Nvidia Corp's quarterly revenue and outlook were ahead of low Wall Street estimates on better-than-expected sales of its latest graphics chips, sending its shares up 9 percent.
The chipmaker reported strong demand for its newly launched chips for desktop computers and contract wins for its Tegra smartphone chips but said revenue and profit is still being limited by supply constraints and macro economic issues.
The revenue surprise came off very low expectations as Nvidia had warned in February of weak sales linked to capacity constraints and new competition in cellphone chips as a big customer became a competitor.
"There was a lot of fears going into the call that supply constraints would continue to be an issue. It wasn't was bad as feared," said Pacific Crest analyst Michael McConnell.
However, the analyst said even though Nvidia was seeing good demand from its phone and computer customers, it was not clear that consumer demand would be strong.
"Now the question is if people show up at the stores and buy these things," he said.
The company's shares rose $1.14 to $13.56 in morning trade on Nasdaq, but were still well below their $16.17 close before the February warning.
Nvidia has invested heavily to move beyond its traditional business of designing graphics chips for PCs, by expanding into the market for mobile device chips.
On top of supply constraints Nvidia also faces tough competition from the likes of chip developers Qualcomm Inc and Intel Corp.
Also top phone maker Samsung Electronics Co. depends increasingly on its own chips instead of Nvidia's and Apple Inc uses custom-designed chips in the iPhone.
The company told analysts on a conference call that margins and revenue are being hurt by a capacity shortage for its cutting edge 28 nanometer computer graphics chips. Rivals such as Qualcomm have also complained of shortages in this area.
"Supply is still constrained," a company executive told analysts, noting that Nvidia and its manufacturing partner TSMC had not planned for enough 28 nanometer capacity.
The company said it was missing out on "a lot" of sales because of the manufacturing capacity constraints but did not give specifics.
Nvidia forecast second-quarter revenue of $990 million to $1.05 billion, compared with analysts' average estimate of $976.2 million, according to Thomson Reuters I/B/E/S.
First-quarter revenue fell to $924.9 from $962 million a year earlier but was better than Wall Street expectations for $916 million.
First-quarter net income was $60.4 million, or 10 cents a share, compared with $135.2 million, or 22 cents a share, in the year-earlier quarter, in line with expectations.
It forecast a second-quarter gross margin of 51.2 percent, plus or minus one percentage point, compared with 50.1 percent in the first quarter.
It said expenses would rise to $418 million in the second quarter from $390.5 million in the first quarter. (Reporting By Sinead Carew and Noel Randewich; Editing by Gerald E. McCormick, John Wallace and M.D. Golan)