ATI 3Q Financials: good show!

[Joe DeFuria]

http://biz.yahoo.com/djus/030625/0729000550_2.html

(Or the complete PDF here: http://mirror.ati.com/companyinfo/ir/2003/atiq303.pdf )


Quite the turn around for one year, and they expect income growth next quarter.

There is some audio of today's conference call here:

http://biz.yahoo.com/cc/8/30708.html

I haven't listened to it myself yet.

 

[Dave Baumann]

ATI's cash position increased during the quarter as a result of positive earnings and a pre-payment of $18.0 million recorded as deferred revenue, associated with a development contract.

And they declined to give any further details on it in the CC when directly asked...

 

[PatrickL]

If i remember well Nvidia made around $ 400 millions last quarter. It starts to be a very close fight.

 

[Joe DeFuria]

Here's some interesting tid-bits from the conference call.

* ATI's cash position is at an all time high over $285 million. Part of this is due to a "pre-payment of 18 million associated with an unannounced development contract".

* (Lots of back patting on Radeon PC product line, including the new IGP, design wins market acceptance, etc.)

* They are creating market opportunities in digital TV, cell phones, and other power sensitive market segments. They will start shipping in volume to several customers this quarter one of their Imageon products.

* Mentioned some big names associated with the "open cable" initiative in North America. Specifically, that they "enjoyed strong early succes in winning the majority of early DTV and HDTV opportunities, including Sony, Samsung, JVC, Mitsubishi, Apex..." Expect significant revenue from these opportunities starting next quarter and into Fiscal '04.

Q&A: (I'm paraphrasing here).

Q: How is PC desktop marketshare looking?
A: We'll leave that to market analysts to come up with the numbers.

Q: (explain more about DTV and HDTV wins...which ATI products?)
A: Next-Wave and Xilleon products: mixed.

Q: How is SARS impacting Asia region?
A: We can't really quantify because we have overall growth and momentum, and general downturn of economic activity. It has not impacted getting products out of the fabs.

Q: Status of R400?
A: "I continue to learn things from the press about our product road-map." Focused now on driving 9800/Pro into the market...will be continuing the refresh of the product line in the fall and winter with enhancements to the high end of the line. That's where you referred to the R400...our code names...or rather the public code names for that product...so it's progressing well."

Q: For which product line was the $18 million dollar payment?
A: We can't give any information on that.

Ok...well, I have to go....I only made it through the first 30 minutes or so of the 50 minute call...

 

[Sabastian]

I was looking for an exact comment with regards to their yields on .13um, all they said is that it was better then they were expecting. In other words I would have to say that 98% yield is exaggerated otherwise I think they would be clarifying on that, err you'd thinks so anyway. I notice they shy away from giving market share numbers at all and defer that speculation to mercury research. With regards to market share though, they came close to meeting their gross margins and market share which would indicate an increase in share. If this continues for a few more quarters it will show significant increase in market share. I will have to listen to it again but there was so much interest in the chipset prospects that analyst seem to ask questions about it more then what I wanted to hear. I did however find the info regarding market focus on ‘value’ chipset market info interesting. It doesn’t look as though they will be marketing the chipset without the integrated graphics from what I heard. All in all a very good quarter for ATi and really doesn’t look that great for nvidia on this current quarter, as any loss of market share to ATi will look very bad. Nvidia has some creative accountants though.

 

[Sabastian]

ATI's cash position increased during the quarter as a result of positive earnings and a pre-payment of $18.0 million recorded as deferred revenue, associated with a development contract.

And they declined to give any further details on it in the CC when directly asked...

That is probably the announced Nintendo technology deal.

This would keep all the favorable conjecture going on with regards to a achievable Microsoft deal for the Xbox2 possibly.

 

[WaltC]

...Q: Status of R400?
A: "I continue to learn things from the press about our product road-map." Focused now on driving 9800/Pro into the market...will be continuing the refresh of the product line in the fall and winter with enhancements to the high end of the line. That's where you referred to the R400...our code names...or rather the public code names for that product...so it's progressing well."

