Q3 2012 Earnings Call
November 10, 2011 5:00 pm ET
Jen-Hsun Huang - Co-Founder, Chief Executive Officer, President and Director
Karen Burns - Interim Chief Financial Officer
Rob Csongor -
Craig Berger - FBR Capital Markets & Co., Research Division
Romit J. Shah - Nomura Securities Co. Ltd., Research Division
Patrick Wang - Evercore Partners Inc., Research Division
Alex Gauna - JMP Securities LLC, Research Division
Uche X. Orji - UBS Investment Bank, Research Division
James Schneider - Goldman Sachs Group Inc., Research Division
Ross Seymore - Deutsche Bank AG, Research Division
Vivek Arya - BofA Merrill Lynch, Research Division
Raj Seth - Cowen and Company, LLC, Research Division
Ambrish Srivastava - BMO Capital Markets U.S.
Unknown Analyst -
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Thank you. Good afternoon and welcome to NVIDIA's Conference Call for the Third Quarter of Fiscal 2012. With me on the call today from NVIDIA are Jen-Hsun Huang, President and Chief Executive Officer; and Karen Burns, Interim Chief Financial Officer. After our prepared remarks, we'll open up the call to a question-and-answer session. Please limit yourself to one initial question with one follow-up.
Before we begin, I'd like to remind you that today's call is being webcast live on NVIDIA's Investor Relations website, and is also being recorded. A replay of the conference call will be available via telephone until November 18, 2011, and the webcast will be available for replay until our conference call to discuss our financial results for our fourth quarter of fiscal 2012. The content of today's conference call is NVIDIA's property and cannot be reproduced or transcribed without our prior written consent.
During the course of this call, we may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release, our Form 10-Q for the quarterly period ended July 31, 2011, and the reports we may file from time to time on Form 8-K filed with the Securities and Exchange Commission.
All our statements are made as of today, November 10, 2011. Based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements. Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or Jon Peddie Research.
During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our financial release, which is posted on our website.
With that, let's begin. We're pleased to report a strong third quarter. Our results reflect solid growth in desktop and professional GPUs, as well as our mobile processers, while we executed on key growth drivers for next year. Desktop consumer graphics revenue rose beyond usual seasonal increases, due to strong global demand from PC gamers, driven by highly anticipated blockbuster PC games just starting to hit the shelves.
Electronic Arts Battlefield 3, which launched on October 25, sold 5 million units in the first week, amid critical acclaim in the press, particularly for the highly advanced PC version. The latest installment of the highly successful Call of Duty franchise from Activision, Call of Duty: Modern Warfare 3, launched on November 8. Electronic Arts says pre-orders for Star Wars: The Old Republic, a PC-only online game scheduled for release on December 20, are the highest they have ever seen. We believe this surge of PC gaming demand will drive increased demand for NVIDIA's GeForce products despite the soft consumer PC market.
We expect a multiyear PC gaming cycle, as the PC becomes increasingly more powerful than 5 to 6-year-old gaming consoles. We also kicked off the next generation of 3D gaming with the NVIDIA 3D Vision 2 glasses, with LightBoost technology. The new glasses deliver a superior gaming experience, while NVIDIA's patented LightBoost technology delivers twice the brightness of our last generation solution.
While sellout attach rates remain stable, NVIDIA discrete graphics notebook revenues were lower in Q3, reflecting a market share drop of 4%. We believe this is due primarily to some Intel loss of shares in CPUs and our absence from Apple notebooks in this design cycle. With the tax rate stable, we believe we are well-positioned with design wins in both Sandy Bridge and Ivy Bridge notebooks to regain market share in upcoming quarters.
Sandy Bridge continues to drive growth for our discrete GPU business. According to the latest data from both Mercury Research and John Peddie Research, average discrete GPU attach rates remained constant overall at 36%, while integrated CPU continues to erode integrated graphics chipset market share.
According to Mercury data, average discrete GPU attach rates have now remained flat, within a 2% variation quarter-to-quarter for the last 8 quarters. According to recent press reviews from Forbes to Hardware Canucks, discrete GPUs remain the PC market's first choice for a PC upgrade, while integrated CPU graphics continue to lag far behind the performance of discrete GPUs for the demanding gamer and enthusiast markets. While Sandy Bridge graphics are far below the minimum requirements for today's modern games and application, the combination of a Sandy Bridge CPU, with a GeForce discrete GPU, continues to deliver the best price performance solution for today's PCs.