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pww.comNVIDIA 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:

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. Closing Remarks:

    • Stated that the company’s core profit drivers, high-end GPUs and professional solutions, were performing well.

    • 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.

    • Turned the call over to David White, the CFO, for financial updates.

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

  • 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.

  • 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.

  • 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

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

  • 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.

These are the detailed points covered by David L. White during the earnings call.