Nvidia is expecting Tegra chip revenue to drop by as much as 40 percent this year, with the company indirectly blaming Microsoft's Windows RT OS for the decline.
"We don't expect as much return from the investment as we had hoped," CEO Jen-Hsun Huang said on a Thursday conference call to discuss Nvidia's second-quarter financial earnings. He said the expected shortfall was related to one particular platform, and though he didn't name it, the reference to Windows RT was clear.
Microsoft and Nvidia worked together to make Windows RT operate on Nvidia's Tegra 3 chips, which are based on ARM's Cortex-A9 processor. Microsoft's Surface RT tablet, Asus' VivoTab RT and Lenovo's Yoga 11 are among the Windows RT tablets that have been introduced with Tegra 3 chips. Lenovo has already pulled sales of Yoga 11 on its website.
Referring to the platform that was falling short for Tegra, Huang said, "It's a very important platform that also derived from it a lot of design wins," but declined to name it.
Tegra 3 chips are also used in many Android smartphones and tablets, some of which have sold well.
Sales of Windows RT devices have been weak, and in its most recent fiscal quarter Microsoft took a charge of US$900 million related to the failed Surface RT tablet.
Tegra revenue as a whole in the past fiscal year was around $750 million, and Huang said that revenue from the chip family in fiscal year 2014 will be lower by $200 million to $300 million. Tegra revenue during the second quarter was $52.6 million, down by 70.7 percent compared to the same quarter the previous year.
The decline comes as Tegra 3 is being phased out with the arrival of its successor, Tegra 4, and products with the new chip are slowly reaching market. One of the first such products is Hewlett-Packard's SlateBook X2 tablet, which runs Android and became available in late July for $479.99. More Tegra 4 products will become available in the second half of this calendar year, Nvidia executives said during the call.
Nvidia also hopes to soon release the Tegra 4i chip, which has software-defined radios. Products based on that chip are expected late this year or early next year.
Chips from Nvidia's competitor Qualcomm have also been used in Windows RT tablets. Qualcomm is continuing development with Microsoft for Windows RT 8.1, which is due later this year. Qualcomm has been taking away key design wins from Nvidia, with its chips appearing in some recently introduced smartphones, such as Motorola's Moto X and LG's G2 smartphone.
Nvidia reported total revenue of $977.2 million for the second quarter, a drop of 6.4 percent compared to the year-earlier quarter. The company reported net income of $96.4 million, a drop of 19 percent.