This so-called "summary/transcript" is huge and, well, it's only for the first part of the day. It's mostly business talk for obvious reasons, so for those wanting to discover that, I'll let them read the whole thing and enjoy the details. I'll see if I have the time for Part 2 today, it'll be starting midly soon. That part will be presented by the different divisions' managers/directors/presidents. No matter what, this post will most likely be edited frequently.
The webcast itself has a few nice graphs, for example comparing revenue per wafer in the last 10 quarters or so, and OPEX evolution, however. So if you're interested in that kind of thing BIGTIME, listening at least to those parts can't hurt. Personally, I love some of their strategic highlights, and their hints for Q2 are highly positive - so, if anything, I'd conclude that buying NVIDIA shares at this point might be an excellent idea.
Anyway, for the rest of you (read: everyone but me on this forum,most likely), I'd say the primary highlight is what they call "NRE2" Revenue with Sony and the massive talks of handheld. They also got a slide with "growth opportunities" listing portable game consoles-like devices as "30M units per year" for them, in the "CE" category along with PS3. Overall, it is plainly obvious that NVIDIA is working with Sony on PSP2. They expect NREs to last nearly two years on that, so I'd expect it to be a mid/late 2008 part. Anyway, here comes to mini-pseudo-transcript!
Uttar
The webcast itself has a few nice graphs, for example comparing revenue per wafer in the last 10 quarters or so, and OPEX evolution, however. So if you're interested in that kind of thing BIGTIME, listening at least to those parts can't hurt. Personally, I love some of their strategic highlights, and their hints for Q2 are highly positive - so, if anything, I'd conclude that buying NVIDIA shares at this point might be an excellent idea.
Anyway, for the rest of you (read: everyone but me on this forum,most likely), I'd say the primary highlight is what they call "NRE2" Revenue with Sony and the massive talks of handheld. They also got a slide with "growth opportunities" listing portable game consoles-like devices as "30M units per year" for them, in the "CE" category along with PS3. Overall, it is plainly obvious that NVIDIA is working with Sony on PSP2. They expect NREs to last nearly two years on that, so I'd expect it to be a mid/late 2008 part. Anyway, here comes to mini-pseudo-transcript!
Enjoy!- "if we could have everyone take their seat, we'd get started here" [30 mins after presentation should have begun]
[chatting noises from the audience]
[clears throat]
[Michael Hara begins speaking]
- Information on the restrooms.
- No phones, put them on vibrate please.
- "We'll have a full day today, so at the end of each presentation, we'll have time for some Q&A".
- "This is also being webcasted, live demos not however because they're all HD."
- [introduction of who's there, and what's going to be talked about]
- "At the end of the day, we'll do a full Q&A with everyone"
[clapping]
[Jen Hsun Huang begins speaking]
- "This is certainly one of the funnest things we do each year"
- "This has been a terrific year."
- "What do we do, why do we do it and why it's important"
- "More importantly, our profit increased 200%. Our growth came from all business units."
- "Core business grew about 30% year over year. We are still fundamentally a technologically company."
- "At the core of technology is architectures."
[rambling about efficiency, performance/watt and performance/cost]
[rambling about how much MCP is a cooler term than chipsets]
- Focus on networking & security when it comes to MCP; complex business]
- Few companies have the engineering power and budgets for MCP development. Large AND valuable business]
- What happened to the VGA Business is going to happen to the Chipset business.
- It's going to become "increasingly important [in different market segments]"
- Importance of "simultaneous innovation in MCPs and GPUs"; example: SLI.
- Focus on MCP importance for SLI, and extending
- "I every needed to go from [California] to Texas once every 3 months"
- Nowadays, they have to go all around the country all the time for sales.
- Engineering-wise "It's all about where are the greatest talents in the world"
- New design centers: Alabama, Germany, India, etc.
- Offices in India, China, etc.
- Three very important acquisitions. "They're small, but they're strategically very very important"
- "Technology alone isn't going to make us a great company".