Yes, I wouldn't think they'd want to start talking up R400 when they expect to sell R350 over the rest of the summer. Saying it's on track for fall/winter is actually more than I'd have expected them to say about it right now...

 

[CorwinB]

An unannounced Nintendo deal, coupled with a focus on cost-efficient and power-saving devices may very well mean a contract for a new, 3D-enabled, successor to the GBA... Yum.

 

[AzBat]

An unannounced Nintendo deal, coupled with a focus on cost-efficient and power-saving devices may very well mean a contract for a new, 3D-enabled, successor to the GBA... Yum.

Excellent theory! People have always assumed that the latest ATI/Nintendo technology agreement(linked below) meant a Gamecube successor. If you actually read the press release, it only says "developing technologies for use in Nintendo products." A 18million(US or CDN?) advance payment seems to me kind of small for a successor to the Gamecube. In fact, NVIDIA received a $200million advance payment for the Xbox GPU. So in comparison it could be theorized that the development contract is for something less complex, no?

Tommy McClain

EDIT: forgot to include the link...

http://www.ati.com/companyinfo/press/2003/4611.html

 

[cellarboy]

I beleive the statement regarding the Imageon contract may refer to the rumor that Palm will be integrating the chip into their new PalmOS 6 devices this fall.

 

[RussSchultz]

In fact, NVIDIA received a $200million advance payment for the Xbox GPU. So in comparison it could be theorized that the development contract is for something less complex, no?

Or whomever is doling the money out based on milestones.

 

[Sabastian]

An unannounced Nintendo deal, coupled with a focus on cost-efficient and power-saving devices may very well mean a contract for a new, 3D-enabled, successor to the GBA... Yum.

Excellent theory! People have always assumed that the latest ATI/Nintendo technology agreement(linked below) meant a Gamecube successor. If you actually read the press release, it only says "developing technologies for use in Nintendo products." A 18million(US or CDN?) advance payment seems to me kind of small for a successor to the Gamecube. In fact, NVIDIA received a $200million advance payment for the Xbox GPU. So in comparison it could be theorized that the development contract is for something less complex, no?

Tommy McClain

EDIT: forgot to include the link...

http://www.ati.com/companyinfo/press/2003/4611.html

I think it is nearly a given that ATi will have Nintendo contract for the next handheld from Nintendo. Imagon is a foreshadowing of that. All ATi's numbers are reported in USD. BTW the technology deal is already announced but just what it is was not. It could be for the next Gamecube or the next handheld ... we don't know. The thing is they didn't even report whom the source was and I think that this is to keep speculation on just what that source is. Could be anyone, right? Anyhow I believe it is to keep positive speculation spin on matters.

IIRC Nvidia initially received 200 million in advance for the development of the XGPU. Then once they had met the objective(December 2000 or January 2001) they were to receive yet another 200 million advance. If they didn't met the performance objectives the initial 200 million advance was to be returned. A bit risky but it paid off when they finalized the hardware. The 400 million advance IIRC was too pay for the first 400 million $ worth of XBox chipsets for which Nvidia was responsible to provide. When Microsoft attempted to have the price of the chipset lowered (I believe Nvidia's price was in the range of 50-60 $ a set) nvidia was still fulfilling their 400 million advance payment. Anyhow because of the arbitration nvidia was forced to supply the chipsets but after the case was settled(in nvidias favor) nvidia was able to show a huge profit for the chipsets sold to MS while in arbitration this past winter. Hrm, seems I got a bit off topic just thought I would clarify some points, BTW try finding that info somewhere on the net it is scarce stuff indeed.

 

[WaltC]

Excellent theory! People have always assumed that the latest ATI/Nintendo technology agreement(linked below) meant a Gamecube successor. If you actually read the press release, it only says "developing technologies for use in Nintendo products." A 18million(US or CDN?) advance payment seems to me kind of small for a successor to the Gamecube. In fact, NVIDIA received a $200million advance payment for the Xbox GPU. So in comparison it could be theorized that the development contract is for something less complex, no?

