Nvidia Corp (NVDA.O) forecast quarterly revenue and margins above Wall Street estimates as it quickens its expansion beyond personal computers into a thriving market for tablets and smartphones.
With PC sales suffering from economic uncertainty and a growing consumer preference for tablets, Nvidia has staked its future on leveraging its graphics expertise to make high-performance processors, branded Tegra, for mobile devices. But it faces tough competition from the likes of Qualcomm Inc (QCOM.O), Texas Instruments Inc (TXN.O) and Samsung Electronics Co Ltd (005930.KS).
Nvidia won spots for its Tegra chips in two of the highest-profile tablets to be launched in 2012.
In June, Microsoft Corp (MSFT.O) unveiled its Surface tablet using Nvidia's Tegra chip, while Google Inc (GOOG.O) launched its Nexus 7 tablet, which also uses Tegra 3 and has had strong sales.
The devices mark the first forays by Microsoft and Google into a tablet market dominated by Apple Inc's (AAPL.O) iPad.
Shares in the company once known mainly for its high-end graphics cards have gained more than a quarter in value since June, just before Microsoft and Google announced those product launches.
"Going forward, the key focus is going to be Tegra, Tegra, Tegra," said Evercore analyst Patrick Wang. "I think it would be hard to argue that there's significant organic growth left in the discrete graphics market."
Consumer products revenue, the bulk of which comes from the Tegra business, leapt 35.5 percent in the second quarter from the first, more than double the growth of Nvidia's traditional graphics unit division.
Consumer products accounted for more than 17 percent of total revenue in the quarter, up from 14 percent in the first quarter.
As PCs lose popularity with consumers, those computers are increasingly being manufactured without discrete graphics chips like the ones Nvidia designs.
The recent Nexus and Surface announcements follow some earlier disappointments for the company, including Samsung's reliance on its own chips instead of Nvidia's.
In recent quarters, Nvidia and Qualcomm have suffered from shortages of cutting-edge chips after contract manufacturer Taiwan Semiconductor Manufacturing Co Ltd (TSMC) (2330.TW) underestimated demand for its new 28 nanometer technology.
That has hurt sales of Nvidia's top-of-the-line PC graphics chips as well as Qualcomm's high-end smartphone chips.
"We have no idea how much business we left on the table. And we expect to be supply constrained throughout the quarter," Nvidia Chief Executive Jen-Hsun Huang told analysts on a conference call.
Nvidia reported second-quarter gross margins of 51.8 percent and said its third-quarter gross margin would be the same.
Analysts, on average, had expected a gross margin of 51.3 percent for the second quarter and 51.7 percent in the current quarter.
Nvidia posted second-quarter revenue of $1.044 billion, up from $1.016 billion in the year-ago quarter. It estimated current-quarter revenue of $1.15 billion to $1.25 billion.
Analysts on average were expecting revenue of $1.007 billion in the second quarter and $1.093 billion in the third quarter, according to Thomson Reuters I/B/E/S.
Nvidia said second-quarter GAAP net income was $119 million, or 19 cents a share, compared to $152 million, or 25 cents a share, in the same quarter last year.
The Santa Clara, California-based company had non-GAAP earnings of 27 cents per share in the second quarter.
Nvidia's shares rose more than 5 percent to $15.47 in extended trading after closing up 3.37 percent at $14.71 on Nasdaq.
(Reporting By Noel Randewich; Editing by Richard Chang)