Analyst Conference Summary


conference date: August 9, 2007 @ 2:00 PM Pacific Time
for quarter ending: July 29, 2007 (2nd quarter fiscal 2008)

Forward-looking statements

Overview: Great quarter.

Basic data:

Revenues hit $935.3 million, up 10.8% sequentially from $844.3 million and up 36% from $687.5 million year-earlier.

Net income $172.7 million, up 30.5% sequentially from $132.3 million and up 99% from $86.7 year-earlier.

EPS $0.43, up 30% from $0.33 sequentially and up 95% from $0.22 year-earlier.

$1.57 billion in cash.


Expects revenue growth in most areas, for total growth to 5 to 7%. May see limitations as close to production capacity and limited inventory.

Conference Highlights:

Announced 3 for 2 stock split.

Strong revenue growth exceeded prior guidance in what is usually a seasonally weak quarter. Next 2 quarters are typically seasonally strong.

GeForce product line had strong growth, with desktop GPU line up 37% y/y and notebook GPU line grew 129% y/y.

Captured market share. Per Mercury Research, had 66% of total standalone GPU market, 65% of total Desktop Standalone, 64% of DirectX 9 and 75% of DirectX 10 markets.

20% sequential GPU revenue growth; notebook segment grew 50%. Expected pricing pressure on desktop segment, but did not see it.

Non-GAAP net income given as $198.1 million or $0.51 per share, up 77% from year-earlier.

45.6% non-GAAP gross margin. 45.3$ GAAP.

$212.5 million non-GAAP operating expense.

Inventory is down and is too low.

Tesla product line launched for high-performance computing. Very warm reception so far.

Working on energy efficiency issues; Hybrid SLI will be very energy efficient.

Cost of revenue was $511.3 million, gross profit $424.0 million, operating expense $239.2 million, operating income $184.7 million, interest income $16.1 million, income tax $28.1 million.


Vista effects? Vista is getting better and benefits from stand-alone GPUs. So we do think this is helping us; also BluRay and HD-DVD.

Growth outlook in non-core businesses? Growth in GPUs is related to PC growth plus our market share gain. 60% of PC's don't have GPUs yet. We are building a full graphic computer on a chip for the cell phone market, which should have great potential. Tesla market is also very large.

Tax rate? Has been 14% and expect 14% in Q3.

Q3 guidance below normal seasonality? We depleted inventory quite dramatically in Q2, so we are cautious about Q3.

Gamers and percentage of market? Hard to quantify. Five years ago only video games took advantage of GPUs. Now operating system and animation and Google earth and video processing all use the GPU. Also GPUs are getting harder to build; 2nd level chip designers have fallen off a cliff.

ASPs for GPUs? One of the few semiconductor device that has kept a flat ASP over the last several years. Expecting to work through tightness of supply; does not anticipate it to be a problem. We don't raise prices to our customers even when there are shortages.

We are a solid quarter to two quarters ahead of our competitor (AMD/ATI). We expect to see a lot of competition.

We can still improve gross margins going forward through operational excellence. Gross margins can be much higher in high-performance computing market.

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Copyright 2007 William P. Meyers