Analyst Conference Summary

conference date: May 9, 2013 @ 2:00 PM Pacific Time
for quarter ending: April 28, 2013 (Q1, first quarter fiscal 2014)

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

Overview: Solid, just seasonally down, quarter. Announced plan to return $1 billion to shareholders in fiscal 2014.

Basic data (GAAP) :

Revenues were $954.7 million, down 14% sequentially from $1,106.9 million, but up 3% from $924.9 in the year-earlier quarter.

Net income was $77.9 million, down 55% from $174.0 million but up 29% from $60.4 million.

EPS (earnings per share) were $0.13, down 54% from $0.28 but up 30% from $0.20 year-earlier.

Guidance:

Revenue with 2% of $975 million. Gross margins near 54.3% GAAP, 54.6% non-GAAP. Operating expenses $448 million GAAP, $408 million non-GAAP. Tax rate near 16%. Depreciation and amortization $61 to $63 million. Capital expenditures $65 to $75 million.

Conference Highlights:

Sales for the quarter were at the high end of guidance led by PC gaming segment and EPS beat Street estimates.

NVIDIA intends to return in excess of $1 billion to shareholders in fiscal 2014 in share repurchases and dividends, as announced on April 11, 2013. NVIDIA expects a return to growth in the second half of the year, based in part on newer products.

In the quarter introduced the GRID VCA visual computing appliance for networks. Believes GRID is a $3 billion market opportunity as it delivers gaming at PC quality over fast Internet connections.

"Kepler is recapturing [GPU] share among gamers." Gaming revenue was up 24% y/y. Introduced the GeForce GTX TITAN GPU, the most expensive in the line, and sells out as soon as it becomes available.

Introduced, a 4G LTE mobile processor, the Tegra 4i, with very high power mobile graphics compared to competitors, with certification expected in Q4. But Tegra processor segment revenue were down 50.5% sequentially and 22% y/y after making a strategic decision to move up Tegra 4 by a quarter. Consequently customers ramped down production of Tegra 3 smartphones and tablets. This will continue into next quarter, then Tegra 4 ramp will begin in second half of year.

Margins were at record levels. 54% range, up 1.4% sequentially, reflecting higher margin products in mix and focus on cost. Expect to remain in 54% range in Q2.

A dividend of $0.075 to shareholders of record on May 23, 2013 will be paid on May 23, 2013.

Cash and equivalents balance was $3.713 billion. $175.7 cash from operations. $110 million free cash flow. $100 million was used for stock repurchases and $46.3 million for dividends.

Cost of good sold was $436.2 million, leaving gross profit of $518.6 million. Operating expenses of $435.8 million consisted of $327.2 million for R&D and $108.6 million for Sales, General and Administrative expense. Leaving operating income of $82.8 million. Interest and other income $5.3 million. Income taxes $10.2 million.

Believes buying back stock is a good strategy while the stock is at current levels.

Q&A:

Haswell impact on notebooks? We are expecting to gain share on Haswell and grow our share of the PC business.

High end vs. low end smartphone and tablet growth? High end is slowing, but it is a very large market. We are not currently the dominant player, we are a new entrant. My sense is the market is quite large and we have a lot of opportunity. Android is disruptive and creates opportunities for us. Once you have both content and applications in the Google cloud you are going to want to use those applications on all the device your own.

If PCs decline, will discrete GPUs? Discrete GPU market has been growing 12% over the last 5 years. We are making the GPU more useful all the time. Servers are now being shipped with GPUs inside. Big Data uses GPUs. By investing in CUDA and flexibility we have expanded the use of GPUs. PC is one of the most important gaming platforms today. Free to play games are terrific on PCs. Game consoles are not popular in China and Asia. We are seeing a lot of gaming PC growth in Asia. Tablets are disrupting PCs for casual use. You can't use a tablet to design a car yet. It does not make sense to use a phone to make a movie. For a lot of work a large display is important. We are not really players in the bottom half of the PC market, we have not been for several years. Tablets disrupt cheap PCs, not high-end PCs.

How do you see competition in smartphone market? Currently it is dominated by Samsung and Qualcomm, who make their own application processors. We can't add a whole lot of value there. We believe we can sell a processor that has the capabilities of a superphone at the price of a mainstream phone. That is why we compete with the Snapdragon 400 segment. Tegra 4i brings features and performance that segment has never seen; hopefully we can get to market as soon as possible. The market is still doubling every year.

Competition in tablet market? There are a lot of ARM licensees. But not many are contenders in the performance segment. Tegra 4 is the highest performance app processor in the marketplace today.

Our automotive business is doubling every year. It should hit $450 million in FY 2016.

Tegra margins are lower than 54%. GRID and Tesla are higher than 54%.

We have a lot more Tegra 4 design wins than Tegra 4i, but that is because it was available earlier. The Tegra 4 is more powerful, the Tegra 4i has an integrated cellphone modem and likely to not reach consumers until Q1 2014, but 4 devices should ramp in Q3.

In enterprise segment, Quadro is stable, the growth should come from GRID and Tesla.

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