Analyst Conference Summary

conference date: November 10, 2011 @ 2:00 PM Pacific Time
for quarter ending: October 30, 2011 (Q3, third quarter fiscal 2012)

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

Overview: Solid quarter.

Basic data (GAAP) :

Revenues were $1.07 billion, up 5% sequentially from $1.02 billion and up 26% from $0.84 billion in the year-earlier quarter.

Net income was $178.3 million, up 18% sequentially from $151.6 million and up 110% from $84.9 million year-earlier.

EPS (earnings per share) were $0.29, up 16% sequentially from $0.25 and up 93% from $0.15 year-earlier.

Guidance:

Fiscal Q4 2012 revenue expected down 2% to up 2% sequentially. Gross margins flat to up 0.5%. Operating expense $372 million GAAP, $330 million non-GAAP. Tax rate 14 to 16%. Depreciation and amortization $53 to $57 million. Capital expenditures $30 to $40 million.

Conference Highlights:

Non-GAAP numbers: Gross margin 52.5%. Net income $217.0 million, up 12% sequentially. EPS $0.35.

GPU demand was driven by gamers and the professional market. Strong new games hit the shelves, including Battlefield 3 on October 25. More strong releases are expected in the current quarter. PC's are becoming far more powerful than the 5 to 6 year old gaming consoles. However, notebook discrete graphics revenues were down on a 4% drop in market share in the quarter. That is believed to be from Intel notebook CPU share loss and NVIDIA's absense from Apple notebooks. Believes well positioned to regain market share in coming quarters.

GPU segment revenue was up 1% sequentially. Desktop GPU revenue up 23%. Chips set revenue declined as ramping down to exit that business.

Professional graphics had a record revenue quarter, up 9.5% to $230.3 million.

"With Tegra 3 phone wins well ahead of Tegra 2's pace, we're expecting strong growth in the year ahead." Tegra 3 was launched in the quarter; the first device using it Asus Eee Pad Transformer Prime, will be available in December. More Tegra 2 smartphones and tablets became available.

Consumer segment revenue was up 14% sequentially, mainly from Tegra sales and console chip sales.

Cash and marketable securities balance ended at $2.75 billion, up $273.9 million sequentially. Cash flow from operating activities was $244.4 million.

Cost of revenue was $509.5 million. Gross profit $556.7 million. Operating expense was $359.6 million consisting of: research and development $256.5 million; sales, general and administrative $103.1 million. Leaving operating income of $197.1 million. Interest and other income $7.7 million. Income taxes $26.5 million.

Q&A:

Guidance by segment? GeForce desktop expected up nicely. Notebook flat to sligtly down. Quadro and fermi up, partly because India and China are moving to be design economies. Tesla expected flat. Mobile flat.

Thailand flood impact? Channel inventory is in good shape. Guidance reflects our view of Thailand. Our high-end PC OEMs have good margins, so they are prioritized.

Long term handset ambitions, like mid-segment? The superphone segment we serve has become increasingly important. We think we will have early examples in the mainstream segment by the end of next year.

We are designed into an increasing number of tablets. We missed on Motorola and the Amazon Fire, but we hope to capture those later. Tegra 3 is both high performance and affordable because of the long battery life, so it is winning tablets as well as smartphones. We have a backlight power saving technology.

We are building Windows 8 tablets all over the world.

Motorola loss? Our rhythm is once per year. They were on a different cycle, which matched OMAP4, and we could not be price competitive. 2011 was the year of dual core, 2012 will be quad core.

Tegra 3's price is higher than $15. It is a different generation than OMAP4 and targets a different generation of devices. Also Tegra 3 saves system costs because of its low power requirements. We'll have far more OEM's using Tegra 3 than we have with Tegra 2.

Games tend to be threaded, as they are for desktops and consoles. So games for smartphones will benefit from being able to run 4 threads on Tegra 3.

Emerging market opportunities? They are just going into the design economy. Bollywood is many times larger than Hollywood and is moving completely to digital. China is moving to indigenous industrial design. Quadro opportunity would be as large as the economy in comparison to the U.S.

How do you gauge sell through in Android tablets? Our channel checks are no more magical than anyones. So far what we see is relatively normal.

Believes Android tablets have improved considerably and have advantages including multiple form factors and compatability with phone apps. So Android will continue to gain tablet market share.

Full year guidance given Europe, hard drive shortages? No change given what we know.

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