Record revenue, and $105M+ profit, although a bit less than I had expected. Part of that is because of a $17.5M patent licensing charge for "past products" that they claim is fully confidential, and they are not willing to talk about it. The full info is here, definitely an excellent quarter IMO, although I had expected some nice handheld ramp up, and there was nothing to be seen there. They're not even expecting an increase there for Q4, although they think they'll get a nice one for Q1. heh.
The biggest points are that NVIDIA is entering the Intel IGP market and are hoping to have the product ready for Spring 2007. The way Jen-Hsun mentionned it made me think it was G8x-based. Also, he said that this time around, There will be at least 9 G8x, basically filling nearly every of the possible numbers after G8. If those are all individual chips, which I kinda doubt but might be possible including notebook, whoza!
Also, this is the first quarter with Sony PS3 royalty revenue contribution, but NREs are decreasing slightly. They got longer term contracts for NRE (not precised if it was for Sony), but the short-term ones are almost done. Licensing is still contributing to Consumer Electronics revenue though...
Anyway, here are my notes. They were taken fully on-the-fly with no pausing, so no guarantees of accuracy!
Uttar
The biggest points are that NVIDIA is entering the Intel IGP market and are hoping to have the product ready for Spring 2007. The way Jen-Hsun mentionned it made me think it was G8x-based. Also, he said that this time around, There will be at least 9 G8x, basically filling nearly every of the possible numbers after G8. If those are all individual chips, which I kinda doubt but might be possible including notebook, whoza!
Also, this is the first quarter with Sony PS3 royalty revenue contribution, but NREs are decreasing slightly. They got longer term contracts for NRE (not precised if it was for Sony), but the short-term ones are almost done. Licensing is still contributing to Consumer Electronics revenue though...
Anyway, here are my notes. They were taken fully on-the-fly with no pausing, so no guarantees of accuracy!
Enjoy, comment, speculate, etc.!NVIDIA Q3 2007 Conference Call
Good afternoon and thank you for holding.
Turning the call to Michael Hara.
[...]
<Michael Hara>
Also on the call: Jen Hsun Huang, Marv. Buckett
[...]
[public information on stock option practices review]
[note: Q2 and Q3 results are not audited...]
Handing to call to Jen Hsun.
<Jen Hsun>
Record revenues of 820.6M.
Third consecutive record quarter.
Strong performance and share gain in numerous product lines.
Revenue increase is well above seasonable patterns.
Desktop GPU share increased 5 points to 56%
Demand for GF7 GPUs remains very strong, even with the GF8 launching.
[G80 PR]
Over a thousand man years of effort.
Third fundamental new architecture in the history. Last one was the GF256.
[public G80 information]
[public information on geometry shaders and how it's the most important thing in DX10]
Yesterday, we also announced CUDA.
We enable CUDA-enabled PCs to solve problems traditionally solved in supercomputer clusters.
Focus on GPGPU etc.
[information on 8800GTX and how it's better than SLI 7900GTX and has better power efficiency]
The G80 architecture is twice the performance per watt of the GeForce7 Series.
Notebook: milestone. Number 1 notebook GPU supplier for the first time in their history.
Grew 46% quarter over quarter, 100% year-over-year.
Expect to increase when [RELISTEN]
MCP grew 33% from Q2. Second largest of the total chipset volume, 17% of overall world share.
Increased adoption of nForces, with OEMs pleased of it being single-chip and lower power.
DELL is now using NVIDIA nForces for some business desktops (for large corporations).
PR on Stable Image platform and how it was developped for the NVIDIA Business Platform.
[680i/680a PR; immediatly available]
Quadro/Professional: Increase 25% year-over-year. Wins with HP for notebook workstations.
Launched Quadro Plex at SIGGRAPH. Began volume shipment in September. Focus on visualization.
[Gelato 2.1 PR] - more than 70K downloads of Gelato.
Handheld segment had another record, oops, strong quarter.
[Samsung design win; NY model by another manufacturer; etc.]
Began shipping their first north american mobile phone by Motorola, the Razr V3XX (extra X in there?)