- "Operating excellence is do-or-die."
- => Focus on margin, even though you're required to be in continuous product transition mode.
- "We need to find out how to couple innovation pace with operating excellence"
- "Over the last year, we've implemented of hundreds, or even thousands of ideas in this company"
- "You're going to see the results of our effort in the next 18 months"
- "13 years old, but still see ourselves as a pretty young company".
- Focus on division to remain efficient, while still having synergies
[rambling about how much we transformed 3D graphics]
[professional solutions = services, not only cards, support & idea implementation]
- "So that's why the competition announcing another product in that segment makes NO difference to us"
- "We've truly revolutionized the professional business here for graphics"
- "How much graphics do you really need on a cellphone?"
- "Well, I guess not very much if you just use it for making phone calls."
- "But you know, a cellphone is basically a modem."
- "When somebody says 'computing' and says 'multimedia' in the same sentence, we come running in"[listing of different handheld devices; smart phones,
- 2007...
- "It's going to be a strong growth year".
- "This is where all the work we've done [...] is really gonna come
- "In the GPU business, we're gonna gain share in desktop/notebook/etc."
- "We are going to aggressively exploit our architectural advantage, and SLI."
- "People with SLI motherboards prefer SLI GPUs, and vice-versa. More content becomes scalable by SLI."
- => notion of "positive ecosystem feedback".
- "We have unquestionably the number one brand in MCPs today [...]on both AMD and Intel systems".
- Importance of uptime and QoS.
- Explanation of how even by just assuming Q4 everywhere, growth would already be tremendous
- If you consider market share expansion and new markets, big
- ASP for NV1 was "$7.92"
- The ASP is now well into the $30s.
- "If we retain our share, we'd be a very large company, but we're obviously going to capture a lot of share".
- "Everywhere you see a LCD business, is a business we've entered or thinking of entering in."
- LCD prices have "crashed" in the last 7 years; resolutions are improving, too. Business there.
- Video & Images are closely related to our business (
- "The majority of the world's infrastructure is in SD resolution, we've got to move it to HD resolution"
- Opportunity there, especially so for the professional space.
- "Significant market in handheld devices."
- "We're going to sell billions of units within the next several years"
[Talk of handheld gaming]
- "These architectures have to go to shading! They can't stay with texture mapping forever."
[rambling about how devs getting used to shading and wanting it]
- "I don't know if it's gonna be this week or next week, but hey, it's gonna be some day."
[note: might want to rehear this]
- Playstation3 talk. Begins by recapitulating the launch details etc.
- By taking this data and combining it, "It's gonna be a big launch."
- "Our economics are not tied to their launch, they're tied to their building"
- "If you look at the datapoints, it's leading up to a pretty spectacular launch" (=> revenue!)
- Focus on importance of Bluray in PS3. This is the "HD Year". DVD Parallel for PS2.
- "Vista..." [sigh]
- "I have so many Vista e-mails, you know, from all the reports yesterday..."
- "I'm not through all of it yet. I'm still trying to figure out what the delay of 2 months means."
- "It's absolutely important that the get it right. More than any other, it requires more from the hardware"
- So it's good for the technology industry, for microsoft, and for the users.
- "You could dumb down the OS so that it'd work ideally for everybody, but that's not gonna for anybody"
- "most [unhearable] important application of GPUs in the history of mankind"
- "It's not just that the GPU is used to render things"
- "It's that it exposes the GPU instruction set to all applications so it can be used for everything"
- "Even for applets plugging in to excell"
- Example: "Weather could be updating in realtime, and your desktop is like CNBC"
- "The platform itself is ready for the future" [for developers and thus users to use our tech better]
- "The two months delay is disappointing".
- "Every machine going out this christmas is going to be Vista-ready anyway though."
- "So not going to be a huge difference."
