NVIDIA Chief Executive Officer Jen-Hsun Huang said during a conference call with analysts that the company will continue to increase capital spending over the next several months, which will result in below-expected gross margin for the quarter. NVIDIA also blamed low yields of its Kepler chips made using TSMC's 28nm process technology.
"The decline in Q1 gross margin is due to the continuing hard drive shortage and lower than expected 28nm wafer availability. We are working very hard to bring out Kepler products. We could have used more wafers. The gross margin decline is almost entirely due to lower than expected 28nm yields," Mr. Huang said.
The operating expenses at NVIDIA have been growing for about a year already: from $329.6 million in the first quarter of fiscal year 2012 to $367.7 million in the fourth quarter, with the figure reaching $383 million in the first quarter of fiscal year 2013. Along with increased operating expenditures, the company expects its gross margin to fall below 50% for the first time since 2009 to 49.2% in the first quarter of fiscal year 2013.
NVIDIA has high expectations for its Kepler graphics processing units (GPUs). The company claims that it has secured design wins with every PC original equipment manufacturer (OEM) in the world for mobile versions of Kepler chips. In fact, NVIDIA says that Kepler is the best GPU it has ever designed.
"Using Kepler we've won designs with virtually every PC OEM. So this may be the best GPU we've ever built and it is by far the most power efficient processor we've ever built," said Mr. Huang.
Unfortunately, yields of Kepler are lower than originally anticipated, which makes them more expensive.
Mr. Huang remains optimistic, claiming that yields of Fermi were worse.