Analyst Conference Summary

conference date: August 7, 2014 @ 2:00 PM Pacific Time
for quarter ending: July 26, 2014 (Q2, second quarter fiscal 2015)

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

Overview: Revenue flat sequentially, up 13% y/y; good net income generation.

Basic data (GAAP) :

Revenues were $1.10 billion, flat sequentially from $1.10 billion, and up 13% from $0.98 billion in the year-earlier quarter.

Net income was $128 million, down 6% sequentially from $136.5 million million but up 33% from $96 million year-earlier.

EPS (earnings per share) were $0.22, down 8% sequentially from $0.24, but up 38% from $0.16 year-earlier.

Guidance:

For Q3 fiscal 2015 ending in October revenue is expected to be within 2% of $1.20 billion. GAAP margin around 55.2%, Non-GAAP around 55.5%. Operating expense: GAAP $463 million; non-GAAP $416 million. Tax rate 19% plus or minus 1%. Capital expenditures $40 to $50 million.

Tegra revenue will be higher, which tends to lower margins.

Conference Highlights:

GPU business revenue was about $880 million down 2% sequentially from $898 million. PC gaming was strong. A strong pipeline of AAA games for PC will be released this fall. 10% increase in PC GPU y/y. Quadro, Tesla and Grid all grew sequentially. Average selling prices for consumer GPUs increased sequentially.

Tegra revenue was not stated, but up 200% y/y. Use in automotive entertainment systems is expanding, with BMW, Audi and Volkswagen as notable customers. Shield Tablet was launched, targetted at the 1.6 billion global gamers, with over 400 games optimized for it. Android TV also launched on Tegra. Tegra K1 Chromebooks should start shipping this quarter.

Tesla for datacenters continued to make gains and had a record quarter with high volume sales. Tesla can be combined with 64-bit ARM CPUs. Grid sales ramped in the quarter.

License revenue from Intel was not given.

Non-GAAP numbers: Gross margin 56.4%. Net income $173 million, up 4% sequentially from $166.1 million, and up 30% from $133 million year-earlier. EPS $0.30, up 3% sequentially from $0.29, but up 30% from $0.23 year-earlier. Excludes stock-based compensation expense of about $38 million, $9.2 million acquisition-related costs and other non-cash items.

56.1% GAAP gross margin. That's a record, driven by datacenter and cloud sales.

Cash and equivalents balance was $4.4 billion. $96.3 million cash from operations. $23 milllion was used for capital expenditures. $74 million free cash flow. $56 million depreciation and amortization expense. $47 million for dividends. Long-term debt $1.4 billion. 20.6 million shares were received under the structured repurchase agreement.

GAAP cost of good sold was $483.8 million, leaving gross profit of $619.0 million. Operating expenses of $455.8 million consisted of $337.1 million for R&D and $118.7 million for Sales, General and Administrative expense. Leaving operating income of $163.2 million. Interest and other expense $9 million. Income taxes $26.6 million.

Intends to return $1 billion to shareholders in fiscal 2015 through dividends and stock repurchases.

Q&A:

Consumer GPUs tend to ramp in Q3, and we also expect a Tegra ramp.

Long term margins? Quarters vary because of completion of larger projects, etc. Overall consumer GPU gross margins are solid. Tegra has lower than average volumes, so high sales can lower margins.

Growth in gaming revenues, units versus better ASPs? The gaming market overall is growing, perhaps 10% per year globally. Largest franchises are massive only battle arena games. 10 million people play one of the two top games each day. China is still growing and southeast Asia is still growing. ASPs are increasing because the production value of games is increasing. A $100 gaming card is comparable in performance to the current generation of gaming consoles. PC gaming is quite healthy. There are about 100 million active GeForce gamers around the world. But there are a lot more gamers, so we have plenty of penetration to go.

Intel royalty payments? We invent more in modern computer graphics than all the other global graphics companies combined. We will stay focussed on this field. Licensing is an important part of our business, and not just to Intel. "My expectation is that licensing revenues will continue to be an important part of our income for some time to come." Licensing to mobile and cloud companies is a new field for us.

Are you looking for the consumer GPU business to return to double-digit y/y growth in Q3, and drivers for that? We expect GPUs to be returned to traditional seasonal growth in Q3. But we might also get a boost from the major game releases this fall. Huge games are what really drives GPU adoption.

Twitch is now the largest full time video platform in the world, used by gamers to show their virtual triumphs.

Usual claims about the superiority of GeForce products over AMD Radeon products.

Our cloud computing business is very much a software business. It is not logical to think about our sales compared to the number of PCs sold times an ASP number.

The datacenter and accelerating cloud computing are the biggest opportunities for Nvidia today. The ASPs and margins are much higher than for PC GPUs. Tesla allows for people to use whatever instruction set architecture they want to use: x86, IBM Power, and ARM.

We are currently returning more than 100% of our free cash flow, more than in the past. This may not apply after we have used the current $1 billion allocation.

Proportion of Tegra revenue from automotive? Our Tegra strategy is in multiple areas, including automotive, which we expect to continue to grow rapidly. Tegra is also for gaming on Android, which is not the world's largest computing platform. We hope Tegra will be in some Android TV products this fall.

Every major OEM is working with GRID. That is how we will virtualize all the enterprises around the world.

Cryptocurrency issues for Nvidia? It is interesting that a new algorithm for encryption could be run on a GPU. Nvidia did not benefit from bitcoin mining because Nvidia GPUs are not the best performance per dollar in the market [outside of gaming].

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