NVIDIA Corporation, Q1 2011 Earnings Call, May-13-2010 - NasdaqGS:NVDA
NasdaqGS:NVDA
Michael W. Hara [Former Senior Vice President Investor Relations] 💬
Michael W. Hara, the Senior Vice President of Investor Relations at NVIDIA at the time, made the following statements during the Q1 2011 Earnings Call:
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Opening Remarks:
- Thanked the operator and welcomed everyone to NVIDIA's Conference Call for the first quarter of fiscal 2011.
- Noted that he was joined by Jen-Hsun Huang, President and CEO, and David White, CFO.
- Announced that after prepared remarks, there would be a question-and-answer session, with a request for participants to limit themselves to one initial question with one follow-up.
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Conference Call Guidelines:
- Reminded attendees that the call was being webcast live and recorded.
- Stated that the content of the call was NVIDIA's property and could not be reproduced or transcribed without prior written consent.
- Mentioned that forward-looking statements were subject to risks and uncertainties and referred listeners to the disclosure in the earnings release and other SEC filings for a discussion of factors that could affect future financial results.
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Upcoming Shareholders Meeting:
- Noted that the annual shareholders meeting was scheduled for the following week on May 19.
- Mentioned that for the first time, shareholders would be able to vote and ask questions online during the meeting.
- Directed interested parties to the company’s website for more information.
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Product and Business Updates:
- Highlighted the launch of the GeForce GTX 480 and 470 GPUs, the first products based on the next-generation CUDA GPU architecture code named Fermi.
- Emphasized that the GTX 480 and 470 were designed specifically to excel at tessellation, a key feature of DirectX 11.
- Mentioned that the reception for the new GeForce 400 series among gamers and the press had been phenomenal.
- Noted that the GTX 480 had been validated as the fastest GPU in the world, breaking world records on Futuremark 3DMark Vantage.
- Stated that the company shipped a few hundred thousand units of the GTX 480 and 470, with yields exceeding expectations, and that the GPUs were widely available worldwide and selling out weekly.
- Mentioned that being back in the Enthusiast segment was a positive driver of revenue and profitability growth.
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Notebook and Switchable Graphics:
- Noted the shipment of the new GeForce 320M integrated chips for the latest 13-inch MacBook Pro, delivering up to an 80% performance increase over the previous GeForce 9400M integrated chipset.
- Mentioned that the new 15-inch and 17-inch MacBook Pro both came standard with the new GeForce GT 330M, the fastest graphics ever in a Mac notebook, and included switchable graphics.
- Stated that NVIDIA had approximately 70 Optimus design wins, with 11 in production and 50 expected to be available in the market for the back-to-school cycle.
- Believed that Optimus had the potential to expand the market for discrete GPUs by increasing the GPU attach rate in notebooks.
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Quadro Business:
- Noted that the Quadro business was recovering and was ahead of where the company anticipated it would be at the time.
- Mentioned that the recession delayed upgrades in 2009, and with the significant enhancements made in both hardware and software, the company believed it would drive a more aggressive upgrade cycle.
- Anticipated that the combination of a healthy upgrade cycle and the addition of new markets would take the Quadro business to a higher level of growth.
- Announced that NVIDIA’s Quadro Professional graphics solutions were certified for Adobe Creative Suite 5 software, providing real-time video editing and effects processing.
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Tesla and Supercomputing:
- Mentioned that Tesla achieved record revenue and that Q1 should be the first of many record quarters to come.
- Noted that Fermi had unlocked new demand for Tesla, with heightened activity in supercomputing, energy, and finance.
- Highlighted the adoption of Tesla as a standard OEM SKU by a number of OEMs, including Supermicro, Apro, Tyan, Cray, and Bull.
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Tegra:
- Announced that NVIDIA had completed and qualified its first commercially available smartphone, and that Microsoft was shipping the industry’s first phone based on Tegra.
- Mentioned that NVIDIA had multiple next-gen Tegra designs within smartphones and tablets coming, which should be announced later that year.
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Closing Remarks:
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Stated that the company’s core profit drivers, high-end GPUs and professional solutions, were performing well.
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Noted that there was evidence from key early indicators for growth businesses discussed during the call, leading to continued optimism about prospects in 2010 and beyond.