Tommy McClain

Well, I'm not even close to an xBox "expert," but didn't nVidia have responsibility for not only the gpu, but the motherboard, core-logic, sound, and everything else aside from cpu, HD, CD, case, etc....? Not sure what ATi's responsibility here might be, though...

Also, the $200m was merely an advance to get nVidia kick-started--not a fee or anything--ie, nVidia had to produce $200m of product in order to keep it. It could be that ATi has already funded everything it needs internally and simply doesn't need such a large sum paid against advance orders because the work is already done...Just guessing...

 

[epicstruggle]

after the financial report came out, the stock jumped to 10, and so i sold what shares i had in the company. almost double my money in 7 months I knew that ati, had it in them to turn it around. I must admit that I also put some money in NV, currently at a gain of 89%, waiting for it to hit 24 before i sell that too.

I hope guys/gals buy NV products so i can sell the stock.

later,

 

[Sabastian]

Well, I'm not even close to an xBox "expert," but didn't nVidia have responsibility for not only the gpu, but the motherboard, core-logic, sound, and everything else aside from cpu, HD, CD, case, etc....? Not sure what ATi's responsibility here might be, though...

Also, the $200m was merely an advance to get nVidia kick-started--not a fee or anything--ie, nVidia had to produce $200m of product in order to keep it. It could be that ATi has already funded everything it needs internally and simply doesn't need such a large sum paid against advance orders because the work is already done...Just guessing...

AFAIK all $400 million was advance imbursement for the chipset.(graphics and sound.) I owned NVDA stock when they got the deal.(purely out of luck BTW.) Yes the initial $200 million was intended to help them finance the xbox venture but it was still an advance payment for the chipsets. Yes, nvidia was accountable for much of the xbox design but they worked closely with Intel on the assignment. Nvidia had beefs with the processor and the design of the xbox mobo, they were quite critical of Intel IIRC. I would speculate that nvidia learned a few trade secrets of Intels on this project as well and this resulted in the AMD nforce chipset lineup. This would explain the ongoing bad blood between Intel and Nvidia yet. Nonetheless not only did nvidia benefit from selling the chipset with half decent margins(not entirely sure about what sort of margins they were getting, it is possible the chipset sold for as low as $45 USD.) but they also benefited from the massive interest accrued off the $400 million that was banked.

I hope guys/gals buy NV products so i can sell the stock.

Err, I don't see this as a good time to obtain NVDA stock. They are losing market share to ATi, albeit slowly but I see ATi stock having more upside yet. BTW, congrats on your good investment decision with ATi stock. I was beside myself wishing I had funds to invest in ATi when it was trading below $4 in February. (Couldn’t believe it really.) If ATi continues to have good numbers (in all segments mind you.) it does make sense that it will be at nvidia's expense after all they both compete in the same arena (mid - high end PC graphics, Intel rules the low end with their integrated chipsets.) resulting in a virtual duopoly between ATi and Nvidia. ATi however has a much wider product base though. (set top box-handheld etc.) Anyhow I don't see nvidia as being that great of a choice presently.

Disclaimer: I have been wrong before though... ;-)

 

[RussSchultz]

If the PC industry comes back (crossing fingers), then both companies will be good buys.

 

[Sabastian]

If the PC industry comes back (crossing fingers), then both companies will be good buys.

I don't think we will see a return to the trading levels the bubble brought us a couple of years ago but yes it would be nice to see a rising tide. So far there doesn't seem to be the optimism with regards to growth for the PC industry. Most view the market as being matured so.... With consoles eating the gaming aspect up, no real killer apps being produced anymore and so on. There are lots of reasons to be optimistic about the proliferation of PC's in a global sense but selling a PC in china is not as profitable as it is in the US. Anyhow I think growth will be a lot slower in the future.