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Nvidia beats expectations in fourth quarter on strong sales of graphics chips

The Santa Clara, Calif., company posts another strong quarter to end its fiscal year and hints at big gaming news early next month.

Nvidia CEO Jen-Hsun Huang holds out the Tegra X1, which he claims is the world's first mobile "superchip." James Martin/CNET

Nvidia posted another quarter of better-than-expected results on Wednesday, as gamers hungry for sharper visuals drove up demand for its computer graphics chips.

However, the company's Tegra mobile-chip business reported a drop in revenue, due in part to the chip being in fewer new smartphones and tablets, offsetting a rise in sales of the chip for car entertainment and navigation displays.

Shares jumped 5 percent after in after-hours trading Wednesday, to $21.76, thanks in part to current-quarter guidance coming in slightly ahead of Wall Street expectations.

Building on its strength in gaming, CEO Jen-Hsun Huang sent out invitations to media this week, saying his company will be making an announcement on March 3 during the Game Developers Conference in San Francisco that "redefines the future of gaming."

"It won't be something you've seen before," Huang said during an interview Wednesday, though he avoided offering any additional details.

Despite the PC market's struggles, the part of Nvidia's business devoted to graphics chips for the machines managed to maintain growth in 2014, thanks in part to its sharp focus on the strong PC gaming segment. The Santa Clara, Calif., company should continue to benefit from gamers upgrading their desktops and laptops, on account of new popular games, including the latest Dragon Age role-playing game, which hit the market in November, and Grand Theft Auto V, coming to the PC in late March.

Huang said Nvidia also is benefiting from a growth of PC gaming, particularly in South East Asia, and the constantly rising complexity and production value of games, which requires ever more powerful machines. The company also has been able to grow by taking market share away from rival AMD and also offering its high-performance graphics capabilities to more gaming-centric laptops.

With the future of the broader PC world still on shaky ground after years of declines, Nvidia has been working to spread out into new areas, including data centers, automotive and mobile devices. At the Consumer Electronics Show last month, the company spent most of its presentation discussing its new Tegra X1 mobile chip and how it can be used to power car displays and automated driving. On Wednesday, Nvidia said its technology is now used in 7.5 million cars, up from 4.7 million a year earlier.

Nvidia has also been using Tegra to power its new mobile gaming devices: the Shield Tablet and Shield Portable. Huang declined to provide hard numbers on Shield's sales but said he's been "delighted" by its reception in the market and that he expects the company to expand the Shield business over time. "We found a niche in the market," he said, referring to gaming tablets.

For its fourth quarter, ended January 25, Nvidia posted a profit of $193.1 million, or 35 cents a share, up 31 percent from $146.9 million, or 25 cents a share, a year earlier. Revenue grew 9 percent, to $1.25 billion.

Analysts polled by Thomson Reuters expected 29 cents a share and revenue of $1.2 billion.

Sales of graphics chips rose 13 percent, to $1.07 billion, thanks to strong demand for the GeForce chip line for gaming PCs, while Tegra sales dropped 15 percent, to $112 million.

Updated, 4:27 p.m. PT: Additional context throughout, including interview with Nvidia's CEO.