Analyst Conference Summary

conference date: May 13, 2010 @ 2:00 PM Pacific Time
for quarter ending: May 2, 2010 (first quarter fiscal 2011)

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

Overview: A very strong quarter, marking a continued comeback.

Basic data (GAAP) :

Revenues were $1.002 billion, up 2% sequentially from $982.5 million, and up 51% from $664.2 million in the year-earlier quarter.

Net income was $137.6 million, up 5% sequentially from $131.1 million, and more than reversing a loss of $201.3 million year-earlier.

EPS (earnings per share) were $0.23, flat sequentially from $0.23, but jumping up from negative $0.37 year-earlier.

Guidance:

Fiscal Q2 2011 (July 2010 quarter) revenue is expected to be seasonally down 3 to 5%, with gross margin around 46.5%.

Conference Highlights:

Fermi GPUs are now in full production and consumer demand is strong. Pent up demand from enterprise customers and video processing demand also helped.

GAAP Gross margin was 45.6%, up sequentially from 44.7%.

Fermi-based GeForce GTX 480 and 470 GPUs started shipping in the quarter. Microsoft's KIN phones using Tegra processors shipped. Adobe Create Suite 5, launched in April, can use CUDA acceleration, but not the competitor's equivalent.

Cash and securities balance ended at $1.765 billion. Inventories climbed to $388.1 million.

Cost of goods sold was $545.4 million, leaving gross profit of $456.4 million. Operating expenses were $309.0 million, consisting of $218.1 million for R&D and $90.9 million for sales, general, and administrative expense. Operating income was $147.4 million, other income $3.3 million. Income tax expense was $13.1 million.

GX 480 is a tessellation monster for DX11, 8 times as fast as the competition. Expects to take back share in the enthusiast segment.

Has numerous Optimus design wins, the majority will go into production for back to school. Quadro Pro for professional graphics is seeing a demand rebound. Tesla OEM servers have been announced.

But core GPU business was flat sequentially partly due to supply constraints on newer products.

Q&A:

Increased availability of capacity and yields? In Q4 in 40nm we had challenges with yields and adequate supplies. But in December and January we started seeing improvements, and improvements continued in Q1. That helped margins exceed expectations. Fermi only shipped the last 4 weeks of the quarter, using dies made well before that. Margins should continue up.

Q2 guidance in line with seasonality? Chipset business is doing well. Seasonality is not any particular product, it really is seasonal demand. Will ramp and ship Fermi throughout the quarter, but main effect will be improved mix for margins.

Demand view? We were out of the high end segment for two quarters because of delays in Fermi. So now we expect to gain share. But mainstream GPU segment will experience seasonality.

Geographic effects? We don't have any special information about Europe. There is some concern about seasonality. The biggest discrete graphics factor is China, which is the fastest growing markets, especially notebooks. GeForce brand is very well known in China because online games are one of the biggest uses for computers.

Tegra handset opportunity? First generation strategy was to focus on one operating system, Windows Mobile. It took us a long time to figure out how to build phone processors. On the second generation we put a lot of energy into Android. The bar is now high for the mobile players; they have to keep up with the Apple A4. So second generation Tegra should do incredibly well with the third generation of Android, which you should see at the end of the year. Our differentiation is graphics capability.

So no yield or capacity issues going forward? We are out of the woods for 40nm, we are delighted with the execution from TSMC. But we are not swimming in 40nm supply, we wish we had more Fermis, so yes constraints remain, and are expected to remain constrained for some time. The channel inventory for performance GPUs is very lean, we will be ramping into it for some time.

What's in the inventory at this point? The increase mostly the new GTX products created at the end of the quarter, Fermi die waiting to be packaged because of weeks-long long testing cycle. Fermi inventory should work its way out as we get it into the channels, but we have a lot of ramping still to go.

ASP (average price) trend? Should be going up.

Gross margin goals? Should be 50 to 55% because an increasing part of our business should be highly differentiated from competition. CUDA and 3D vision are proprietary, they only work with GeForce.

The second half of the year ought to be pretty good because of the combination of multiple new product launches and ramps and the usual seasonality.

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