- "And I can take more questions about Vista during the Q&A"
- "A few months ago we bought ULI" (spinout of Acer)
- "It's a company with a few hundred employees" (slide: 200 engineers)
- "We have the largest chipset design team out of Intel today"
- "But I wanted to make it bigger." "Also because we serve ALL market segments, [including Intel CPUs]"
- "Very important strategic investment"
- "A lot of people, especially so coming from the far east, tell us how smart of an idea it was"
- "They now represent our Taiwan office."
- "Between them and our existing Taipei office, we have about 300 people in Taiwan"
- Talk of handheld...
- "We must bring the entire platform solution in this industry" => including APIs & Codecs.
- "Of course, this segment is" [well behind us, technology-wise] (current-product-wise)
- "So we did an acquisition [of] Pace" "probably the leader of
- "Really a terrific company started out in 2000, by former professors"
- "So now we have a fair bit of employees at NVIDIA Punei (sp?)"
- "I just went there to officialize it [unhearable time]"
- "Another acquisition we announced today, Hybrid"
- They shipped in about 100M phones today.
- Founded in 1994, based in Helsinki. Worked with them in the past already.
- "Cluster of really passionate 3D engineers in Helsinki"
- "It's rather dark there most of the year, so they have the opportunity [to do more 3D there]"
- Focus on the upcoming expansion of programmable shaders to handheld.
- "So between Pace and Hybrid, we now have a complete multimedia stack"
- "From the APIs, to the players, to the OS interactions, to [unhearable] to the GPUs"
- "This stack is perfectly obvious for Windows" [it's provided by Microsoft]
- "Cellphones need to have the same infrastructure"
- "So we've been working on putting it together for some time"
- "We focus our company at the intersection between Computing and Consumer Electronics"
- "We like to work in segments where the computing is complicated, and the multimedia requirements high"
- IPod is the most basic intersection, Game Consoles the most complicated ones.
- Car navigation & other things are in-between, and great opportunities there.
[START OF Q&A]
- Vista...
- Upside: We're sure there will be some, but we're not predicting it, and you guys are not guiding for any.
- "where graphics is important, there tends to be a very high attach rate"
- "In others, it's obviously relative low". Exception: Cases with a very high number of monitors required.
- As such, Vista would be a way to improve the attach rate (for OEMs mostly)
- Retail: Will follow Vista's retail penetration, which is not a majority of its market.
- Influence of different OSes, and/or their delays, to growth.
- Win95: D3D. Key factor in the beggining of GPUs.
- Vista: D3D10, where everything is based on that. "The old API, GDI, is gone."
- "Q2: You should just predict it like any other pre-Vista Q2."
- "In our case, in Q2, we are ramping up notebook & desktop OEMs, and other stuff"
- "So my sense is that Q2 is different from our generic Q2 because of OEM share gains"
- AMD vs Intel; Conroe.
- "Wars are good. Because it makes better technology available to consumers."
- "[Business] wars I mean."
- Rambling on CPU being the "weakest link", so
- "Conroe is a pretty damn good processor"
- "But AMD has some nice processors coming up too"
- "Our focus really is to serve the game market, whereever it goes, [AMD or Intel]"
- [with our acquisition of ULI], "We are going a lot more in that space, and we're doing it faster"
- Not announced yet, but got new projects there.
- Talk about Vista's different editions & rendering modes.
- "Vista is now doing what Videogames do for you."
- Example by Jen: Games havign different rendering modes, so you can see what it'd look like, but at 1FPS.
- "So what do you do? You run as fast as you can to buy a GeForce!"
- "Or you talk with your kid about it, and he runs out to buy a GeForce!"
- "The better platform consumers have, the better experience they expect"
- "This is going to be the case in Vista" - "Good for me, but also for CPU/Display/etc. guys"
- Question about ASPs, and "capturing more value".
- "You know, we started the company with a statement along the lines of:
"We are going to build technology that will [improve/revolution] the space for consumers"". [paraphrase]
- "We don't really publish mission statements, but everybody in the company knows what we do for a living."