[Focus on how global NVIDIA has become, and how diversified it is]
<Marv. Buckett>
[information on restatement; comment only on balance sheet statements unlikely to be affected]
[public information on revenue]
[costs related to confidential patent licensing]
Initial shipments of GF8800s, but no major impact to revenue yet.
GF7 revenue accounted for nearly all of the total GPU revenue.
[information on
Professional and Handheld were slightly down in the quarter.
Consumer Electronics: Relatively flat, but recognized our first royalties for PS3, even though it was at a relatively low level.
Higher growth in memory, MPCs and mainstream GPUs, affecting the margins negatively.
Each unit is doing good progress in margins, but the mix is affecting it and making it look flat.
70 days of inventory vs 87 during the prior quarter (
3627 employees, up 200 from Q2. Approximately 150 internationally.
1033 increase year-over-year, 750 internally (?)
[further information on restatement]
Strong competitive lineup, margins, etc. means revenue growth in Q4.
Expecting 5% revenue increase minimum. MCP, GPU, etc. are going to continue growing.
Handheld expected to be flat, Consumer Electronics to be up slightly but with increased gross margins.
44% gross margins are attainable most likely, believe in 45% in the near future is far from impossible.
Tax rate is expected to remain roughly 17% for GAAP.
<Jen-Hsun>
Announced decision to buy PortalPlayer this week.
Focus on the combined market for GPUs and application processors.
Multimedia features in handsets are most likely to increase in the future.
[PC Perspective quote for GF8, another quote for i680]
Launch of PS3 in Q4.
Notebook share is likely to continue through the spring, expecting higher success than ever.
Expecting design win ramp for notebooks in Q1.
Handheld will benefit in Q1 from [unhearable win].
"We will respond to market demand and announce our first Intel IGP next year."
[PR on Vista, DX10, etc.]
[Becoming more and more used in non-3D apps etc.]
Google Earth enabled by 3D, Microsoft's Earth 3D, [another ms product, PhotoSynth I think].
Great time to be in the single most focused GPU company in the world.
You may now ask your questions.
[...]
---
Q: PortalPlayer guidance? Revenue etc.?
A: The answer is "no". <laughter>. The deal is not done yet, so it's probably too early to do that.
Marv: It requires shareholder vote. Very excited about acquiring them, but it requires the vote.
Q: Demand moving into Q4 and Q1?
A: Q4 is seasonally a large quarter. Biggest focus right now is ramping up NF6 and GF8 and other products.
That should be the focus of our growth in the Q4 timeframe.
Q: Grats on an outstand quarter. A: Thanks.
Q: Quadro Plex? Talk about the strategy/opportunity, market size, business model etc.?
A: First of all, that leverages our SLI and Workstation presence, and all our related software.
Quadro Flex is an external standalone image generator that allows our customers to scale their rendering densities by just enormous factors. The application is targeted at the same customer base that historical image generators have gone into, plus desk-size workstations that wanted it but couldn't get it in the past.
Image generators int the last half of a decade are quite outdated etc. - so we focus on the opportunity of replacing that old equipment, plus creating a new market. It's hard to say exactly how big the opportunities are, but they're quite significant.
Several times larger than the workstation market is today. So this is for image generators, CUDA is for supercomputers. Tons of props to both markets. Focus on scalability for Quadro Plex. Selling it directly through our website for professionals who work directly with us, and
Q: So, how big? Very chunky business?
A: It's going to be a very large market, not sure how big. But I agree with you it ought to be a very chunky business as you said. We're gonna replace all that aging equipment and create a new product category.
In combination with GPU Computing, it's a whole new computing model we're excited about.
Hard to predict, but thinking it's going to be very big.
Q: As GF8 is ramping up, what about memory?
A: I hope it's down for Q4. Had to ramp up for the 8800 launch. Don't anticipate to have to again now.
Q: Okay thanks!
Q: PortalPlayer integration - how fast etc.? Standalone media players, mobile phones? How serious do you think OEMs are about adopting SideShow technology?
