NVIDIA Q2 Results

Arun

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Record revenue, and nearly certainly record gross profit, but no further financial information will be disclosed because they're currently reauditing all past results. Yay, Backdating Options Scandal! Here's Beyond3D's news post about it:
http://www.beyond3d.com/forum/showthread.php?t=32615

And the official info:
http://phx.corporate-ir.net/phoenix.zhtml?c=116466&p=irol-newsArticle&ID=894914&highlight=
NVIDIA also announced today that the Audit Committee of the Board of Directors is conducting a voluntary review of the Company's stock option practices covering the time from the Company's initial public offering in 1999 through the current fiscal year. The Audit Committee is conducting this review with the assistance of outside legal counsel. The Company has voluntarily contacted the Securities and Exchange Commission staff to inform them about the ongoing review.

Although the review is ongoing, the Audit Committee has reached a preliminary conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, NVIDIA may record additional non-cash stock-based compensation expense related to stock option grants. Any additional non-cash stock-based compensation expense recorded will not affect the Company's cash position or reported revenue for the recently completed quarter or any previous periods.

CC Transcript, really rough this time around because it honestly wasn't interesting - don't worry, it won't become some kind of habit ;)
"Good afternoon and welcome to NVIDIA's CC for Q2 2006."
[usual disclaimers - and more in fact, huge list this time due to the options thing]
[resaying everything said in the PR about the option expenses]
--- Jen Hsun ---
Good afternoon and thanks for joining us.
Record revenue. Grew 20% year-over-year.
[reiteral of what business units grew]
Strong Q2 for Discrete GPUs. Demand for the 7600 and 7900 with SLI is high.
[7950GX2 PR and blabla]
[Continuing commitment to SLI, from mainstream to ultra-high-end]
[Mention of the GPU Tour, where SLI was found to the "clear winner]"
- Performance segment grew nearly 50% (7600)
- Notebook revenue GPU grew over 50% year-over-year. Up 12% quarter-over-quarter.
- 80% for Performance, 172% for Mainstream in notebooks.
[PureVideo HD PR]
24% to 37% from Calendar Q1 to Calendar Q2. Expecting market share to increase further with new design wins.
[Vista PR - will drive an increase in adoption of discrete GPUs]
MCP business' 8th consecutive quarter, partially thanks to the AM2 transition.
Captured design wins with all leading AMD server OEMs.
Expecting that server share to double by the end of the fiscal year.
[PR about how great it is that HP embedded GeForce IGPs etc. - and mention of other design wins]

Continuing focus on the NVIDIA Business Platform [insert PR here]
Design wins for it with Lenovo and others.

17% quarter-over-quarter Professional/Quadro revenue growth.
[PR on Gelato, Genlock, Quadro Plex, etc.]
Handheld: Record shipments of GPUs in Q2. Beggining to feel the effect of new Motorola design wins.
1) Leading the roll-out of Digital TV, including a Samsung handheld made especially for the worldcup.
2) Several new phones with Motorola.
3) New phones for Japan, China, Taiwan
[MobileMedia Platform PR]
---
"Cannot comment on expenses, earnings, etc."
Memory decreased by $21M, offset by MCP and Professional.
Desktop GPUs declined by 5% as growth in high-end offset the mainstream seasonal decline.
Significant ASP increase.
"Decreased revenue on low margins products, Increased revenue on high margins products"
- Repurchased 5.4M shares.
- Slight inventory increase.
- 252 new employees during the quarter. Only 78 in the US. Internationalization.
- Slight operating expense increase

