As earning season wraps up NVIDIA has released their earnings report for Q1 Fiscal Year 2013 (Feb-April 2012).

For the first quarter of FY2013 NVIDIA booked $924M in revenue, with a net income of $60M. This is compared to $962M in revenue with $135M in net income for Q1 of FY2012, meaing for a year-over-year basis NVIDIA’s revenue is slightly down while their net income has taken a larger hit.

Looking at NVIDIA’s revenue breakdown, the biggest hit was to NVIDIA’s consumer GPU business (GeForce), where revenues declined by $58M. Otherwise the professional solutions group (Tesla/Quadro) and consumer products (Tegra) were both up slightly compared to last year.

So why have revenues and profit margins fallen since Q1 FY2012? The biggest change for NVIDIA is that the next product cycle for the GPU side of their business started more than 15 months after the previous cycle. For example while the GTX 580 launched in November 2010, the GTX 680 didn’t launch until March of 2012. Consequently while NVIDIA was in the midst of selling a number of new GTX 500 series cards by Q1 FY2012, they got a late start with the GTX 600 series.

NVIDIA sells GPUs year-round of course, but outside of holidays their strongest periods are the months following major product launches, while their weakest periods are the months immediately preceding a major product launch as customers hold off for the next generation of cards. NVIDIA is also at the mercy of Intel and AMD to some extent for the same reason; the launch of Ivy Bridge was good for NVIDIA’s sales, but because of Ivy Bridge everyone in the PC industry saw lower sales in the first part of the year before Ivy Bridge launched.

At the moment the biggest cloud hanging over the head of NVIDIA’s GPU business is supply issues. As we’ve seen from the launch of the GTX 680 and GTX 690, NVIDIA’s partners have been unable to keep their latest generation of video cards in stock due to a lack of GPUs, and that’s only finally started to break with the launch of the GTX 670 yesterday. In their earnings call NVIDIA updated their investors on the status of 28nm production over at TSMC, and while the situation is improving it’s still not great.

As far as 28nm yields go things are looking decent. NVIDIA has said that they believe that TSMC’s 28nm process is probably the best of any new node that TSMC has ever done. Like any other process yields will continue to improve over the lifetime of the process of course, but as it stands what NVIDIA is reporting is nothing like the teething issues that 40nm went through in 2009/2010.

The real problem for NVIDIA right now continues to be overall capacity. They have been rather straightforward in stating that they need more 28nm wafer allocations and they need them yesterday. As it stands NVIDIA is expecting to be supply constrained at the wafer level throughout the end of the year, slowly becoming less constrained as capacity improves. For at least the next quarter however this means NVIDIA will be unable to meet channel demand and will have no problem selling everything they can get. This also means that the shortage of GTX 680 and GTX 690 cards may very well continue for another quarter.

Consequently NVIDIA’s dip in GPU revenue is being attributed to this shortage. High-end desktop sales in particular were the biggest contributor here; in spite of a general decline in desktop sales, desktop GPU sales are still such a large part of NVIDIA’s GPU revenue that the lack of 28nm GPUs there is adversely affecting NVIDIA’s bottom line. NVIDIA has used their limited capacity to launch their premium notebook and desktop GPUs first, and even then NVIDIA says they could have shipped many more GPUs if they had them. Kepler GPUs have higher margins on them than the aging Fermi lineup, so it’s in NVIDIA’s best interests to shift as much over to Kepler as quickly as possible. To that end NVIDIA is expecting 30% of their GPUs to be 28nm this quarter, with that improving in the future.

As for NVIDIA’s other major businesses, NVIDIA’s Tegra group has done better than expected, which is a big part of the reason that the consumer products group has seen revenue grow over last year. Although the first Tegra 3 products technically shipped at the end of last year, NVIDIA is still fairly early into Tegra 3’s lifecycle as the first Tegra 3 phones just now being released. So NVIDIA is hoping that they’ll be able to continue to grow their market share this year on strong sales of Tegra 3, particularly in overseas markets where there’s greater demand for quad-core SoCs and LTE isn’t as prevalent.

Speaking of market share, as it stands today nearly half of all Tegra SoCs are going into tablets. That’s going to shift some as more Tegra 3 phones are released (and again when WinRT is released), but it’s a good reminder of just how much traction NVIDIA has gained in the tablet market in very little time. And unlike the GPU space NVIDIA shouldn’t have any supply issues here; since Tegra is still on TSMC’s 40nm process supplies are plentiful and yields are high.