A: I am going to answer the questions from a more strategic perspective. And the reason for that is that the deal is just not done and the deal is not fully mature yet.
We feel future mobile systems will become more and more smart etc. - these mobile devices are going to become amazing little portable devices within the next 10 years. Within 10 years, it's going to do everything, including movies, 3D games, web browsing, etc.
They'll become your most personal computer. We expect these various dynamics will come together, and it's going to depend on a rich operating system coming out from it. It could enable the second PC revolution.
The two key elements there are application processors and GPUs. Need to still innovate there.
I believe they have numerous SideShow design wins. It's all about the utility to the end user. How many of us carry our notebooks around and just want to do a quick thing with it like checking the time, the calender or sending a message? etc.
Q: Regarding the new platform launch. Sony/IBM/etc. made a CELL-based server for media servers - competing with that?
A: It's too early to tell if we're going to compete or not, but what's interesting is that there is a huge opportunity, a huge area that we can serve there. People think supercomputers are handling it, but it's not enough. Now the world knows there is a supercomputer crisis if you will; there are tons of problems to fix that'd depend on them, but the investments have been lagging etc.
So if the PC becomes significantly more supercomputer-like, it could turn into a deskside supercomputer, including in server configurations. Instead of using FPGAs or custom ASICs, you'd just use GPUs. So that's a huge area of computing we hope GPUs will compete in.
Q: Chipset business, how to improve the gross margins? Long term margin goals there? landscape? etc.
A: I think gross margins could be increased in a lot of ways.
The first way is architectural efficiency. Doing more with less, or doing more with extreme integration, is very important.
The second is operational and brand-based. We need to make sure everything is built on time, that the yields are high, and that the quality is as high as we can, etc. - perfect quality is the best way to perfect profitability.
One of the advantage of nForce is that it's becoming the number one brand of core logic. If you're someone who cares about performance or avaibility or stability, it's really your choice. And we've proven that on both AMD and Intel platforms.
So those are the two big points.
Q: Pricing trends?
A: The pricing trend in core logic? I don't know if there's one. It depends on what we're ramping up based on what we're launching. The nForce6s has higher ASPs so higher margins.
My expectation - the market's expectations - *hestiations* Customers would like us to be in the market by spring of next year, and we're trying as hard as we can to do that.
Q: Hi, congratulation on the quarter.
A: Thanks.
Q: Traditionally high-end MCP. Going into low-end. Comments? How much of that focus is because of AMD?
A: The answer to your question is yes, we are going to go after the mainstream with our IGPs. That market is obviuously very large and the opportunity is very significant. And that's directly related to ATI selling to AMD.
Now there's really a void of branded integrated graphics in the Intel market. ATI left the market so there's no more competition, there's a void in the market.
But now with DX10, high definition video, Vista, etc. - there's an opportunity.
Perfect time to enter it.
Q: Memory shortage etc.?
A: There is a memory shortage. There was a memory tightness. So we did the best we could to help our AIB partners and were as helpful to them as possible, tried to secure them memories. At this point, it seems to have stabilized.
Marv: Obviously, revenue increase,
We don't lose money on memory, but it is not a high margin business.
Q: Question on die size. G80 die size looks much bigger, losing the small die size advantage? Gross margins?
A: Second question first. This time around, the competition has an infinitely large die size. The die size is higher, but the ASPs are also higher. GF7900s is now well into the 299 segment and below. That's not where GF8800 is positioned. It's positioned at the enthusiast segment. The gamers, the enthusiasts, high-resolution segment etc.
We've repositioned the 7900s into a lower price segment and it's doing great that. Fabulous
Q: When doing a full stack comparaison, same die size as you were with G80?
A: That's a good question. G80 is the first of the G8x family. Many other ones. Probably nine others. We're gonna have all the numbers in between. Doing tons of derivatives with the G80.
Q: Santa Rosa?
A: Santa Rosa notebooks are DX10/Bluray notebooks. We're the only supplier of DX10 GPUs today. And the only one sample notebook GPUs. My expectation is that our success on the Santa Rosa transition should be quite a bit higher than even that of Napa.