Q3: Expect increases in Desktop and Notebook GPUs.
Good growth in MCPs from normal market improvement and new products.
Workstation and Handheld relatively flat.
8-10% quarter-to-quarter revenue growth. Very slight increase in operating expenses.
---
AMD/ATI
[PR about how NVIDIA will become the only platform company for both AMD and Intel and blabla]
[exact same PR as Brian Burke gave. First in everything. This only enhances their strategy. Good for you.]
[Want to install the GPU as the new DSP. Exciting growth drivers in all segments.]
[Vista will increase adoption of discrete GPUs in Desktop and Notebooks]
[HD-DVD and Bluray will play into a significant PureVideo HD advantage]
------------- Q&A ------------
Q from Citygroup: When do things get better when it comes to revenues seasonally?
R: Q2 is typically very slow. Things pick up very strongly in July for Back-To-School.
It's typically the same every year. Professional tend to be less seasonal for example though.
Q: Attach rates going up in Q3? Delay of 965G helping you?
R: [Vista, Vista, Vista PR!] - Don't know much about the issues with the 965G.

Q: Increase in ASPs and decrease of units?
R: Yeah, well... Uh... Up 60% ASP. Unit decline in the mainstream, did very very well in the high-end GPUs.
Q: Inventory?
R: Inventory increases are all in the new products. The old products' inventory declined.
Going forward, we're going to continue to make sure we have enough inventory.
Not growing it very much in the rest of the year.
Q: Programs/Relationship with Intel?
R: We have collaboration going on with both companies.
We're going to continue to invest around AMD processors.
Obviously it's unlikely that AMD will design corelogic for Intel now. Opportunity there.
Tons of collaboration with both companies so nothing particular to talk about here.

Q: Motorola. Share reasons? etc.
R: 2 or 4 GPU companies depending on how you count in the Handheld industry.
Focusing on media-rich. Historically focused on 3G, now also focusing on smart phones.
Focus on devices where they can have add values with their IP etc.
Q: Growth?
R: Moderate growth for the rest of the year.

Q: Sales to Sony/Royalty Ramp?
R: Two activities with Sony. One of them is engineering, porting to new fabs and new "geometries" (processes)
That will continue this year and probably next year too. Royalties expected "this quarter", don't know how much.
No royalty in Q2. Expecting "Small" royalties in Q3.

Q: Gross margins? ...
R: I did say that... You'll have to grow our own conclusions.
Q: Intel revenue?
R: 12% growth in Intel revenue.

Q: MCP: PC-level growth rates?
R: Our strategy is to focus on the segment where either the GPU or the GPU Technology could play a large role. [So SLI and GeForce IGPs]
Expecting to continue to be very successful in the SLI segment.
Q: Margins next quarter etc.?
R: We haven't changed our expectations that we'll reach 45%, and in fact we'll have to raise it as we reach it.
"Our operation, frankly, is world-class." Key with the industry's high complexity and velocity. Have to be on your toes.
Going to continue to put energy on that.

Q: Stock options?
R: The audit is still going. So not much we can say.

Q: High-growth HD TV areas etc. and other markets - looking at it?
R: Focus on mix on computation and CE etc. - multimedia elements and so on.
"Digital Television is not really a computation device. It's not much of a computer than a DVD Player."
The nature of those devices tend not to follow the same rules. Not sustainable markets because demands don't scale.
Focus on markets where things begin to improve [list of types of digital devices]
Q: Inventory levels... Which kind of products is the cause?
R: Inventory probably increased in Q2. Not expecting it to increase in Q3.
Q: ASPs?
R: Depends on mixes, so it might even decrease if we do very well in mainstream etc.
Jen Hsun: We made a prediction a while ago that SLI will increase the sales of high-end GPUs. [...] It's quite a boon for the high-end GPU market.

Q: Margins...
R: Err, errr, expect to increase in Q3.
Q: Royalties for PS3 for margins?
R: Depends on the magnitude of the royalties, but yes, it could help.
Q: Convergence of GPU and CPU. What is your take on that?
R: "You know, the GPU is a very complex device". The GPU is substantially larger than a lot of CPUs.
One could argue that long-term, some devices could integrate some other devices. But markets don't care about Moore's Law.
They just care about what they need. Because of segmentation etc., GPUs remain standalone devices for the segments that we serve.
Focus on making the GPU valuable. Not our job to decide which processor embeds the other. Importance of applications.
In some segments, GPUs might integrate with CPUs, or vice-versa. But it's not always the same CPU for example (PowerPC, x86, CELL, etc.)
So "we have to focus on the market", "on advancing the GPU technology" - "We've been very true to it historically and are very true to it."

