Nvidia CEO: People buying tablets instead of cheap PCs

The graphics-chip maker also provides projections for the current quarter that show it's no longer avoiding PC market weakness.

Shara Tibken Former managing editor
Shara Tibken was a managing editor at CNET News, overseeing a team covering tech policy, EU tech, mobile and the digital divide. She previously covered mobile as a senior reporter at CNET and also wrote for Dow Jones Newswires and The Wall Street Journal. Shara is a native Midwesterner who still prefers "pop" over "soda."
Shara Tibken
3 min read
People check out Microsoft's Surface tablet, which uses an Nvidia chip, at the Windows 8 launch last month. Sarah Tew/CNET

Tablets really are replacing PCs now that the latest version of Windows has launched, graphics- and mobile-chip maker Nvidia said.

But at least right now, Nvidia's mobile business isn't big enough to offset the less-than-merry computer market this holiday season.

It's not exactly shocking that tablets have been eating into sales of PCs. Computer makers have noted the trend, and so have Nvidia chip rivals Intel and Advanced Micro Devices.

But what's interesting is that Nvidia says consumers now realize that a "great tablet is better than a cheap PC." That could signal a fundamental change in the industry and is a big risk to the traditional computer chip vendors, particularly AMD, which tends to play more at the low-end.

"These days, tablets are so versatile, transformable," Nvidia Chief Executive Jen-Hsun Huang said during a conference call. "Now with Microsoft Surface and Windows RT, the distinction between a tablet and a cheap notebook has all but disappeared.... The future of cheap PCs is tablets."

He noted that Nvidia's tablet business doubled from the previous year, while its overall mobile-chip business grew 50 percent in the period. Huang said Nvidia will probably ship 30 million Tegra chips this year, and he expects mobile processors, like Tegra, to take overall computing share from low-end PCs.

"Our view of the PC [total addressable market] is it's being eaten by tablets," Huang noted.

Of course, Nvidia is a bit biased. The company's GPUs aren't built into low-end computers (a GPU really adds to a PC's cost), so it wouldn't be losing any business in that area. And its Tegra mobile processor is being used in more and more popular tablets, including Google's Nexus 7.

In addition, Nvidia is now making a push into PCs with the introduction of Windows RT, Microsoft's first operating system that works on ARM-based chips. Microsoft's Surface tablet uses Tegra, and Lenovo and Asus are releasing Windows RT devices with Nvidia processors.

Here's what Huang told CNET in an interview:

Windows RT is a monumental event for the PC industry. This is really about making the PC modern, because now it's transformable into a tablet as well as being a full PC. And it's incredibly mobile. The battery life is fantastic. Industrial design is fantastic. Win RT is really about creating the modern PC. Once you touch it, feel it, enjoy it, you realize in just a few clicks that this is going to be the way PCs get built.

However, Nvidia does expect its tablet business to be down in the January quarter.

And the company's overall projections for the current quarter showed that it can't quite buck the overall PC market's weakness.

It has been making a push into mobile with Tegra, but the vast majority of its revenue is still tied to computers. Share gains with its newest Kepler GPU have helped it offset much of the PC market's weakness, but that isn't enough to return strong results in the fourth quarter.

Nvidia's third-quarter financial results were strong, but its forecast for current-quarter revenue was a little weaker than analysts expected.

Huang noted that all end markets are "softer" than Nvidia had originally anticipated, including in China and Europe.

That weakness comes despite the recent release of Microsoft's newest version of Windows. The jury is still out about what kind of computer demand Windows 8 and Windows RT will drive. But for now, most companies in the industry are pretty cautious.

For the current quarter, Nvidia projected revenue of $1.03 billion to $1.18 billion, below the $1.21 billion expected by analysts, according to Thomson Reuters.

For the third quarter ended October 29, Nvidia reported net income of $209.1 million, or 33 cents a share, up from $178.3 million, or 29 cents a share, a year earlier. Excluding certain expenses, per-share earnings rose to 39 cents from 35 cents and topped Street predictions of 30 cents.

Revenue jumped 13 percent to $1.2 billion, in line with Nvidia's August forecast for $1.15 billion to $1.25 billion.

GPU sales grew 15 percent from the previous year.

Microsoft Surface and its keyboard get a day out (pictures)

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