Analyst Conference Summary

conference date: February 13, 2008 @ 2:00 PM Pacific Time
for quarter ending: January 27, 2008 (4th quarter fiscal 2008)

Forward-looking statements

Overview: Another great quarter.

Basic data:

Revenues of $1.20 billion were up 7% sequentially from $1.12 billion and up 37% from $879 million year-earlier.

Net income of $257.0 milion was up 9% sequentially from $235.7 million and up 57% from $163.5 million year-earlier.

EPS (earnings per share) were $0.42, up 10% sequentially from $0.38 and up 57% from $0.27 year-earlier.

Guidance:

Q1 revenue expected better than seasonal. Expect continued strength in desktop CPUs, seasonal weakness in others. Revenue slightly down sequentially. Gross margins flat to slightly up. Operating expenses to increase due to seasonal effects plus $7 million from recent acquisitions. Tax rate 17%.

Conference Highlights:

There was strong demand for GPUs (graphics processing units) in all market segments."Our growth reflects the ever-increasing use of rich graphics in applications from Google Earth to Apple iTunes to online virtual worlds... This is the era of visual computing.

Non-GAAP numbers: net income $292.6 million, or $0.49 per share. There was a $4 million in-process R&D write off from the Mental Images acquisition excluded from non-GAAP results. $32 million stock-based compensation.

Cost of revenue was $653 million. Gross profit was $550 million. R&D expense was $196 million, sales, general and administrative expense $91 million. Leaving operating income of $262.5 million. Interest income was $17 million. Income tax expense was $23 million. Effective tax rate was 8.2%.

Gross margin was 45.7% GAAP and 45.9% non-GAAP, which was flat sequentially because 8800 GT had some cost issues.

Cash and equivalents ended at $1.81 billion. Down $43 million sequentially. $178 million stock was repurchased, Mental Images also purchased for cash. $52 million inventory build, but ended lean. $70 million capital expenditures.

GeForce 8800 GT had over 2 million sold in just 4 months of production and demand continues to exceed the forecast.

CUDA technology for graphics parallel processing is having a big impact at the high end. Hybrid SLI, Tesla, GeForce 7000 also enablers going forward.

Desktop GPU revenue grew 38% y/y. Notebook GPU revenue grew 114% y/y but was only up 1% sequentially. Workstation 27% y/y, MCP revenue 7% y/y. Consumer segment business declined 22% for the year.

AGEIA acquisition completed February 2008.

Revenue for Mental Images in quarter was less than $1 million.

4985 employees, continued aggressive hiring.

Gateway Effects 7020 desktop PC is new trend, with AMD Phenom quad core CPU and GeForce 8800 graphics card enabling low cost with ability to handle new high end games. "Optimized PC design approach." This is the decade of the GPU

Q&A:

Q1 stronger than seasonal? Usually down 5%. So less than that.

Volatility in notebook GPUs? Notebooks to come up seasonally in Q1. Growth in MCP, workstation, desktop CPUs for full year.

Particular GPU segment growth? 80% discrete GPU growth y/y, has to be across all segments to get that, but high end is growing fastest. For graphics you can go with a mid-range CPU if you have a high end GPU.

MCP competition? We have the only GeForce motherboard solution for both Intel and AMD platforms. We are bringing hybrid SLI to those platforms. For entry level PCs a GeForce on the motherboard is the best way to go. In notebooks we won't win the business if we don't differentiate. ATI X2 is not highest performance and is too large, so we think there is no market for it.

Cost issues with desktop GPUs you mentioned? 8800 GT was ramped hard despite large die size and number of transistors. We will see better yields going forward. We don't need to go to smaller nm for this.

AGEIA acquisition? About adding better physics, which should increase demand. Working on CUDA port for this. Physics ability will be a software download, so will work with installed GPUs.

Business segment breakout? GPU business (desktop, notebook, and memory) was up 11% sequentially. PSB (workstations) up 10%. MCP 2%. Consumer down 18% sequentially.

Believes CPU performance improvements are no longer useful for PCs. The only real returns will come from parallel processing graphics units.

X2 type product from NVidia? No, we prefer single GPUs for high end performance.

Our growth engine is increased use of GPUs, not so much gains in market share.

Pricing environment? Good. More money is being spent on GPUs.

Operating expense after Q1? We are working hard to keep it flat.

It is hard for us to differentiate in the low end notebook segment from AMD/ATI. They have good offerings there. At the high end we can differentiate.

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