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Turned the call over to David White, the CFO, for financial updates.
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David L. White [Former Chief Financial Officer] 💬
David L. White, the Former Chief Financial Officer of NVIDIA Corporation, provided several comments during the Q1 2011 Earnings Call on May 13, 2010. Here is a detailed summary of his statements:
Opening Remarks
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Financial Results:
- Revenue for Q1 was $1.0 billion, up 2% sequentially.
- GAAP gross margin was 45.6%.
- GAAP operating expenses were $309 million.
- GAAP net income was $137.6 million or $0.23 per diluted share.
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Business Performance:
- The core GPU business was flat quarter-over-quarter.
- Supply constraints eased, particularly for high-end, Fermi-based GPUs.
- Yields of Fermi-based GPUs were higher than expected, leading to good availability of new GeForce GTX 480 and 470 GPUs and Tesla high-performance computing products.
- Quadro grew strongly and is approaching pre-recession levels.
- Tesla had a record quarter, contributing to higher overall gross margin.
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Financial Position:
- Cash, cash equivalents, and marketable securities at the end of the quarter were $1.76 billion, up $36.7 million from the fourth quarter.
Outlook for Q2 Fiscal 2011
- Revenue:
- Expected to be down seasonally, 3% to 5%.
- GAAP Gross Margin:
- Expected to increase to 46% to 47%.
- GAAP Operating Expenses:
- Expected to be flat.
- Tax Rate:
- 12% to 14%, assuming a renewal of the U.S. R&D tax credit, otherwise 14% to 16%.
Q&A Session
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Response to Tim Luke (Barclays Bank):
- Capacity and Yields:
- Yields and ability to supply the market with adequate product improved significantly by December-January.
- Margin progression exceeded expectations due to improved yields.
- More die became available for sale.
- Fermi's launch occurred in the last three-four weeks of the quarter, limiting the capacity to meet demand.
- Guidance reflects expectations for Fermi to be a significant part of the product mix and contribute to margin growth.
- Capacity and Yields:
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Response to Patrick Wang (Wedbush Securities):
- Revenue Guidance:
- The chipset business is doing well with the launch of the 320M.
- Seasonality is expected, consistent with industry norms.
- Fermi is expected to be strong this quarter, mitigating the seasonal effect.
- Expectation to gain market share in the high-end segment and notebooks due to Fermi's return and Optimus adoption.
- Revenue Guidance:
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Response to Michael McConnell (Pacific Crest):
- Fermi and Seasonality:
- Fermi is ramping as expected, and its success aligns with previous expectations.
- Seasonality is a factor, but Fermi's ramp into the high-end segment will offset some of this.
- The market is balancing out, and demand is being met.
- Fermi and Seasonality:
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Response to Shawn Webster (Macquarie):
- Inventory:
- Inventory issues with Fermi at the end of the quarter would naturally work themselves out as demand is fulfilled.
- Inventory will stabilize over the quarter.
- Inventory:
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Response to James Edward Schneider (Goldman Sachs):
- Operating Expenses:
- Objectives are to keep operating expenses flat.
- Increases were driven by employee stock option exercises and legal expenses related to ongoing cases with Intel and the FTC investigation.
- Operating Expenses:
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Response to Douglas H. Freedman (Broadpoint AmTech):
- MCP Ramp Down:
- Resources are being redeployed to other areas like Computing and Mobile.
- MCP is not ramping down; the 320M product is doing well.
- MCP Ramp Down:
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Response to Arnab Chanda (ROTH MKM Partners):
- Gross Margins:
- NVIDIA aims for mid-50s to high 50s gross margins.
- As differentiated businesses like Quadro, Tesla, and Tegra grow, margins should naturally improve.
- Current margins should not be considered the peak.
- Gross Margins:
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Response to Craig Scott Berger (FBR Capital Markets):
- Tegra Growth:
- Tegra was actually up quarter-over-quarter.
- Design wins will contribute to second-half growth, but specific details will be shared when products go into production.
- Chipset Segment:
- The chipset business is expected to perform well over the next 12 months.
- Tegra Growth:
These are the detailed points covered by David L. White during the earnings call.