[rambling about very-long-term focus on computers in the house and them being in the center of that]
- MCP: Importance for GPUs, but also a business reason, focus on connectivity.
- HT or FSB for the CPU, and PCI-E for the GPU, "they are just busses".
- Question about competition.
- "I, personally, am not watching the market from a day-to-day basis."
- Focus on every productline having a STRATEGIC advantage (Performance, Architecture, Features OR Cost)
- "Constantly introducing new ideas that grow the company"
[rambling about the importance of "constant massive 'lift'(sp?) mode' to stay competitve; said GFFX]
- Question about portable media players not focusing on gaming.
- "The answer is yes."
- Explanation of different segments there (extremes between gaming & just basic music/video player)
- Focusing on the higher-part of the market, because...
"The other end of the market will just come to us over time" as the market evolves in the next 5 years.
- Questions about handheld competition and revenue acceleration
- "We are obviously the leader in the 3G segment"
- Focus on that because without bandwidth AND storage, you can't get media to process.
- 2G is too low ASP to their tastes. It's "done". It doesn't pass the strategic test.
- Claim clear advantage in 3G. "First [GPU vendor] to demonstrate live television on 3G"
- "Focus on 3G, Smart Phones [unhearable] and Game Players"
- The parallel is that 13 years ago, we could have begun with a 2D chip to "get in the market".
- [But obviously it wouldn't have worked]. Same logic here.
- Integration: "Pace is basically integrated."
- "Reason it's easy to integrate these two companies is they don't do what we do."
- So they add to our solutions
- "You know, we are conservative in acquisitions. [...] Our first one was acquiring the assets of 3DFX."
- "And most of the guys who joined us are still there
- "we never acquire for [immediate] revenue. If you want more revenue, [that's not the way]"
- Focus on acquisition with really great talent, and where it's just "too compellant".
- "As the year goes by, you'll see just how great these guys are doing".
- "I believe the GPU's development in the handheld business has become a reality".
- "GPU Architecture of the current product" question. [note: Pretty damn smart question!]
- "First of all, there's innovation, and then there's innovation that matters."
- "And I'm talking about myself, so
- "We innovated like crazy on GFFX. And about $200M of it didn't matter. And it dragged our gross margins".
- "We decided there had to have the right balance of texturing & shading"
- Explanation of balance between different advantages, and "it just made us a better company".
- "Serving it for the sake of revenue doesn't make sense"
- "There are only so many engineers in our company, and we have so much to do!"
- "Building another core logic that doesn't add unique value doesn't make sense."
- "There are currently a lot of segments in the Intel market that can benefit" [including "performance"]
- [...] Explanation of how top-to-bottom their diversified AMD leadership is [...]
- "We will apply the same strategy to al the segments of the Intel market"
- Implying they'll expand to it as need be etc. that is, not that they
[Presentation end]
[Marv Burkett Begins Speaking]
- "Not going to take too much of your time since it'd be better spent with our division guys"
- Slide points: "FY06 Scorecard" (seeing how good they did at their objectives at last year's analyst day)
- "Stock Option Expensing", "PS3
- "GMI Initiatives: 6. OPEX Initiatives: 3. Tax Rate Initiatives"
- "Gross Margin Improvement Initiatives. Last year's points:
- Reconfigurability, Relentless back-end yield improvement, chip and board cost reduction teams
- demand/supply balancing, end of life product transition management.
- "leveraged sourcing model (2nd sourcing where required)"
- Achieved great success, increased "All the teams we had working on these 6 things did a great job"
- "Revenue per waffer" is the one most important thing. Incudes process change management.
- "There's no silver bullet [...] [Still possibility to do better in all these points]"
- "EOL Product Transition" and "Demand/Supply Balancing": Both are going a lot better.
- Still "far far better" job possible there, and other possibilities.
- Revenue per wafer!!!
- Over the last 2 years, number of wafers ordered has stayed constant, yet revenue has grown a lot.
