Analyst Conference Summary

conference date: May 11, 2012 @ 5:00 AM Pacific Time
for quarter ending: April 29, 2012 (Q1, first quarter fiscal 2011)

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

Overview: Revenues down y/y, but toward higher end of guidance on new GPU introductions and Tegra regaining traction for smartphones.

Basic data (GAAP) :

Revenues were $924.9 million, down 3% sequentially from $953.2 million and down 4% from $962.0 million in the year-earlier quarter.

Net income was $60.4 million, down 48% sequentially from $116.0 million and down 55% from $135.2 million year-earlier.

EPS (earnings per share) were $0.10, down 47% sequentially from $0.19 and down 55% from $0.22 year-earlier.

Guidance:

Second quarter (Q2) fiscal 2013 ending in July: revenue between $0.99 and $1.05 billion. GAAP gross margin 51.2%, non-GAAP 51.5%. Operating expenses $418 million GAAP, $354 million non-GAAP. Tax rate 20%. $55 to $57 million depreciation & amortization and capital expenditures of $35 to $45 million.

Conference Highlights:

"Each of the businesses performed at least in line with expectations in the quarter." The weak economy and the hard disk drive shortage had negative effects.

Non-GAAP numbers: gross margin 50.4%, operating expenses $348 million, net income $97.5 million, down sequentially from $158.1 million, EPS $0.16, down sequentially from $0.26 million.

Record quarter for notebook GPUs (graphics processing units). New Kepler desktop GPU, the GeForce GTX 6xx devices, launch in mid-March helped. Intel-CPU based thin and light notebook launched with an NVIDIA GPU [WPM: to compensate for the poor graphics performance of Intel CPUs]. The market for GPUs for gaming is healthy.

GPU business was down 6.4% sequentially, mainly due to supply shortages.

Professional GPU business was down 4.2% sequentially, which is within normal seasonality.

Consumer business was up 20.8% on Tegra 3 launch, but embedded business was weak.

"All indicators are that strong growth will continue for our notebook division through Q2 and Q3." However, Kepler production will not able to meet demand in Q2. "We do not expect the 28 nm supply situation to resolve itself until later this year."

Tegra chip revenue for smartphone & tablets is now growing again. The first Tegra 3 smartphone launched in late February. On 40 nm, so no supply constraints for Tegra. More Tegra 3 phones are coming out. LTE capable Tegra 3 cell phones will be out in the second half of the year. Tegra 3 will power Windows on ARM when it comes out.

Cash and equivalents balance ended at $3.13 billion.

GAAP cost of revenue was $461.5 million, leaving gross profit of $463.4 million. Operating expenses of $390.5 million consisted of $283.9 million for R&D and $106.6 million for sales, general and administrative. Leaving operating income of $72.8 million. Interest income was $4.3 million. Income taxes $16.7 million.

NVIDIA annual GPU conference will be next week. Investor day will be May 24.

Q&A:

How are the segments looking for Q2? "I guess they are all up." Supply is still constrained, and we expect that to continue throughout the year. We will roll out Kepler into each of the businesses, starting with desktop. This architecture will drive all of our businesses for several years.

Tegra 3 is ramping, but we don't have LTE yet. Tegra is the first quad core smartphone chip. It is the next major smartphone upgrade.

28 nm shortage? Driven by yield improvements, or are you going to add foundries. Yields of 28 nm are better than any new node before for TSMC. It is yielding wonderfully for this point in its curve. The demand, at this node, however, is great. Supply constraint is at the wafer level.

If yields are great, how did TSMC end up with shortages? Clearly their is a lack of capacity. Last year we invested aggressively in Kepler designs. We expect Kepler to grow the market. The planning process for new nodes has to be better. We underplanned for the supply of 28 nm. "Ultimately the industry will sort itself out."

Tegra growth in Q1? Greater than 50%. Expect it to grow again this quarter. We are expecting Tegra 3 tablets to come out this year, so we will see growth in that segment too.

When we don't have enough of our premium products, that hurts the margins. As supplies improve margins improve.

Ivy Bridge CPU attach rates? We expect to gain share with Ivy Bridge because Kepler is so energy efficient. But the market structure on the whole should be consistent with high consumer demand and with video games as one of the most important applications. OEMs like to have ways to differentiate a product. We are expecting attach rates to be healthy.

Wafer pricing at TSMC, raised due to shortages? We have an understanding with TSMC and don't expect higher wafer pricing.

Baseband business, LTE? We are targeting the superphone segment of the market, call it 100 million units a year. We did not start from the modem market, so we are not starting with a focus on LTE. We are working with partners, have brought LTE phones to Asia and Europe, and will bring LTE to phones to the United States in the second half of the year.

We are using the LPG special process to produce 40 nm Tegra chips, which allow us to have better performance with low power. We are the only company using LPG.

Cash use? Nothing to announce today.

Intel, advanced nodes? Believes TSMC will be able to make the transition to 20 nm. CPU needs for process technology are not identical to needs for SoC (system on chip) ICs.

We expect about 30% of our output to be on 28 nm this coming quarter. Will ramp beyond that, but not specific timing, as soon as possible.

Having a very small, efficient Icera LTE modem using SDR (software defined radio) will be a big competitive advantage for us.

Kepler is not only very energy efficient, it is efficient in terms of die size, which helps with margins at every point of the market. Margins should be better than the Fermi generation. That is why we are anxious to ramp up Kepler supply as soon as possible.

Is very pleased with Windows 8, is well-segmented to ARM and tablets, will be great for Microsoft Office users.

ASPs in Q1? Kepler lifts ASPs the more we ship. They are higher than Fermi because they target the premium segments, enthusiast and performance. "We need a lot more Keplers."

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