Analyst Conference Summary

conference date: February 15, 2012 @ 2:00 PM Pacific Time
for quarter ending: January 29, 2012 (Q4, fourth quarter fiscal 2012)

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

Overview: Solid quarter, with seasonal sequential decrease in revenue, but y/y increase. Net income was down y/y on higher operating expenses. However, there are some negative indicators for 2012, particularly for the April quarter.

Basic data (GAAP) :

Revenues were $953.2 million, down 11% sequentially from $1.07 billion, but up 7.5% from $886.4 million in the year-earlier quarter.

Net income was $116.0 million, down 35% sequentially from $178.3 million, and down 32% from $171.7 million year-earlier.

EPS (earnings per share) were $0.19, down 34% sequentially from $0.29 and also down 34% from $0.29 year-earlier.

Guidance:

Q1 fiscal 2013 quarter ending in April revenue expected between $900 and $930 million. Gross margins near 49%. Operating expenses about $383 million GAAP. 20% tax rate unless R&D tax credit reinstated. Capital expenses between $35 and $45 million.

Full fiscal year 2013 guidance changed to: continued PC overall weakness, but GPU business gaining market share. Record Professional segment. Tegra revenues up at least 50% y/y. Gross margins at end of year around 52%. Op ex $1.56 billion GAAP, $1.4 billion non-GAAP.

Conference Highlights:

"We expect continued growth ahead as Tegra 3 powers a new wave of quad-core super phones." But revenue was impacted by disk drive shortages from Thailand floods, reducing mainstream GPU shipments. The Tegra 2 mobile business declined more rapidly than expected in anticipation of Tegra 3.

Given the exit of the chip-set business, 2011 (fiscal 2012) was a good year.

Non-GAAP numbers: net income $158.1 million, down sequentially from $217.0 million, but up from $142.4 million year-earlier. EPS $0.26. Gross margin 52.5%, up from 48.3% year-earlier. Excludes $36.8 million stock-based compensation, $4.2 million amortization and $4.8 million other.

GPU attach rates remained at 53% of consumer PCs and 36% overall per Mercury Research. PC gaming market was strong, with new games released recommending higher GPU abilities than were in place for 80% of customers. Expects gaming demand to be robust in 2012.

"Tegra this year was $360 million." In Q4 Tegra 3 processors reached consumers in Asus Transformer Prime tablet computer running Android 4.0. Other OEMs announced tablet devices and smartphones to ship soon. Believes Windows 8 release will also be a driver.

Believes will gain notebook GPU share during coming Intel design cycle. Also introducing an all-in-one professional graphics workstation with HP.

Cash, equivalents and marketable securities ended at $3.13 billion.

By segment revenues: GPU segment down 4% sequentially. Professional segment down 3% sequentially. Consumer segment down 42% sequentially due to Tegra 2 and game console revenue declines.

Cost of revenue (GAAP) was $463.2 million, leaving gross profit of $490.0 million. Operating expenses of $367.7 million consisted of $266.9 million for research and development and $100.8 million for sales, general and administrative expense. Operating income was $122.3 million. Interest income was $2.3 million. Income tax expense was $8.6 million.

There was a charge in the quarter to settle a patent dispute with Rambus.

Q&A:

Which segments will lead Q1 revenue decline? Due to continuance of hard disk drive shortage. There is also a 28 nm wafer shortage. Ramping Kepler hard and could use more wafers.

Expected gross margin decline? Due almost entirely to 28 nm yield issue. That should not be a surprise at this point. We used wafer based pricing, so lower yields mean higher costs. Over time yields will improve and costs decline, so margins will improve.

Tegra 3 ramp within fiscal 2013? Tegra 3 tablets are already ramp in the marketplace. Smartphones (superphones in NVDA speak) will start shipping this quarter. So Q1 should be a sharp uptick in Tegra revenues over Q4. When Windows 8 comes out, probably in Q3, there will be a meaningful contribution from that.

Hard drive issue going forward? Everybody is expecting hard drive headwind in Q1 and potentially into Q2. Q4 was not as bad as expected at first because there was plenty of drive inventory before the floods. Spot prices of drives are up in China.

Tegra 3 v. Tegra 2 pricing (ASPs)? 3 prices are higher than 2s. Tegra 3 is ramping significantly in the April quarter.

Notebook design wins at 28nm GPU has resulted in the shortage from TSMC, but should be in a good place at end of year.

Mobile workstations? Professional solutions include notebook workstations based on Quadro. Usually people have a desktop workstation in addition to the mobile one, so we are selling 2 GPUs.

Kepler generation of GPUs for notebooks had design wins at virtually every OEM in the world. Should be announcements soon.

Pricing is expected to be stable and healthy this year because of lack of 28 nm capacity in the world.

Channel inventories? Okay, channel has been cautious.

We will have processors integrated with [cellular] modems in 2012.

Competitive dynamics for Tegra 3? We compete mainly with Qualcomm. In U.S. LTE is important, and they have the only solution today. Outside U.S. the next upgrade is to quad core, so Tegra 3 is well positioned for Europe and China. Affordable dual-core smartphones are also a big opportunity for Tegra 2 in China. Software stack is very important with these phones. Our ability to integrate the modem is critical. We are able to get fair pricing on Tegra 3.

Guidance change? A couple of quarters ago would have said Samsung was one of NVIDIA's largest customers. My sense now is that going forward Samsung will mostly use their own application processors, using ours only in situations where their own can't meet their needs.

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