Analyst Conference Summary

conference date: February 12, 2014 @ 2:00 PM Pacific Time
for quarter ending: January 26, 2014 (Q4, fourth quarter fiscal 2014)

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

Overview: Very good quarter compared to expectations. But EPS down y/y.

Basic data (GAAP) :

Revenues were $1.14 billion, up 9% sequentially from $1.054 billion, and up 3% from $1.11 billion in the year-earlier quarter.

Net income was $147 million, up 24% sequentially from $118.7 million but down 16% from $174 million year-earlier.

EPS (earnings per share) were $0.25, up 25% sequentially from $0.20, but down 11% from $0.28 year-earlier.

Guidance:

Q1 fiscal 2015 ending in April revenue is expected to be within 2% of $1.05 billion. Gross margins 54.2% GAAP and 54.5% non-GAAP. Operating expenses $454 million GAAP, $413 million non-GAAP. Tax rate 20% without R&D tax credit, 16% with. Capital expenditures $45 million.

Nvidia intends to continue to return cash to shareholders through dividends and stock repurchases during fiscal 2015.

Conference Highlights:

Revenue was well above guidance, led by PC gaming GPU demand driven by new PC games. PC gaming is now larger than console games. "Tegra K1 is disrupting the auto industry, paving the way to self-piloted cars. The groundbreaking work we are doing in visual computing is expanding the opportunities for our GPUs."

GPU business revenue was $947 million up 8% sequentially and 14% y/y. The increase was led by desktop and notebook GPU sales. Nvidia has 64% of the PC discrete graphics market, 81% of workstation graphics, and Tesla in pilot projects at 44% of all HPC (High Performance Computing) sites.

Quadro professional graphics segment revenue set a record on an annual basis and were up 4% sequentially.

Tegra segment revenue grew 18% sequentially to $131 million. Developing Android as an important gaming platform is a strategic opportunity for Nvidia. Driver assistance systems may be built using Tegra chips. Automotive infotainment sales were up over 60% y/y. Tegra 4 has shipped in phones in China and the modem has been certified by AT&T.

Tesla revenue set a record and was up over 20% y/y. Nvidia entered a Tesla partnership with IBM. This could open up new markets for Nvidia.

GRID datacenter initiative showed strong increases in trials.

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

Now has a separate automotive group, with a large potential pipeline.

Non-GAAP numbers: Gross margin 53.8%. Net income $187 million, up 22% sequentially from $153.8 million, but off 13% from $215 million year-earlier. EPS $0.32, up 23% sequentially from $0.26, but down 9% from $0.35 year-earlier. Excludes $36 million in stock-based compensation expense and other items.

54.1% GAAP gross margin, slightly below the outlook due to mix issues [Tegra has lower gross margins than average.]

Cash and equivalents balance was $4.67 billion. $401 million cash from operations. $66 milllion was used for capital expenditures. $335 million free cash flow. $55 million depreciation and amortization expense. $37 million was used for stock repurchases and $48 million for dividends. Convertible debt $1.5 billion.

Cost of good sold was $525.0 million, leaving gross profit of $619.2 million. Operating expenses of $452.3 million consisted of $336.6 million for R&D and $115.7 million for Sales, General and Administrative expense. Leaving operating income of $166.9 million. Interest and other income $2 million. Income taxes $22.0 million.

A convertible debt offering was completed in the quarter for $1.5 billion.

Q&A:

Are you seeing console users switch to PCs? "I'm not sure about that." The megatrends associated with gaming are clear: PC is the only open platform, and GeForce is very strong within it. Fundamental dynamics are driving PC gaming growth. For the first time in history the architecture of a game console is the same as the architecture of a PC, although PCs are more advanced and flexible. This generation is much more friendly to game developers.

Tegra 4 growth? Catalyst will be k1 with state of the art GPU architecture. The other will be the 64 bit Tegra processor, Denver. Another is Tegra 4i with modems; devices should be announced in late Q1 or in Q2. Plus car infotainment.

Mobile is more than phones. Tegra is designed for mobile, but has a broader application space. Markets also include tablets, automotive, and TVs. We are not interested in mainstream phones.

GRID initiative milestones to look for? This invention was 7 years in the making. There were software and infrastructure compatibility challenges. We track internal milestones and a large number of trials. The industry wants to virtualize everything, including desktop computing. GRID makes it possible to stream desktop applications from anywhere. Another application is cloud gaming. This is dependent on increased broadband availability.

Competitor shortages at high end of GPU market, any effect? Can't be sure how much Nvidia benefitted, but our y/y growth was greater than their market share in that end of the market. We must be growing to market. The annecdotal evidence is we are growing the market.

We now have a unified architecture and software stack with Tegra.

Tesla visibility? The supercomputing business tends to be lumpy, but the enterprise business has good visibility. The key is increasing use by software that can use CUDA, like Fluent.

Typically there is a sequential decline in notebook and desktop shipments in Q1, but that was taken into account in the guidance.

GPU licensing business? We have over 7000 filed or granted patents. Licensing is an important part of our strategy, but the discussions take a long time and are unpredictable.

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