Q: Split between 7000s and 6000s?
R: Heavily favoring 7000s.
Q: G80?
R: "We haven't announced G80. I don't know what G80 is." "Hahaha"
Q: Foundries?
R: Focus on being a strategic and meaningful partner. TSMC is our largest single partner. Terrific partner.
"Typically, when you bring a lot of business to a relationship, there's some benefit". That's our focus.
Q: PC market with Vista?
R: I think everybody is thinking through that. Some of the smartest things I've heard is that the vast majority of americans aren't talking about it.
So it seems likely Microsoft will be marketing it heavily then.
"Conroe is a very exciting microprocessor". Bringing a lot of enthusiasm back in the high-end segment.
Going to bring people to buy high-end PCs, hopefully with SLI GeForces.

Q: Collaboration with Intel on the MCP side. Any sign of that on the GPU side? Design wins wrt Conroe before and after the announcement?
R: "We're the only standalone GPU partner in the world today." - "I think we're a much more natural partner to either company today than ever before".
Q: GPUs on Conroes, embedded?
R: High-end PCs really need SLI. So we were in that segment anyway, don't need it.
Q: Since the mix is likely to shift to Intel, difference in MCP gross margins?
R: Margins for MCPs depends more on whether it's Integrated or Discrete, since Integrated have lower margins.

Jen Hsun: Thank you for joining us, and we look forward to reporting our progress for Q3.

Uttar
 
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Would they include the royalties from Sony :?: Or is that when the actual PS3s are sold?
 
There ya go. And OUCH - another option scandal, unless they explain things further during the CC, this is gonna be ugly tommorow on the stock market.

Uttar
 
Question: ".....G80?"
Answer: *laughter* "We haven´t yet announced G80, erm, what´s G80? *laughter*

:LOL:

"We dont know anything about G80" :LOL:

But after that Jen emphasized that you'll be seeing more (new) G7x parts this year which deflated my balloon. :cry:
 
forget G80, heh, I wanna know what a mature DX10 Nvidia GPU is gonna be all about, so tell me about the G90 damnit, Jen Jsun, your Nvidia monkeys are busy toiling away on it as we type, lol.
 
Transcript posted.
Purely IMO, all this means schedule-wise is anything earlier than late September/early October for G80 has become totally impossible, since they didn't even talk about it a single bit. Personally, I'd suspect mid-October now, but we'll see.

Uttar
 
Thanks Uttar. :)

Q: Split between 7000s and 6000s?
R: Heavily favoring 7000s.
Q: What do you expect the split to be when Nvidia launches G80 towards the end of the year?
R: "We haven't announced G80. I don't know what G80 is." "Hahaha" But a lot of G7x's ..
 
That is not particularly indicative of a September G80. If anything it suggests a November G80.

But "suggests" is the key word there.
 
That is not particularly indicative of a September G80. If anything it suggests a November G80.

But "suggests" is the key word there.

Yet, there's something odd about it.

The piece on HKEPC.com talks about a "7950 GT", but not a 7950 GTX...
 
I'd think that the G80 would come out no earlier than a month or two before Vista rolls out. Without a concrete data on Vista there's no reason to release a flagship DX10 card that could easily be up for a refresh by the time Vista arrives.

I'd also be curious to the adoption rate of the G80 if it doesn't not significantly trounce their existing flagship card in XP/DX9. Why not milk the 79xx until inventory is out, if the margins are high (as they appear to be) and stock up on G80's so you can flood the market properly when it's time.

