Graphic processing unit (GPU) manufacturer Nvidia reported third quarter earnings and emphasized its shift from its traditional market into new revenue streams.

The Santa Clara, Calif.-based company reported revenue of $843.9 million for the third quarter of fiscal 2011, ending Oct. 31. This represented a 4 percent increase from the prior quarter, but was down 6.6 percent from the same quarter a year ago. Its net income of $84.9 million was also down from the prior year when it was $107.6 million. Its gross margin was at 46.5 percent compared with 43.4 percent a year prior.

Shares of the company's stock rose 3.48 percent in after hours to $12.61 per share.

While the numbers beat analyst expectations and improved from a dismal last quarter, the drop-off from a year ago shows Nvidia is a company in transition. It is moving from making chipsets for the PC and notebook market to designing processors for supercomputers and mobile computing devices.

Nvidia is banking on its Tegra processor to become a mainstay in the next generation of tablets and smartphones. In a conference call discussing the results, Nvidia CEO Jen-Hsun Huang said the company has ramped up production of the Tegra and its Tesla processor, which is designed for supercomputers. He said the company expects by the first quarter of next year, Tegra will be larger than its chipset business.

Huang said the tablet business is only going to become more important to the company in the future. It isn't a fad, it's clear now that touch computing and tablets are a wonderful way for consumers to enjoy content, Huang said. With the ability to add a keyboard and mouse, the difference between tablets and notebooks are marginal. Tablet devices are disruptive to notebooks and entry desktops. Everyone I know is working on a tablet, car companies, and consumer electronics. This is a revolutionary form factor and I think it's a foregone conclusion it will be the largest market.

Thus far the company has held back on the relatively young tablet industry. However, Nvidia says it has worked with engineers at Google on their next generation of devices.

Doug Freedman, analyst at Gleacher, says there is a lot of potential in the tablet space. However, he says execution will be essential as the market will have a lot of competitors. 

The tablet opportunity is big and real. It's a matter of getting past the chipset ramp down and getting expectations and product wins that are mature and high volume, Gleacher said. He said the company supported Windows mobile and missed out on Android at first before coming over a year late.

Nvidia will also bank on its Tesla processor and the supercomputer industry for its future growth. Huang said there were many companies in a wide range of industries that need faster supercomputers.

Supercomputers are no longer niche, he said. In a press release, he also said Tesla powers many of the world's fastest and greenest supercomputers.