Analyst Conference Summary

conference date: August 12, 2010 @ 2:00 PM Pacific Time
for quarter ending: August 1, 2010 (second quarter fiscal 2011)

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

Overview: Not a strong quarter, even given seasonality.

Basic data (GAAP) :

Revenues were $811.2 million, down 19% sequentially from $1.002 billion but up 4.5% from $776.5 million in the year-earlier quarter.

Net income was negative $141.0 million, down sequentially from positive $137.6 million, and also down from negative $105.3 million year-earlier.

EPS (earnings per share) were negative $0.25, down sequentially from positive $0.23, and worse than negative $0.19 year-earlier.

Guidance:

Q3 fiscal 2011 revenue expected up 3 to 5% sequentially. GAAP gross margin 46.5% to 47.5%, operating expenses around $300 million, tax rate 17 to 19%.

Conference Highlights:

Hit by a $193.9 million charge for the botched dies and packaging problem of 2008. Also an inventory write down as older (pre-Fermi) chipsets and notebook GPU demand sank.

Consumer demand was weak, particularly in Europe and China, where demand shifted away from the premium experience GeForce provides. However, Quadro professional GPUS, Tesla GPUs and Tegra all delived excellent results.

Fermi architecture is being moved to lower price points, as with the GTX 460.

GeForce demand was good in Q1 with Fermi introductions, so had high expectations for q2. Then rising memory costs and a lower Euro increased graphics card prices in Europe. GPU attach rates in Europe and China are among the highest in the world, and NVIDIA's market share is also high in those regions.

End market for consumers is uncertain, but regaining lead over AMD/ATI with Fermi ramp. [WPM: but compare AMD graphic segment revenue up 8% sequentially and 87% y/y]

NVIDIA taking the lead on GPU computing.

TEGRA has design wins that will start shipping this quarter.

GPU segment revenue down 29.5% sequentially. Quadro + Tegra segment up 13.4% sequentially.

Cash and equivalents ended at $1.77 billion. Free cash flow was negative $3 million.

Cost of revenue was $676.9 million, leaving gross profit of $134.3 million. Operating expense of $309.5 million included $210.6 million for R&D and $98.9 million for sales, general, and administrative. GAAP operating loss $175.2 million. Interest income $6.2 million. Income tax benefit $$28.1 million.

Non-GAAP gross margin 38.9%. Non-GAAP net income $20.1 million or EPS $0.03.

Inventory was up sequentially despite the write-down. Believes current inventory matches market needs.

Q&A:

Revenue guidance color? Assuming consumer PC market to remain uncertain. Growth will be from gamers, particularly for $199 GTX 460, for StarCraft II gamers launch, for instance. Quadro is ramping, with good end user demand. Tesla continues to ramp. Tegra ramping for smartphones and tablets.

Consumer PC discrete graphics? GeForce GTX market is for gamers, mostly not sold to OEMs. Lower end GeForce sells to OEMs to differentiate premium PCs from commodity PCs.

Seasonality generally? We are taking a conservative posture towards consumer PC market. The other four segments we are confident about.

Inventory charge? We have inventory write-offs every quarter. Will not give a number.

What about games graphics streaming without GPUS? It is like subscription TV. OnLive is fabulous, we are partners with them, they use GeForce in their servers. Not all games will be available from OnLive.

Will gross margin benefit in Q3 from written off inventory? No, we don't expect to sell any of what we wrote off?

Our chipsets now go primarily into Apple computers.

Intel FTC settlement impact on you? The FTC case in good for competition and consumers. Our case is separate, it is about chipset licenses.

GTX 480 was about 6 months late. We lost share in Q1, started to get back in Q2. We expect to take share for the remainder of the year, led by GTX 460.

Discrete GPU attach rate trends? Went up in last quarter. Notebooks is up, channel desktops rate was down because of increased memory prices.

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