- Kickass slide with a graph of the revenue-per-wafer. Tons of factors help.
- Result is gross margin improvements. Recently increased to 40%.
- OPEX
- Revenue grew by 18%, OPEX by 6.5%, so still pretty good.
- Target this year is to continue grow OPEX at a maximum of half the revenue growth.
- Increased productivity: Headcount grew 30% while OPEX grew 6.5%. Cost per OPEX declined by 10%.
- That's because of globalization, but also better/smarter cost management, even in Santa Clara.
- Prioritization of marketing programs, and ROI.
- SG&A expenses declined to 7.9% from 10-11%.
- Taxrate: Reduced from 18 to 16%.
- Most likely sustainable for this year.
- Possibilities to reduce it further, but that's a longer-term project
- So that's not to be included fo
- Stock Option Expensing: Starts in Q107.
- Implemented binomial or lattice pricing in Q1FY06.
- Options granted prior to Q1FY06 must be valued under BS, "huge difference in cost".
- "Significantly reduced annual dilution". "I'll show you some data on that".
- Black-Scholes fair value of a $50 stock option: $28.68 divided on 3 years.
- Binomial, pre-forfeiture: $17.81. So cut costs roughly in half.
- With forfeit adjustment (people leaving the company), roughly $14.09
- Nice graphs for comparing BS and Binomial costs.
- For Q2, $17M costs instead of ~$20M. This is going to go down going forward.
- Annual Dilution on a "Gross" basis.
- So that excludes stock repurchases. Last year, both annulated each other.
- In FY03, NV bought back a lot of options, so dilution was -7.9% (negative!)
- Continue to try to reduce annual dilution, expect it to be in the 3% range.
- Was around 4% range last year... But this year depends on if we hire more high-profile people.
- Sony PS3: NRE, License and Royalty revenue elements.
- NRE is "based on percentage of completion of contract" for RSX.
- "It's virtually complete". Full contract was in the $30M+ range.
- Not gonna stop, because "NRE2" is in progress because of new designs with Sony.
- License... fixed over 3 years... "it has nothing to do with anything". It's 100% fixed.
- "Royalty is based on production" - not the sale, the actual production.
- Very separate P&L. Nice graph. NRE2+ going up to Q4FY07, they think.
- "Royalties are starting in Q3" (expêcted)
- Business model...
- Revenue: 100%
- Gross Margin: 40-45%
- OPEX: 20-25%
- Other: 1%
- Tax rate: 16%
- Net Income: 15-20%
- Obvious problem is that if you want OPEX to grow at 50% Revenue, those numbers are just the current model.
- If it's at the 25% range, it's because revenue isn't going fast enough.
- If it's below the 20% range, it's because we are having difficulties hiring.
- "So I don't want it to go below that". Obviously sweet spot is between the two.
- "That's for this year, we're going to change it going forward"
[Q&A]
- Misc. finance question
- "The GF7 family has higher margins than the GF6 family"
- "The real issue is the architecture efficiency" - "perf/mm² in this case"
- "So I'd say for this year, with GF7, we can continue to improve that [GMI]"
- PS3: License: goes up to the first part of 09.
- NREs: "We have a contract to do engineering work with them [Sony]"
- "It's up to them to discuss that"
- MCP Business Gross Margins are improving very rapidly & nicely.
- Right now, they're less than the corporate average.
- Handheld has generally been lesser, but I think by the end of the year, it can be equivalent.
- Discussion about
- Question about other Sony-like companies to engage with; any opportunity there?
- "We have a desire to engage with whatever people [stops the sentence]"
- "It's a business model" - "Good return on our engineering expenses."
- Same idea as for XBox (actually mentionned by Marv - note: yay for NV30 resources, imo)
- "We do have a group for licensing/IP" - "We are very interested in that"
- "As of now, I have nothing to report" (read: we'd like to get involved, but not too optimistic)
[Lunch break; details of where is everyone if you want to talk to them]
Uttar
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