That'd be my choice.
 
I'd think that the G80 would come out no earlier than a month or two before Vista rolls out. Without a concrete data on Vista there's no reason to release a flagship DX10 card that could easily be up for a refresh by the time Vista arrives.

I'd also be curious to the adoption rate of the G80 if it doesn't not significantly trounce their existing flagship card in XP/DX9. Why not milk the 79xx until inventory is out, if the margins are high (as they appear to be) and stock up on G80's so you can flood the market properly when it's time.

That'd be my choice.

Launching another ultra high-end-only with G80 would fit nicely with a niche market, such as the one for 7950 GX2.
High-margin parts is what they fancy as of late, right ?
And a low volume part would be easier to make, provided there was a **price too high for mere mortals** coup (7800 GTX 512 comes to mind...).


Plus, there's the added "halo effect" bonus.
Combined with a price-cut on mainstream/low-end GPU's/Refresh GPU's, there's a lot to be milked from G7x yet (man, i just sounded like Jen-Hsun, yikes... :-? ).
Well, the same could be said about RV570 and R580+, i guess.
 
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Okay, completely for funsies, ABSOLUTELY NO INSIDE INFORMATION at play here, my B3D G80 Announce Date pool entry:

November 9th, 2006

If I want another entry later, I have to find another virtual dollar somewhere. :cool:
 
I can understand RAMBUS having to restate several years of earnings because of improperly expensed stock options--I'd expect RAMBUS to try and inflate its positive situation to the greatest degree possible--but Apple, and now nVidia?

I know that sometime back the SEC changed the rules relating to how stock options may be expensed, and I remember reading at the time, IIRC, statements from Microsoft talking about how it was going to change its accounting procedures to reflect the changes. Seems to me I also read something about that from Apple, too.

It just seems darned odd that all of these companies are jumping on the "We're sorry, but we have to restate our earnings for the last several years" bandwagon almost simultaneously. I cannot imagine how this would thrill investors in any of these companies, and this would at least seem to be the stuff that stockholder lawsuits are made of. For that reason I would be skeptical of any glowing news aside from the restatements that any of these companies announce, as that would seem to be on the order of self-serving camouflage to attempt to blunt the impact of restating income for several years--because, obviously, investors had a right to think, and most certainly did think, that these companies got their earnings statements right the first time.

If I had to draw any general conclusions from what is happening here I'd say that it causes me a little worry about the health of some of the tech industry's bigger players. The problem with earnings statements in general, and with traditional accounting rules, has been that when a company starts restating past earnings reports, especially over long periods of time, this generally indicates that fires have been burning in these companies for extended periods of time prior to the time those past earnings are actually restated.

What typically happens is that the smoke, and indeed the fire itself, have simply been hidden until the last possible moment that a restatement of earnings becomes the only possible option for company accountants and lawyers trying to comply with the letter of the law after possibly having ignored its spirit for as long as possible. It's difficult to see how all of these companies could have made a habit out of improperly stating their earnings for a period of years. I do not feel these issues have been explained very well by the financial press so far and it's that murkiness that bothers me.
 
I look at Q1 report and it says:

GAAP net income for the first quarter of fiscal 2007 includes stock-based compensation expense of $23.0 million as a result of the Company's adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (SFAS 123R), during the quarter.

So it's a puzzlement, for sure, what they screwed the pooch on, and what years they are looking the closest at. I suspect it's not going to be hugely material, but that's a hunch only. For comparison purposes, FY2006 (ending Jan. 2006) net income for NV was $302M
 
I look at Q1 report and it says:



So it's a puzzlement, for sure, what they screwed the pooch on, and what years they are looking the closest at. I suspect it's not going to be hugely material, but that's a hunch only. For comparison purposes, FY2006 (ending Jan. 2006) net income for NV was $302M

expensing and backdating are different issues altogether; they just started expensing fy07...
 
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