Analyst Conference Summary

conference date: February 16, 2011 @ 2:00 PM Pacific Time
for quarter ending: January 30, 2011 (fourth quarter fiscal 2011)

But I own competitors AMD and Marvell.
Forward-looking statements

Overview: Okay quarter, revenues sank from year-earlier due to competition from AMD. Intel payment listed as credit to operating expenses.

Basic data (GAAP) :

Revenues were $886.4 million, up 5% sequentially from $843.9 million and down 10% from $982.5 million in the year-earlier quarter.

Net income was $171.7 million, up 102% sequentially from $84.9 million, and up 31% from $131.1 million year-earlier. [Includes $57 million legal payment from Intel]

EPS (earnings per share) were $0.29, up sequentially from $0.15 and up % from $0.23 year-earlier.

Guidance:

Q1 fiscal 2012, ending April 30, 2011 revenue is expected up 6 to 8% sequentially, with gross margin between 48.5 and 49.5%. Operating expenses $327 million. Tax rate 16 to 18%.

Conference Highlights:

Gross margin was a record 48.1%. Q4 results include a $57.0 million credit to operating expenses as a result of a legal settlement with Intel. However, GPU product mix was also better than expected.

NVIDIA is transforming, "extending our leadership in visual computing." "Investment in mobile computing and parallel computing is not driving our growth." Tegra is positioned to sell in "super phones" (smart phones) and tablets.

"Tesla is becoming an essential processor for supercomputing."

A quad-core mobile processor has been demonstrated, is sampling, and should be in tablets and phones by the end of 2011. Tegra 2 processor customers include Acer, Dell, LG, and Motorola.

Believes Intel Sandy Bridge processor introduction gives NVIDIA a chance to capture market share. [Comment: Sandy Bridge can't run DX11, so to not be instantly obsolete needs a discrete GPU card that can run DX11 with it.]

NVIDIA is developing a custom ARM-based CPU for PCs, servers, and supercomputers.

The Intel licensing agreement will generate $1.5 billion over 6 years.

Non-GAAP numbers exclude the legal settlement and its tax impact. Non-GAAP net income is $139.00 million; EPS $0.23.

Cash and equivalents balance ended at $2.49 billion. Continued to make progress in reducing inventory.

Cost of revenue was $460.0 million, leaving gross profit of $426.4 million. Operating expenses of $246.6 million include $215.6 million for R&D, $88.0 million for sales, general, and administrative, and a $57.0 million credit for the Intel legal settlement. Operating income was $179.8 million. Interest and other income $6.1 million. Taxes $14.3 million.

Q&A:

For mobile, we already demonstrated new technologies for extreme low power and high definition video with a quad core ARM processor. Competitors had no similar announcements. We were first with dual core, now its quad core. This really helps with multitasking.

Will it come in at 28nm? It is not an option this year. 40nm is economical and is the right approach with high yields.

Tegra, smart phone v. tablet sales? Hard to tell. Tablet market is larger than expected. Tablets are easy to use and carry around. People buy to supplement PCs.

ASPs (prices) with Sandy Bridge? Hard to say how that will play out. We are excited about the gamer market, due to big new titles coming out. Sandy Bridge is great for gamers. 3D will also be a driver.

Segment trends within guidance? Desktop is usually seasonally down. Notebook should grow. Tesla and Tegra should drive revenue growth. Quadro should grow in Q1 as well.

Operating expense trend? The large components are stock based compensation and hiring engineering support for new products. Should be roughly flat throughout the year.

How much system level software engagement is done with Tegra? In mobile there is a lot of systems software. We have a lot of expertise there, giving us an advantage. Only Tegra 2 based phones and Apple phones have come out without a lot of bugs.

Although mobile devices can do more and more, they are primitive compared to high end compute devices. We have all the technology we need in house to crank out innovative devices. Integration can be overdone, for instance cell modems have gone from 2G to 3G to 4G, innovation may proceed faster if integration on a single chip is not overdone.

In Q4 we just started shipping the new Tegra chips. In Q1 we will be in a significant ramp. As to the ramp beyond Q1, you have to look at the size of the opportunity.

Gross margins excluding royalty payments? 2.5 to 3 points of gross margin starting in Q2 will be from Intel royalties. But aside from that margins should increase due to high margins for Tegra and new graphics processors. Should go up into the 50s.

40nm is in third year of production and yields are now fabulous.

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