Analyst Conference Summary

conference date: August 9, 2012 @ 5:00 AM Pacific Time
for quarter ending: July 29, 2012 (Q2, second quarter fiscal 2013)

But I own competitors AMD and Marvell as this is written.
Forward-looking statements

Overview: Solid quarter of sequential growth, but not so wonderful y/y.

Basic data (GAAP) :

Revenues were $1.044 billion, up 13% sequentially from $924.9 million and up 3% from 1.017 billion in the year-earlier quarter.

Net income was $119.0 million, up 97% sequentially from $60.4 million, but down 22% from $151.6 million year-earlier.

EPS (earnings per share) were $0.19, up 90% sequentially from $0.10, but down 24% from $0.25 year-earlier.

Guidance:

Q3 fiscal 2013 ending October 2012 revenue expected between $1.15 and $1.25 billion. Non-GAAP gross margin 52.0%. Non-GAAP operating expenses around $350 billion. Depreciation and amortization $57 to $59 million. Capital expenditures $30 million to $40 million.

Will continue to be supply constrained.

Conference Highlights:

Better than expected quarter driven by Kepler and Tegra. 28 nm supply improved.

Non-GAAP numbers: net income $170.4 million up 75% sequentially, EPS $0.27. Gross margin 52.0%.

GPU business was up 15% sequentially in the quarter despite supply limitations on Kepler. Believes most gamers now have outdated cards that are below recommendations for newest games. Notebook revenue was a record.

Professional GPU business was down 8% sequentially, but expected up on new Kepler introductions "next quarter. Hurt by Europe.

Consumer business was up 36% sequentially. Tegra had record revenue. Tegra 3 will be used both in the Google Nexus 7 tablet and the Microsoft Surface tablet.

Cash and equivalents balance ended at $3.278 billion.

Cost of revenue was $503.6 million, leaving gross profit of $540.7 million. Operating expenses of $401.1 million included: research and development $281.2 million and sales, general and administrative $119.9 million. Leaving operating income of $139.6 million. Interest and other income was $5.6 million. Income tax expense was $26.2 million.

Q&A:

Last year Tegra did well in July and October quarters, then you got hit by an inventory correction. This year? We believe Tegra tablets are doing really well. It has taken time to get the overall experience right. Newer Android for tablets is much better, with automatic phone synchronization of apps. Urged trying Nexus 7.

Professional Solutions color? Quadro and Tesla have gained share, "if anything." They buy them because they need them. When the economy is slower, as in Europe, that effects enterprise consumption. The Intel Romley platform launch is moving into workstations. The Kepler GPUs are now flowing into Quadro and Tesla. The trajectory is good.

Supply challenges? We have no idea how much business we left on the table. We expect to be supply constrained throughout the quarter, and took that into effect in the guidance. TSMC is working on the problem.

Integrated processor/baseband solution? There is only one integrated LTE solution in the world today. To build a top tier phone you need a great application processor, graphics processor, and software stack. You also need a state of the art modem and baseband. We intend to integrate those major pieces. No announcement on when our solution will be introduced.

Growth rate guidance? GeForce and Tegra are growing faster than the sequential rate. Quadro is below the average.

We are just now ramping into the affordable superphone segment in China. There are already a couple of phones announced and we expect them to ramp soon. We don't have an LTE solution yet, but are working on that.

Non-Apple tablet market? We have found the position. The Nexus 7 is not trying to be a cheaper iPad, but a complementary device to an Android phone. The value proposition is much clearer now, Jellybean in fantastic, the build quality is great. It is not just an alternative to iPad. There are already hundreds of millions of Android phone users; this is for them.

Desktop vs. notebook in quarter? Both up strongly in Q2, and expect the same in Q3. The Ivy Bridge ramp was delayed, but is now ramping strongly. The Kepler GPU is the best we ever created so we are gaining share with the Ivy Bridge ramp. The PC gaming marketplace is really strong. We are about to introduce the Kepler GPU for gamers with products from $99 to $299 because we are finally getting enough supply. The disk drive supply issue is going away, which will help the desktop market.

Tegra $540 million guidance for the year, any update? We are comfortable with that figure.

Other connectivity technologies like Bluetooth? It is important, but a connectivity chip is a $3 chip, but an LTE modem chip is a $20 chip. So we are integrating LTE first.

Attach rates? We see no changes in attach rates.

Enthusiast and Performance segments were strong, so prices rose on average. We just could not build enough. Units were up too.

Yields are improving, but there is a lot of pent up demand for Kepler, so it is hard to tell when supply will catch up with demand.

Tegra split tablets vs. phones? More tablets than phones, "And my sense is it is going to stay that way." Believes tablet market will be as large as the mobile PC market in a couple of years.

Discussed VGX.

Yes margins should improve as yields increase at 28 nm.

We have more ideas than we can invest in now. We are the only company to make its way from the PC industry to the mobile industry. We are probably the number 2 mobile application processor company, where we were not in that not long ago. So our operating expenses have been high, we hope to grow revenue to match that investment.

We have three design wins on Windows RT. Asus, Microsoft, and one that has not been announced yet.

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