? for a tabular representation of Trefis’s fiscal 2016 revenue and earnings estimate for Nvidia.
Our $25 price estimate for Nvidia is almost in line with the current price estimate.
See our complete analysis for Nvidia
PC Gaming Remains and Important Growth Driver
Nvidia’s robust growth in gaming is being fueled by the following factors: 1) the anticipation of new blockbuster games; 2) the rise of eSports; 3) the emergence of new technologies like virtual reality (VR) and Direct X; and, 4) the expansion in developing countries.
eSports is one of the most important growth drivers for the gaming market. In just a few years’ time, eSports has doubled to almost 100 million gamers around the world, and Nvidia believes that the platform has the capacity to double again in the next few years. [1] eSports is well on its way to becoming a global entertainment category with an audience of 188 million viewers.
In addition to the launch of new games, Nvidia is also looking forward to the upcoming launch of VR, with the approaching availability of VR headsets from Oculus, HTC, and others, as well as new VR games such as EVE: Valkyrie. Lastly, Broadband access is an important pre-requisite for PC gaming. As the broadband adoption continues to rise in developing countries, it will fuel the expansion and popularity of gaming in those regions.
Nvidia estimated PC gaming systems sales of approximately $28 billion in calendar year 2015, with continued expansion expected in the years ahead. ((Nvidia’s Q2 2016 Earnings Call Transcript, Seeking Alpha, August 6, 2015)) The company believes that it is not fully penetrated in the market, and the above listed factors will continue to spur growth in its gaming business for years to come.
Transition To Autonomous Driving & ADAS; Upcoming Jetson TX 1 To Expand Tegra Reach
Automotive applications drive Nvidia’s fastest-growing Tegra processor and offer higher gross margins than other devices. The automotive electronics market is large and is going through a transition, as cars have increased computing capabilities in both the drive train and the dashboard. Increasingly, dashboard functionality within cars (infotainment systems, digital cluster and automatic driver assistance) are being computerized. Management indicated that Strategy Analytics expects the market for Advanced Driver Assistance Systems (ADAS) will generate around $15 billion in 2016, with a CAGR of 23%. [2]
Nvidia has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. The company’s automotive platforms remain on a sharp upward trajectory, with almost 8 million cars using Nvidia’s technology at present (up from 4.7 million a year ago) and around 30 million more cars in the pipeline.
In addition to its infotainment cockpit business, Nvidia is working with over 50 companies that are developing self driving car technologies, using NVIDIA DRIVE PX. These include car manufacturers, Tier 1 OEMs, start-ups and research institutions.
In November 2015, Nvidia introduced a credit-card sized module (Jetson TX1) that uses the power of machine learning to enable a new generation of smart devices and autonomous machines. Nvidia’s Jetson TX1 is the first embedded computer designed to process deep learning networks, computer software that can learn to recognize objects or interpret information. Essentially, the module will help power millions of next generation devices that can navigate on their own, recognize objects and faces, and become increasingly intelligent through machine learning. Jetson TX1 has uses that range from artificial intelligence-assisted robots, to advanced systems in automobiles, drones and to Internet of Things-connected intelligent machines. The Jetson TX1 module will be available in early 2016. (Read: Nvidia’s Jetson TX1 To Expand Tegra Processors’s Reach To A Wider Market)
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Notes:- Nvidia’s Q2 2016 Earnings Call Transcript, Seeking Alpha, August 6, 2015 [↩]
- Nvidia’s CEO Discusses F4 Q2014 Results – Earnings Call Transcript, Seeking Alpha, February 12, 2014 [↩]