Analyst Conference Summary

conference date: November 7, 2013 @ 2:00 PM Pacific Time
for quarter ending: October 27, 2013 (Q3, third quarter fiscal 2014)

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

Overview: Still profitable despite revenue erosion.

Basic data (GAAP) :

Revenues were $1.054 billion, up 8% sequentially from $977.2 million but down 12.5% from $1.204 billion in the year-earlier quarter.

Net income was $118.7 million, up 23% sequentially from $96.4 million, but down 43% from $209.1 million year-earlier.

EPS (earnings per share) were $0.20, up 25% sequentially from $0.16, but down 39% from $0.33 year-earlier.

Guidance:

Q4 fiscal 2014 ending January 27, 2014 revenue expected within 2 percent of $1.05 billion. Gross margin 54.2% GAAP or 54.5% non-GAAP. Operating expenses $450 million GAAP or $410 million non-GAAP. Tax rate 15% to 16%. Diluted share count near 578.5 million.

Conference Highlights:

Revenue was in line with expectations.

The board authorized an additional $1 billion for share repurchases, leaving $1.3 billion available.

The PC gaming market was strong in the quarter, offsetting declines in GPUs to mainstream PC units. PC gaming represents about 40% of the world-wide gaming market (vs. consoles, phones, tablets, etc.). PC gaming GPU revenues were up 6% for year-to-date y/y. Mainstream GPUs are the lowest margin Nvidia products. Higher gross-margin notebook GTX line grew.

GPU business grew $18 million and 2% sequentially and was down 2% y/y. Desktop GPU revenue grew slightly sequentially. Notebook GPU revenue declined on volumes of low-end notebooks, but high-end gaming notebooks had strong growth.

Quadro professional graphics segment revenue set an all-time high, and gross margins also hit a record. Revenue up 5% sequentially and 24% y/y.

Tegra segment revenue doubled sequentially. Tegra is being used in new verticals like automotive and set-top boxes. Tegra 4 had first shipments, including for Xiaomi smartphone in China and Tegra Note, with ten partners planning to ship product this year. Tegra revenue growth expected in Q4 as new device ramps continue.

Tesla revenue hit a record after increasing 6% sequentially. 44% of high performance computing sites now have graphics accelerators, with 85% of sites using accelerators using Nvidia Tesla GPUs.

GRID datacenter initiative customer trials are going well, with 212 customer trials underway. This week Amazon Web Services announced they would use GRID.

Nvidia Shield portable gaming platform now includes support for Android games.

Believes can navigate around the decline in the mainstream PC market by accelerated adoption of GPUs for the cloud.

Non-GAAP numbers: Gross margin 55.7%. Net income $153.8 million, up 15% sequentially from $133.3 million, but down 37% from $245.5 million year-earlier. EPS $0.26, up 13% sequentially from $0.23, but down 33% from $0.39 year-earlier.

55.4% GAAP gross margin.

Cash and equivalents balance was $3.03 billion. $162 million cash from operations. $124 million free cash flow. ? million was used for stock repurchases and $43 million for dividends.

Cost of good sold was $469.6 million, leaving gross profit of $584.4 million. Operating expenses of $443.4 million consisted of $340.3 million for R&D and $103.1 million for Sales, General and Administrative expense. Leaving operating income of $141.5 million. Interest and other income $0.5 million. Income taxes $22.8 million.

Quarterly dividend increased to $0.085 per share, starting fiscal Q4 2014.

Plans to continue to return capital to shareholders.

Q&A:

$66 million license revenue, will Intel revenue stop in 2017? Licensing is important to our strategy. We licensed our tech to Sony for the PlayStation, etc. In July we announced we would license our GPU core. We continue to invest in technology licensing. Intel is just one opportunity.

Automotive revenue? It is about 25% of Tegra and increasing. In autos the GPU can be used for general computation, not just visual applications.

Tegra 4i roadmap? Projects are in development for announcement in Q1 and shipment in Q2. 4i has been certified by AT&T for voice and data.

Software defined radio approach? You can use the processor for many different protocols and higher bit rates. SDR has some challenges, like power consumption, but we have it within an aggressive power envelope.

GPU expectations for Q4? Overall we will be flat, with Tegra up sequentially and GPU slightly down, despite strong gaming growth. Low end PC GPUs are expected to continue to decline.

Seasonality in Tegra business? Not sure there is a known seasonality. We can't say when volumes on specific new designs will come through.

Quadro outlook long term? Growth is related to increased 3-D digital design approach. We can now add value to a larger part of the work flow, including styling. The market is still globalizing as well. Our market share in Quadro is very high.

Are recent price cuts reducing margins this quarter? And might you need to give rebates to card makers who took GPUs at old prices? [WPM: Christmas inventory issue] We made pricing changes that are planned at the end of last quarter. Tegra gross margins are below corporate average, but we still see success there as good.

Almost all Tegra sales are into Android systems. We have a bit of Windows RT. We have no exposure to Chrome yet.

Tegra Note is a complete reference platform. The software is very polished and great features. But out business model is to sell a chip.

Shield gaming console? We are cultivating the Android gaming marketplace. We only have a modest investment, modest expectations, modest distribution. Android gaming needs high-end functionality. Again, ultimately we want to sell chips.

Handset competition for Tegra? All the form factors require the same application processor. Our position is versus the whole mobile Android market, not just phones.

Rank order growth drivers for next year? 1. Tegra. 2. Tesla. 3. PC Gaming GeForce GTX. 4. GRID. But the following year GRID could be the largest growth driver.

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