The Effect of Slowing PC Sales
Mary is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Nvidia (NASDAQ: NVDA) recently reported that its second quarter profit fell 21% as the chip maker logged higher operating costs, masking revenue growth. The company actually reported revenue at the top end of its guidance for the quarter and earnings beat analysts’ expectations. For the current quarter, the company expects revenue of $1.15 to $1.25 billion, topping average analyst estimates that predicted $1.09 billion.
The company is best known for its GPUs and recently introduced its new Kepler GPU, which has been gaining traction with users. Also, Nvidia is hoping that it can move into mobile phones with its mobile processor Tegra which reached record sales in the latest quarter. The business that includes Tegra, Nvidia’s wireless Icera, and other areas jumped 36% in the quarter. Chief executive Jen-Hsun Huang expects Tegra sales of around $540 million this year. Its push beyond PCs was also behind its recent decision to partner with patent-portfolio incubator Intellectual Ventures to acquire about 500 wireless communication patents.
Overall, Nvidia has had a strong showing in tablets. Both Google and Microsoft both selected the company’s chips for their self-branded devices. Nividia is also working with AsusTek and Lenovo on their devices using the Windows RT operating system. However, Nvidia still faces concerns that graphics sales will be hurt by new processors from Intel (NASDAQ: INTC) and Advanced Micro Devices (NYSE: AMD) that integrate graphics and computing technology on the same chip.
Vice versa to Nvidia, Intel recently reported an earnings increase in the second quarter while at the same time lowering its outlook for the remainder of the year. Intel has recently experienced poor demand for PCs powered by the company’s chips and slower growth in emerging markets. However, demand from corporations was still good and net income did rise. The increase in demand for tablets and smartphones has in turn lowered demand for PCs. Still, Intel’s performance was still better than its chief competitor AMD.
AMD reported nearly a 40% decrease in second quarter profit and expects this trend to continue into the third quarter as well. Like Intel and Nvidia, AMD is also hurting from weak PC demand by consumers. While Intel has been buoyed by its data center strength and Nvidia by its GPUs, AMD is particularly sensitive to weakened PC demand. Both AMD and Intel are hoping that newer thin and light laptops will revitalize this demand in the markets. However, the success of these devices has been unclear. Both companies do expect to benefit from Microsoft’s Windows 8 touch-powered operating system. The system is expected to drive PC sales while also appearing in tablet devices.
The weak consumer demand for PCs is hurting Nvidia, Intel, and AMD simultaneously. However, the breadth of these companies product and service offerings is what weighs the difference. AMD is heavily dependent on PCs, causing them to experience the largest hit from this trend. Intel, though largely dependent on PC sales, does offer more products and services like its data centers, which are still in demand by corporations. And Nvidia has its graphics processors for which it is known. Nvidia’s products are also widely used in tablet and other mobile devices for which the demand is increasing. With slowing PC sales, the more diversified company wins out.
MaryPosey has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel and NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.