Q: Good afternoon. Grats.
Q: First question. Your guidance for CE is slightly up but not so hot. What's going on? NREs?
A: The NREs are declining. It'll be offset by the royalties increase progressively.
Q: NREs?
A: <Marv>Small amount left etc. and completion based.
<Jen Hsun> There are ongoing projects on NRE basis. It's just that it's completion based and some of those projects are further away from completion.
Q: Ability to service potential upsides next quarter?
A: I think we're as passionated as you guys are at reducing our inventory and still being able to run our business. It's important to be able to address unexpected demand, we need that position, but we're also trying to work down our inventory. So it's an intense focus in our company.
One more thing: We don't reduce it by accident. <Hahahaha! in the back from Marv>
We hope to reduce it slightly further in the future.
Q: Mainstream increased, effects on inventory mix?.
A: The mixes in our inventory are going towards increasing our new products. In good shape to support upside.
Q: Looking at next year etc. - what do you think will be happening? Should we be looking at notebook, chipset, etc. gains?
A: What should grow next year? I think GPUs will grow next year due to Vista, DX10, High-Def. This is basically as big as Windows 95. The same thing is going to happen next year.
Our handheld business should accelerate growth next year due to entry into 2.5G.
The dynamics for MCPs are the same as for GPUs, so other core logic suppliers are going to have a much higher time to compete in the future. Either they invested hundreds of millions of dollars into DX10, or they're going to lose a lot of share.
Branded IGPs for Intel is going to help a lot. And PS3, the initial reviews are really exciting. And there's workstation too.
We have strategies to grow every single one of our business next year, and we believe we are going to.
Q: Mainstream segment share is currently lower, opportunity to take share there?
A: We're certainly still focus on increasing share. I want to continue to emphasize that even though we like to increase share, our focus has always been to create a larger market for everyone to share. SLI, High definition video, etc. are affecting that. People are looking for more GPU performance etc. to get a better experience. We look for a way to increase the number of unit attached. We want to get better content. So it's that, and increasing share at the same time we're focused on.
Q: Hi guys, great quarter.
A: Thanks.
Q: You guys kinda delivered a Q3 that is basically what the street expected for next year.
A: hahah.
Q: Securing capacity?
A: We are currently the largest in the world in terms of fabless wafer capacity, I think. We have an excellent relationship with TSMC which is our single largest fab partner. Internally, to be honest, we've expected to be here for some time <hahah>, so we've been planning for that. We are planning for the next quarter, we are planning for next year. Our relations and understanding with TSMC is perfect. There is no evidence whatsoever they are not going to be able to support us in every way.
Q: Share in terms of G80 family? (implying next year, I think)
A: You know, the normal model would put us above 50%.
Q: Sorry, desktop and mobile?
A: Right, both, although mobile tends to lag behind a bit.
Q: A little bit more color on the patent license thing. No need for tons of info, but how come it's one-time etc.?
A: I wish I could give you more information. It's confidential information, it's a significant number of patents.
Q: Is it something you used in the past? Going to in the future?
A: It's primarily for the past.
Q: Intel IGP products coming up yet, but chipset margins going up? Errr?
A: I'm not sure yet. <hahaha by Marv>. I don't have a product to sell yet. So I don't have much experience there. But you know that margin improvement is a passion of mine and of us in the last few years. So I think there are 3 major factors. One, your architecture. We have really talented engineers who come up with great architectures. Second is operational excellence. Perfect yields, perfect quality. If you manage that, you'll be in good shape. And finally, you need a great product, to get and use a great brand.
We're not fanatical about revenue, we're fanatical about profit. We're going to target the segment of our market place where our work and our brand is valued, and I'll leave the other segments to other people.
Q: PortalPlayer? Should the deal go through, good or bad for margins?
A: Slightly diluted first year, probably going to be very good for the second year.
-end of time for Q&A-
"Thanks, and we look forward to reporting our progress for Q4!
Uttar
