Analyst Conference Summary

conference date: May 7, 2009 @ 2:00 PM Pacific Time
for quarter ending: April 26, 2009 (1st quarter fiscal 2010)

But I own a competitor, AMD.
Forward-looking statements

Overview: Sequential bounce back in revenue still left NVIDIA deep in the red. They are not cutting back employees.

Basic data (GAAP) :

Revenues were $664.2 million, up 38% sequentially from $481 million, but down 42% from $1.153 billion year-earlier.

Net income was negative $201 million, worse sequentially than negative $148 million, and reversing positive $177 million year-earlier.

EPS (earnings per share) were negative $0.37, down sequentially from negative $0.27, and from positive $0.30 year-earlier.

Guidance:

Q2 revenue up 5% sequentially. Gross margins will improve 32 to 34% GAAP. $280 million GAAP operating expenses. Depreciation and amortization and capital expenditures flat compared to Q1.

Conference Highlights:

There was a one-time charge of $140.2 million for stock stock based compensation expense tenders.

Reduced inventories significantly. Managed expenses. "The industry is gearing up to launch the next geenration operating systems that adopt GPU computing."

Captured market share in the desktop standalone GPU segment, reaching 69%.

Non-GAAP EPS was negative $0.09 per share, net loss was $47 million.

ION platform small form factor PCs introduced. Tegra 600 series introduced. CUDA platform applications are being released. Tesla products also making progress.

Cost of revenue was $474.5 million, leaving gross profit of $190 million. Operating expenses were $420.7 million, consisting of $211 million for research and development, $80 million for sales, general and administrative, and $129 million related to the stock option purchases. Operating loss was $231 million. Interest income was $6 million. Income tax benefit was $23 million.

Cash, equivalents and marketable securities ended at $1.338 billion. Inventories declined to $327 million. $51 million for depreciation and amortization. Capital expenditures were $21 million. $121 million free cash flow in quarter.

GPU business was 53% of revenue. Was up 44% sequentially, led by desktop segment. Channel inventories have now stabilized. Notebook segment was up 28% sequentially. MCP, chipset business, was 28% of revenues.

Workstation graphics and computing revenue (PSB business) was 16% of revenue, with revenue flat sequentially.

28.6% GAAP gross margin; 30.6% non-GAAP. This was short of expectations.

5490 employees, up 60 sequentially. Hiring freeze in U.S.

Q&A:

Inventory details? We have inventory that we sold that had been completely written off, and some had been written down to market value. On a net basis, there was a negative impact to the quarter because we had not written down some of the inventory enough.

In Q2 we will continue to sell inventory we have written off or down. Estimate is the effect will be a wash.

We are ramping 40nm aggressively, but we are not making product announcements today. 65nm inventory is now negligible. That will help improve gross margins going forward. Also PSB products should start selling again as enterprise market revives, which should increase margins.

TSMC is ramping 40nm, but most products, 75% will be 55 nm at end of year.

Operating expense run rate more towards end of year? Still working on $265 million goal. Still need to invest in future products.

Pricing environment? Pricing is aggressive, but we think it should be relatively stable for some time. We get a premium in the market relative to our competition. Physics and CUDA should also differentiate our products as more games and applications come out.

Linearity in quarter? Solid quarter, with spot shortages of products in the quarter. There is uncertainty, but we are monitoring closely.

PSB business slowness hit margins by about four points.

Competition in workstation market? We are not seeing any competitive pressure in the workstation business. The competition claims design wins, but it is not a chip business. It is a systems software solution business. Our market share is high because we invested in solving some of the most challenging computing problems in the world.

ION revenue contribution? Intel chipset business total is $180 million. About two-thirds is from the ION chip set. That is up from zero a year earlier. We don't distinguish between Apple and other platforms, but Apple represents roughly 50% of that. ASUS is another ION customer. Margins are better than the average for this quarter.

Workstation revenue in Q2? Would figure that to be about flat.

Tesla revenues were in the many millions of dollars. Tegra has smartphone, portable media player, and netbook design wins. This quarter we should see Tegra revenue. The telcos are excited about revenues they can generate by giving away smartphones with graphics capability.

Integrated graphics don't have DX Compute (DirectX Compute), which is very important for Windows 7. It dramatically speeds up HD video editing, which is becoming a common task on PCs.

How do you see channel inventories right now? It is harder for us to tell on notebooks. For desktops our channel inventory is near all time lows, resulting in spot shortages of products.

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