Analyst Conference Summary


conference date: November 8, 2007 @ 2:00 PM Pacific Time
for quarter ending: October 29, 2007 (3rd quarter fiscal 2008)

Forward-looking statements

Overview: Another record quarter, with revenues up an amazing 36% from year-earlier.

Basic data:

Revenues were $1.12 billion, up 20% sequentially from $935.3 million, and up 36% from $820.6 million in the year-earlier quarter.

Net income was $235.7 million, up 36.5% sequentially from $172.7 million, and up 121% from $106.5 million year-earlier.

EPS (earnings per share) was $0.38, up % sequentially and up 111% from $0.18 year-earlier.


Revenue growth in December quarter in 5 to 7% range (sequential) led by GPUs and MCP. Will work hard to maintain gross margin. Operating expense will increase due to new hiring and products, up 3 to 5%.

Conference Highlights:

Non-GAAP net income, which excludes stock-based compensation and its tax impact, was $264.2 million, or $0.44 per share, up 77% from year-earlier.

GAAP gross margin grew to 46.2%, up 90 basis points sequentially. Non-GAAP was 46.4%.

GPUs [graphics processor units] are becoming "increasingly central to today's computing experience in both consumer and professional market segments."

GeForce product line achieved record revenue, with a 33% increase in desktop and 120% increase in notebook segments (from year earlier). Stand-alone notebook GPU market share grew to 72%, up from 52% a year ago.

First ever single chip motherboard GPUs (mGPUs) for Intel architecture shipped - GeForce 7000 mGPU family. This is a 40 million unit potential market. GeForce 8800 GT GPU launched with $199 price and is at 65nm process and to great acclaim.

Quadro Professional Solutions segment grew 37% from year earlier with seven new products shipped in Q3. Seeing growing demand in this segment.

Tesla C870 GPU and D870 supercomputer products began shipments.

Cost of revenue was $600.0 million. Gross profit was $515.6 million. R&D was $179.5 million, SG&A $88.2 million, for total operating expense of $267.7 million. Operating income was $247.8 million, interest income $19.0 million, income tax expense $32 million. $33 million depreciation. Capital expenditures $70.4 million.

Concerns about production limitations were mostly overcome. Notebook GPU growth was 41% sequentially and 120% from year-earlier. Desktop was up 14% sequentially and 33% from year-earlier. GeForce 8x products accounted for more than 80% of desktop and notebook business.

MCP grew 23% sequentially, with traction in Intel segment.

PSB, workstation business, grew 20% sequentially and 37% from year-earlier.

Consumer business grew 6% sequentially.

4609 employees, with aggressive hiring in R&D.

Cash and equivalents ended at $1.85 billion, up $281 million sequentially. $125 million of stock was repurchased. $400 million operating cash flow. Inventories ended at $306 million, up slightly due to new product introductions.

Enthusiast graphic segment grew 33% year over year.

We are the only motherboard chipset provider that supports both AMD and Intel platforms.

First NVIDIA (AP15) mobile application processor to debut next year.


G4700 motherboard GPU pricing? ASP higher on Intel side, targetted for mainstream price-sensitive segment. Roughly in $10 to $20 range.

Notebook trends? Competing against integrated graphics a long time. Will succeed with great ideas and bringing value to marketplace.

Power consumption factor? We have a very efficient performance per watt GPU.

Risk of double ordering? We saw no evidence of double ordering.

Linearity in quarter? Q3 was one of most linear we have ever had. Vista is doing well, Leopard is amazing, gaming is doing well, all driving GPU market. China is increasingly designing products, you need workstations for that.

Tight capacity? MCP 73 and GeForce 8.

Q4 guidance? Not counting on share growth. Look at design wins and strategic position, plus overall market. We try not to be too bullish. We are not anticipating ASP changes. People are really looking for new graphic computer power.

G4700 cut into discrete GPUs? It is a good product, but it way less powerful than our least powerful discrete GPU.

Tesla in financial service markets? Lots of development of computational finance.

Desktop replacement by notebooks? Notebooks just starting to see growth in gaming and mobile workstation segments. We'll be able to add a lot of value to those two segments. A lot of notebooks are additive to desktops, not replacements.

Competition against Intel bundling? We have been competing against this for a long time. We have to add value. If 3D matters, we can add a lot of value.

ASPs (average sale prices)? Relatively flat from Q2 to Q3.

Mobile application processors? We can build a computer from the ground up, there is a lot of interest in our AP 15 product. Every cell phone wants to be a computer now.

Tesla contribution in quarter? Minimal. Just introduced, and expect it to be small relative to size of company for the first year.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers