Analyst Conference Summary


conference date: February 10, 2009 @ 2:00 PM Pacific Time
for quarter ending: January 25, 2009 (4th quarter fiscal 2009)

But I own a competitor, AMD.
Forward-looking statements

Overview: Another disaster quarter.

Basic data (GAAP) :

Revenues were $481 million, down 46% sequentially from $898 million and down 60% from $1.2 billion year-earlier.

Net income was negative $148 million, well down sequentially from positive $61.7 million, and way down from positive $257 million year-earlier.

EPS (earnings per share) were negative $0.27, down sequentially from positive $0.11, and way down from $0.42 per share year-earlier.


Almost impossible to give a confident forecast. October was the last decent loss. Given low inventories in channel we don't see further declines in revenue; could be slightly up in fiscal Q1. Operating expense will be flat to slightly down from Q4, then will be further reduced in Q2 and Q3.

Conference Highlights:

"The environment is clearly difficult and uncertain ... We have initiatives in all areas to reduce operating expenses." Setting an appropriate operating expense level.

Demand was down across the board.

Non-GAAP numbers: net loss of $94.4 million or negative $0.18 per share. Excluded were stock-based compensation, a restructuring charge, miscellaneous charges and their tax impacts.

Despite the economic difficulties, pointed out 2008 was a year of innovation with PhysX, 3D Vision, CUDA, Tesla, ION and Tegra. CUDA is becoming widely adopted.

Cash and equivalents ended at $1.26 billion. Accounts receivable dropped to $318 million. Accounts payable shrank to $219 million. Depreciation and amortization was $50 million. Capital expenditures were $43 million, way down sequentially.

Inventories increased to $538 million, despite the write-down. "We believe the inventory is good, there is just a lot of it." So we are decreasing manufacturing.

29.4 GAAP gross margin, well down. Impacted by larger than usual inventory reserves.

Cost of revenue was $339 million, leaving gross profit of $142 million. Operating expenses of $316 million included $212 million for R&D, $86 million sales, general, and administrative, and $19 million restructuring and other. Operating loss was $175 million. Other income was $5 million. Income tax benefit was $23 million.

GPU (graphics processing units) business was down 47% sequentially. Desktop was down 34%; believes regained some market share from AMD, particularly in the high end. Notebook was down 63%, as consumers bought low-end laptops with integrated graphics. Channel was depleting inventory, so we sold less to channel distributors than they sold out. Believes current channel inventory has been reduced to slightly more than one month. Prices were unchanged.

Professional Services business was down 44% sequentially.

MCP business down 51% sequentially.


Confidence about flat revenue for Q1? We track sell outs. November consumer demand fell off a cliff. So our fiscal quarter corresponded to the drop. Demand has flattened out; we can see that at our customers, whose inventory levels are depleting quickly. But we don't know what we don't know. Our guidance is our best estimate.

Pricing pressures? No one is holding back on punches. Just as competitive as ever. There are always new products coming out.

Can integrated chips became good enough for mainstream market? Our ASPs were flat, so people are not so much buying down. Netbooks are the new low end of the market. We used to have no presense in the low end of the notebook market. This new low end will cannibalize the older midrange market (WM: the competitor's strong area). Our strategy is the Ion processor, which makes the netbook a full graphics machine.

Are you assuming end market demand will be flat to slightly up? If you assume that, our revenues have to go up because of channel inventory depletion.

Older 65 nm product? We have more 65 nm than we thought we would have, but the majority of inventory is 55 nm.

Tesla continues to ramp and we have more customers all the time. Ion should contribute greatly to growth, not only in netbook market, but in low end notebook market.

Margins rebounding? All we have to do is not have inventory write offs and we can get to the margin outlined.

Gross margins of new products? Well, if you are comparing to last quarter it does not take much! Tesla is accretive to gross margin, Tegra is not a drag on it. Ion is probably in mid 30s for gross margin.

Non-PC gaming market? Sony royalties are based on unit production. They are projecting lower production in Q1 than in Q4.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2009 William P. Meyers