NVIDIA Corporation (NVDA) - Q3 Fiscal 2021 Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended October 25, 2020 (Fiscal Q3 2021). NVIDIA operates in two primary segments: Graphics (Gaming, Professional Visualization, Automotive) and Compute & Networking (Data Center, AI, HPC, Mellanox). The reporting period includes the results of the Mellanox Technologies acquisition, which closed on April 27, 2020. The company is also in the process of a pending $40 billion acquisition of Arm Limited.
Key Financial Metrics
| Metric | Q3 FY2021 | Q3 FY2020 | 9M FY2021 | 9M FY2020 |
|---|---|---|---|---|
| Revenue | $4,726 million | $3,014 million | $11,672 million | $7,813 million |
| Gross Profit | $2,960 million | $1,916 million | $7,240 million | $4,753 million |
| Gross Margin | 62.6% | 63.6% | 62.0% | 60.8% |
| Operating Income | $1,398 million | $927 million | $3,025 million | $1,856 million |
| Net Income | $1,336 million | $899 million | $2,875 million | $1,845 million |
| Diluted EPS | $2.12 | $1.45 | $4.59 | $2.99 |
| Cash & Equivalents | $2,251 million | $9,765 million | $2,251 million | $9,765 million |
| Marketable Securities | $7,888 million | $1 million | $7,888 million | $1 million |
| Total Debt (Short + Long) | $6,961 million | $1,991 million | $6,961 million | $1,991 million |
| Operating Cash Flow (9M) | $3,755 million | $3,296 million | $3,755 million | $3,296 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 57% year-over-year (YoY) in Q3, driven by a 146% surge in the Compute & Networking segment and a 25% increase in Graphics.
- Segment Performance:
- Compute & Networking: Revenue of $1.94 billion (up 146% YoY), heavily influenced by the Mellanox acquisition (contributing ~13% of total revenue) and the ramp of Ampere architecture products.
- Graphics: Revenue of $2.79 billion (up 25% YoY), led by Gaming (up 37% YoY) due to the GeForce RTX 30 Series launch.
- Operating Expenses: Increased 58% YoY to $1.56 billion, primarily due to the Mellanox acquisition, higher compensation costs, and infrastructure expansion.
- Liquidity Shift: Cash and cash equivalents decreased significantly from $10.9 billion to $2.3 billion, while marketable securities increased to $7.9 billion. This shift reflects the $2 billion signing payment for the Arm acquisition and investment in fixed-income securities.
- Debt Issuance: Total debt increased from $2.0 billion to $7.0 billion following the issuance of $5 billion in notes in March 2020.
Outlook, Risks, and Unusual Items
- Pending Acquisition (Arm): NVIDIA agreed to acquire Arm Limited for $40 billion. A $2 billion signing consideration was paid in Q3. Closing is expected in Q1 2022, subject to regulatory approval.
- Completed Acquisition (Mellanox): The $7.13 billion acquisition of Mellanox is now integrated. It contributed significantly to Data Center revenue and increased goodwill by $3.43 billion.
- COVID-19 Impact: The pandemic has created a mixed environment. Gaming and Data Center demand increased due to work-from-home trends, while Professional Visualization faced headwinds from reduced desktop workstation demand. Supply chain constraints remain a risk.
- Legal Proceedings: The company is defending against securities class action lawsuits regarding channel inventory and cryptocurrency mining disclosures from 2017-2018. No accrual has been recorded as liability is not deemed probable.
- Capital Return: No share repurchases were made in the first nine months of FY2021. The company paid $296 million in dividends. $7.24 billion remains authorized for repurchases through December 2022.
Investor Verification Checklist
- Verify the regulatory status and timeline for the $40 billion Arm acquisition, including potential earn-out conditions.
- Monitor the integration progress of Mellanox and its contribution to future Data Center margins.
- Assess the sustainability of Gaming revenue growth following the launch of the RTX 30 Series and potential supply chain bottlenecks.
- Review the impact of increased debt levels ($7 billion total) on future interest expenses and liquidity.
- Track the resolution of ongoing securities litigation regarding historical channel inventory disclosures.