Analyst Conference Summary

conference date: November 6, 2014 @ 2:00 PM Pacific Time
for quarter ending: October 26, 2014 (Q3, third quarter fiscal 2015)

But I own competitors AMD and Marvell as this is written.
Forward-looking statements

Overview: Great quarter, record revenue on datacenter GPUs, Tegra, and consumer gaming GPUs.

Basic data (GAAP) :

Revenues were $1.23 billion, up 12% sequentially from $1.10 billion, and up 16% from $1.05 billion in the year-earlier quarter.

Net income was $173 million, up 35% sequentially from $128 million and up 45% from $119 million year-earlier.

EPS (earnings per share) were $0.31, up 41% sequentially from $0.22, and up 55% from $0.20 year-earlier.

Guidance:

Q4 fiscal 2015 (ending in January) revenue is expected to drop to $1.20 billion, plus or minus 2%. Non-GAAP gross margin 55.5% plus or minus 0.5% Capital expenditures $40 to $50 million. Operating expense $470 million GAAP, $422 non-GAAP. Tax rate 18%.

Conference Highlights:

Record revenue was recorded in each business.

In the quarter launched the newest round of Maxwell GPUs. Introduced new features, including global lighting. This drove y/y growth in PCs, with mobile GPUs leading. Margins were strong.

GRID graphics virtualization program announced an early access program with VMware. Quadro pro GPUs are ramping very quickly. Datacenter presence continues to grow, with machine learning on Tesla as a growth driver.

Tegra K1 mobile processor added wins, including the Google Nexus 9. Automobile infotainment systems based on Tegra now have exceeded 6 million units. Tegra processor sales grew 51% from year-earlier.

Nvidia commenced litigation against Samsung and Qualcomm, claiming GPU patent violations [WPM: but the technology was licensed from ARM].

Non-GAAP numbers: Gross margin 55.5%. Net income $220 million, up 27% sequentially from $173 million, and 43% from $154 million year-earlier. EPS $0.39, up 30% sequentially from $0.30, and up 50% from $0.26 year-earlier. Excludes stock-based compensation expense of about $41 million, $10 million acquisition-related costs and other non-cash items.

55.2% GAAP gross margin.

Cash and equivalents balance was $4.24 billion. $215.6 million cash from operations. $39.7 million was used for capital expenditures. $175.9 million free cash flow. $310 million was used to repurchase stock. $46 million for dividends. Long-term debt $1.4 billion. $408 million of inventory, up sequentially.

GAAP cost of good sold was $548.7 million, leaving gross profit of $676.7 million. Operating expenses of $463.4 million consisted of $340.1 million for R&D and $123.3 million for Sales, General and Administrative expense. Leaving operating income of $213.3 million. Interest and other expense $4.2 million. Income taxes $36.1 million.

Q&A:

PC gaming trends, seasonal vs. Maxwell launch? Gaming is expanding globally. We are seeing strength in Asia and developing countries, and around mobile. E-sports are gaining traction. When we see an exciting game come to market, or introduce a new GPU architecture, or something exciting like a 4K display. We believe people will upgrade to Maxwell. PC gaming was up over 30% for the year. In Q4 amazing titles will come out.

GRID VMware qualification cycle? We had a record datacenter business quarter. Enterprises can be virtualized all the way out to clients, streaming to any device. Thousands of companies have tried GRID. Validation and certification take some time, there is no particular schedule, but trials are going well. We can engage 90% of virtualization opportunities.

More than doubling in notebook gaming? The new notebook GPUs can perform on par with desktop. Maxwell doubles the performance of the prior generation of Nvidia notebook GPUs. Maxwell is just beginning to ramp, as is the notebook gaming business.

Client GPU pricing? It is related to value. Our GeForce strategy has moved away from a component valuation model. We have a software rich approach, with a GeForce Experience console on top. People don't choose component A to component B anymore. Once on GeForce people tend to stay on GeForce.

Attach rates in traditional PC market? PC OEMs represent less than 25% of our GPU business. Within that are some moving parts. Some thin, light PCs don't have GPUs attached. The mainstream commodity notebook PCs are seeing lower GPU attach rates over time.

FPGA competition with datacenter GPUs? GPUs bring an amazing amount of computational throughput. A small team trying to program an FPGA can't compete with the big teams at Nvidia designing for Tesla. Accelerated computing can add a lot of value in many areas of computing.

Q4 revenue guidance, is PC gaming increasing in the January quarter? We are expecting our gaming platforms and datacenter to be up sequentially. OEM business expected down sequentially.

Intel Bravo platform launch next year, effect on seasonality? Our OEM business is becoming relatively small as our products for specific verticals ramp revenue. Our OEMs tend to follow our product cycle rather than Intel's. HP and Lenovo introduced gaming notebooks based on Maxwell. We are becoming a platform model rather than a component attachment model.

We believe autopiloting of cars will require greater and greater computing capability over time. Visual computing will play a huge role.

Tegra guidance for Q4? Shield platform will be up sequentially.

FinFET plans, timeline? Maxwell improved on Kepler 2X on performance/power, showing architecture is important. We are excited about the next generation of FinFET. We are working deeply with our foundry partners to create test chips and get the process ready to ramp. We have not announced our next-generation products or process node yet. Right now our focus is on ramping Maxwell.

Believes game consoles are past their hayday. The PC is the leading gaming platform. Meanwhile Android for mobile is on its way to become the primary gaming platform.

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