Nvidia’s earnings in its second quarter of 2013 will be dragged down by the failure of Tegra

concerned jen hsun huang at nvidia analyst event Tegra will drag down Nvidias quarterly earnings

As Nvidia reported its quarterly earnings last year at this time there was only one thing it wanted to talk about: Tegra.

The company had secured its mobile SoC into the hottest tablet of the year, the Nexus 7, and its earnings were being shot to the stratosphere as the tablet flew off store shelves. Jen Hsun Huang spoke excitedly on the quarterly earnings call about the device.

“It’s the first thing I use in the morning and the last thing I use at night,” he said last August on the earnings call. “If you have an Android phone, you ought to go out and get yourself an Android tablet because all of your content just shows up.”

The best laid plans of OEM and chip maker can often go astray

In April, Reuters reported ASUS was considering dropping the Tegra 3 from the upcoming refresh of the Nexus 7. The Microsoft Surface, also a Tegra powered device, lost the company $900 million as it sat on shelves. Only a few OEMs have committed to placing the Tegra chips in hardware;those that have given Tegra the green light are putting Nvidia’s chip in second-tier gear like the ASUS Transformer Pad Infinity, the HP SlateBook X2 and the Toshiba Excite.

Nvidia’s other mobile device powered by Tegra, the Shield, has been met with mixed reviews. While you would be hard pressed to write a scathing review of the device, it would be hard for someone who already owns a tablet to justify buying one since you could essentially replicate the device’s functionality with a game pad attachment for a high-end tablet. Rumor has it that the poor pre-sales of the Shield were the reason Nvidia dropped the price.

Recently, Nvidia made the rather bold play to offer the Tegra out for licensing. In some ways this was an admission that its previous strategy of selling its branded pre-built SoCs had failed. Mobile giants like Apple and Samsung build their own chips from licensed IP, so this might be getting into the sync of the market. It also isn’t the first time Nvidia has licensed its IP, as the Sony Playstation 3 ran a GPU built with tech from Nvidia.

Bulls and bears

Investors are watching anxiously. In  late June, there was a flurry of short selling on Nvidia’s stock. As Ashraf Eassa writes on Seeking Alpha, there has been a bump in short selling activity on Nvidia’s stock over the last month because investors are panicking about Tegra’s possible “DOA” status, the wins AMD had with the next-generation Playstation and Xbox, fears about the growing power and clout of Intel’s new integrated graphics and disappointment over Apple’s pivot to AMD.

This short selling spike was noticeable, but it wasn’t pronounced. There are many, Eassa included, that have faith in Nvidia’s long term vision.

Nvidia’s executive team will do their best to put a positive spin on the company’s earnings report when it comes out on August 8. The earnings report won’t be dismal, but it will be noticeably less than spectacular that its earnings report of last August.

Further reading: Why can’t Tegra find its mojo?