Nvidia posted better-than-expected earnings in its July quarter, which the graphics chipmaker attributed to improvement in its gaming and mobile businesses.
The company reported a profit of 22 cents a share, up from 16 cents a share a year earlier, while revenue grew 13 percent to $1.103 billion. Wall Street was expecting 20 cents a share and $1.1 billion.
Shares rose about 4.5 percent after hours to $18.25.
The company showed strength during the quarter in its GeForce graphics processors, a core part of its business. The processors, used for gaming desktops and notebooks, posted 10 percent higher revenue thanks to continued strength in PC gaming.
"It's fair to say that the gaming market overall is still growing," CEO Jen-Hsun Huang said on an analyst call Thursday, adding that China and Southeast Asia are two areas with a lot more growth potential. "My sense is that we still have quite a bit of penetration to go."
The company also benefited from a three-fold increase in sales in its Tegra mobile chip business. While still a small percentage of its overall business, Tegra has been viewed as one of the biggest growth areas. Nvidia in particular has been benefiting from the use of Tegra in car infotainment systems, as well as from the early July release of the Xiaomi MiPad. Xiaomi, a Chinese mobile company that overtook Samsung as the biggest smartphone vendor in China, reportedly sold 50,000 units of its tablet in less than four minutes.
"Those two are really largely the drivers," Huang told CNET. "Automotive is really becoming a big business. ... And Xiaomi is doing very well."
Nvidia, based in Santa Clara, Calif., is traditionally known for its graphics chips used to power visual effects in video games and computers. Sales of those chips have held steady despite years of weakness in the PC market. More recently, PC shipments have shown signs of improvement, though the future of Nvidia's PC business remains uncertain as more customers switch to mobile devices such as smartphones and tablets.
The company has worked to compete in the mobile market, offering up its Tegra mobile chip and launching its own tablets -- the new gamer-focusedand Tegra Note. However, competition remains tough in the smartphone space, where Qualcomm has held a dominant position and Nvidia hasn't been able to gain a strong foothold. Huang in May that the company plans to focus its Tegra chip on cars, games, and tablets, and would stop pushing for smartphones.
Huang said that while he has "big hopes" for the Shield Tablet, he has "modest expectations" for how much it will impact Nvidia's financial results.
"I think there are tens and tens of millions of gamers around the world who are going to buy tablets for gamers just like they buy PCs that are built for gamers," he said in an interview.
Huang added that Nvidia will continue to sell both GPUs and mobile devices to consumers, which he believes will cause more gadget makers to use Nvidia's Tegra chip in their devices.
"The more we do with Shield, the more successful we will be with [device makers]," he said.
For the fiscal second quarter, which ended July 27, Nvidia said its net profit rose 33 percent to $128 million, or 22 cents a share, up from $96.4 million, or 16 cents a share, a year earlier.
Revenue from the company's graphics processors, which includes GeoForce, grew about 2 percent to $878 million. The company's mobile Tegra processor brought in $159 million in revenue, up from $53 million a year earlier, fueled by mobile devices and automobile infotainment systems. Revenue from Tegra processors for automobiles grew 74 percent from a year earlier.
Douglas Freedman, a semiconductor analyst for RBC Capital Markets, said Nvidia's stronger-than-predicted earnings stemmed from the chipmaker's improved gross margin, which is a measure of profitability. Gross margin for the quarter widened to 56.1 percent from 55.8 percent, showing the company continues to command a premium for its graphics chips and was able to expand margins even while its lower-margin Tegra line grew.
Freedman said he was optimistic for the company's growth, as Nvidia works to add its processors into more computing-intensive areas, such as workstations and graphics terminals, which should help drive margins higher.
Revenue for the fiscal third quarter is expected to be $1.2 billion, plus or minus 2 percent. Analysts expect $1.16 billion.
Updated, 3:59 p.m. PT: Adds more details and CEO comments from analyst call. Adds comments from CEO interview at 4:30 p.m. PT.