Exiting the modem business will cost Nvidia $100M this year
The graphics chipmaker, which plans to wind down its Icera wireless chip business, expects to incur charges of $100 million to $125 million this year.
Winding down its wireless modem business will cost Nvidia this year -- unless it can find a buyer.
Nvidia on Thursday said restructuring charges related to exiting its Icera operations will total $100 million to $125 million this year. The news came as the company revealed it expects lower sales in the current period than Wall Street projected as it suffers from weak PC demand.
Nvidia rose to prominence by creating graphic processing units, or GPUs, for computers, and it continues to benefit from demand for its graphics for PC gaming. But it also has looked for other avenues for growth as overall PC sales slow. It had sought to break into the smartphone and tablet business, but has largely been shut out, and is now looking at gaming devices and cars as its next big opportunity.
Nvidia earlier this week said it would sell or wind down its Icera smartphone wireless chip operations. Nvidia had paid $367 million for the English startup in mid-2011, and in early 2013, it revealed its first mobile processor that included Icera's baseband technology, a chip called Tegra 4i. The company believed supplying both the applications processor that serves as the brain of devices (called Tegra, in Nvidia's case) and the baseband technology that connects phones to wireless networks (Icera) would help it gain a foothold in the fast-growing mobile market.
While Nvidia hoped Icera would help it attract more smartphone customers, it instead struggled to compete with Qualcomm, which controls the bulk of the market, and other players, such as MediaTek, that compete fiercely on pricing. And the world's two biggest smartphone makers, Samsung and Apple, use their own processors in their mobile devices, forcing the other chipmakers to fight over a smaller segment of the smartphone market.
Nvidia CEO Jen-Hsun Huang on Thursday said the company has hired bankers to look for a possible buyer for Icera, but he plans to shut down the business by June 30 if no one is interested.
"I tried to figure out if there were ways to afford to keep modem development going," Huang told CNET. "After a lot of analysis, it's just not affordable to do so. Other companies are constrained by the same things."
The plan to wind down Icera followed similar actions by Broadcom, Freescale and Texas Instruments. "Given the cost of being in that market, the margins and economics are not as attractive as other markets for us," Broadcom CEO Scott McGregor told CNET in an interview earlier this year. "We don't compete with people who don't care if they make money or not."
Nvidia has moved away from selling chips to the broader mobile market, but it's been pushing its own devices. It introduced its Shield handheld gaming device in early 2013 and followed that up with a gaming-centric tablet in 2014. The company plans to release its newest Shield device, a microconsole that streams PC games and runs Android TV, this month for $199.
PC woes
While Nvidia keeps working to broaden its operations, it continues to be hurt by the weak PC market.
Things were looking up for PC makers at the end of 2014, with sales stabilizing. Many businesses upgraded their devices from Windows XP, Microsoft's operating system that was popular with users for 12 years before the software company stopped supporting it a year ago. But PC shipments slumped in the first quarter of 2015, research firms Gartner and IDC said separately in April as the boost from business sales waned. Gartner estimated that decline was 5.2 percent from the year-ago period, while IDC reported a 6.7 percent drop. Total PC shipments worldwide were 71.7 million units in the first quarter, according to Gartner.
"The first quarter results are not a sign [of] doom for the US market," Gartner principal analyst Mikako Kitagawa said in a press release last month. "The biggest reason for the decline of PC shipments in the US was attributed to the desktop market, which experienced a double-digit decline. This was primarily due to the end of the Windows XP replacement cycle."
Nvidia on Thursday reported its fiscal first-quarter net income slid to $134 million, or 24 cents a share, from $137 million, or 24 cents a share, a year ago. Excluding certain items, per-share earnings rose to 33 cents from 29 cents. Wall Street expected earnings of 24 cents a share
The company's revenue rose 4.4 percent to $1.15 billion, below the $1.16 billion projected by analysts.
Sales from Nvidia's overall GPU business grew 5 percent from the previous year, while gaming desktop and notebook GPU revenue increased 14 percent. Sales from Tegra increased 4 percent, driven by demand for automotive infotainment systems and Nvidia's Shield devices.
Huang said PC gaming remains "robust" and he expects PC sales to get a boost when Microsoft releases its newest operating system, Windows 10, this summer.
"Going forward, I'm super enthusiastic," he told CNET. "Windows 10 is a great operating system. People are going to love that. In addition, [virtual reality] is coming to PCs. ... There are a lot of reasons to be enthusiastic."
Shares, which have climbed 22 percent over the past year, fell 1.4 percent to $22.17 in after-hours trading.