Analyst Conference Summary

conference date: August 8, 2013 @ 2:00 PM Pacific Time
for quarter ending: July 28, 2013 (Q2, second quarter fiscal 2014)

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

Overview: Nvidia remains profitable while struggling with computer and semiconductor industry transitions.

Basic data (GAAP) :

Revenues were $977.2 million, up 2% sequentially from $954.7 million, but down 6% from $1,044.3 million in the year-earlier quarter.

Net income was $96.4 million, up 24% sequentially from $77.9 million but down 19% from $119.0 year-earlier.

EPS (earnings per share) were $0.16, up 23% sequentially from $0.13, but down 16% from $0.19 year-earlier.

Guidance:

Revenue in the October quarter (Q3 fiscal 2014) is expected near $1.05 billion (plus or minus 2%), which is up 7% sequentially. Gross margins: GAAP 56.0%, non-GAAP 56.3%. Operating expenses: GAAP $460, non-GAAP $418. 16% tax rate. Capital expenditures $60 to $70 million.

Conference Highlights:

Focus on visual computing allowed Nvidia to "ride out a rough PC market this quarter and is setting us up for growth in new markets." Revenue came in near the midpoint of guidance, driven by strength in GPU, offset by weakness in Tegra. EPS was well above "street" consensus. Gained GPU revenue share.

Margins were a record. Tegra 4 is expected to lead revenue in the second half.

In the evolving PC market, entry-level laptops face pressure from tablets. But sales of gaming systems and workstations continue to grow. Believes gamers are preparing for a new round of high-profile games that demand intense GPU capabilities. Also claimed most game developers are working on PC games, not games for next-generation consoles. "two-thirds of time spent on tablets is spent playing games." SHIELD gaming device meets this demand, as it plays Android games. Emphasized some games are being optimized for SHIELD and other Nvidia devices [WPM: as opposed to optimization for next generation game consoles, which use AMD for graphics]

Project Logan demonstrated a mobile Kepler-based GPU; "well-positioned to capture design wins" for smartphones. SHIELD portable gaming device began shipping after the end of the quarter. New high-end gaming GPUs were launched. GRID GPUs allows graphics virtualization in datacenters.

Quadro professional graphics segment showed strong sequential and y/y growth.

Tegra segment revenue was down 49% sequentially and 71% y/y due to ramp down of Tegra 3 in anticipation of Tegra 4. "Due to current challenges in the mobile space, we believe it will be challenging for Tegra revenue to remain flat year over year." But Tegra 4 will ramp in Q3 and Q4.

GRID servers are in production by Cisco, Dell, HP and IBM.

Non-GAAP numbers: Gross margin 56.3%. Net income $133.3 million, down from $170.4 million year-earlier. EPS $0.23, down from $0.27 year-earlier.

Cash and equivalents balance was $2.94 billion, down $778 million sequentially due to stock buy backs. $100 million cash from operations. $12 million free cash flow. $750 million was used for stock repurchases and $43 million for dividends.

Cost of good sold was $431.7 million, leaving gross profit of $545.5 million. Operating expenses of $440.0 million consisted of $331.7 million for R&D and $108.3 million for Sales, General and Administrative expense. Leaving operating income of $105.5 million. Interest and other income $6.3 million. Income taxes $15.4 million.

Continues determined to reduce operating expense.

Q&A:

Shield initial shipments? Doing great, early reviews fantastic. Open platform. People like the beta version of PC streaming. Sales have been great, everything shipped sold, but that is just thousands of units, we are just starting to ramp production.

Believe was the Tegra trough quarter. Logan and Tegra 4i were pulled in, causing the regular Tegra 4 delays. Next quarter should be up. There were some disappointing projects we worked on that did not pan out. Tegra 4 tablets from Asus, Toshiba and HP will be out.

We don't expect much in game console royalties.

Licensing initiative for the graphics technology? Our core business is visual computing. Business model is now expanding to providing GPU IP. Some customers want to buy our IP to include in their chips, particularly the mobile Kepler GPU introduced recently.

Game console business? Consoles are fantastic, but today people game on every platform, of which the PC is currently the largest. The fastest growing segment is mobile.

Our notebook GPU revenue was down very low single digit y/y and sequentially. We are not really in the mainstream PC market, we are in the specialty PC market. Consumer notebook market is not vibrant and we are not expecting much growth from it, even in Q3.

GPU pricing and share trends? ASPs are up, and have been on an upward trend for some time as they shift to specialty and high-end products. We have not seen substantial share movement for some time and are not expecting much later in the year.

Any further repurchases of shares in Q3 beyond what we already contracted for would be announced in Q3.

GRID computing initiative is GPUs for datacenters, which can address HPC, virtualization, or serving video. Nvidia will be selling an appliance for smaller customers. It is partly a software product, so it has better gross margins than pure physical GPUs.

GRID, Tegra, and core IP are the initiatives we are investing in.

Last year Tegra generated about $750 million. This year we are expecting Tegra to generate $200 to $300 million less than that. That is even though the second half is going to be a big increase from the first half.

What is seasonality typically in the January quarter? The product cycle factors are greater than the seasonal factors. We are ramping Tegra 4 into announced and unannounced devices.

Qualification for cellular modem? It comes in two parts. First is data service. Second is voice, which comes with 4i, which should certify near the end of the year. We are doing AT&T because it is the most rigorous, after that you are set.

Is the negative notebook GPU trend following the general market, or have you lost sockets? Our sequential and annual notebook decline is slower than the overall decline.

Can't say if Tegra 4 at peak will ramp above Tegra 3 historical peak. But that is partly because Tegra Next will be coming at a shorter interval than 4 from 3.

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