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Nvidia Corporation (NVDA)

F4Q13 Earnings Conference Call

February 13, 2013 5:00 p.m. ET

Executives

Rob Csongor - Investor Relations

Karen Burns - Interim Chief Financial Officer and Vice President

Jen-Hsun Huang - Co-Founder, Chief Executive Officer, President and Director

Analysts

Betsy Van Hees – Wedbush Securities

Stephen Eliscu – UBS

Chris Caso – Susquehanna Financial Group

Doug Freedman - RBC Capital Markets

Blayne Curtis – Barclays Capital

Kevin Cassidy – Stifel Nicolaus

Shawn Webster - Macquarie

Jim Schneider – Goldman Sachs

Patrick Wang - Evercore Partners

Presentation

Operator

Good afternoon. My name is Enrika and I will be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA Fourth Quarter Earnings Conference Call. (Operator Instructions) I would now like to turn the call over to your host, Mr. Rob Csongor. Sir, you may begin your conference.

Rob Csongor

Thank you. Good afternoon, and welcome to NVIDIA's Conference Call on the Annual and Fourth Quarter of Fiscal 2013 Results. 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 will 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 February 28, 2013, and the webcast will be available for replay until our conference call to discuss our financial results for our first quarter of fiscal 2014. 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 October 28, 2012, 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, February 13, 2013, 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 are pleased to report a record year for the company. Despite significant headwinds, we achieved record annual revenues and gross margins for fiscal year 2013. Excluding chipset revenue, which we exited, we grew our GPU business 8% last year and for the third consecutive year. We increased overall GPU market share from 53% to 65% and our notebook share by almost 20 percentage points from 47% to 66%.

Tegra, Tesla, and notebook GPUs all achieved record revenue. We invested in new growth products that are now sampling, including Tegra 4, i500 4G LTE modem, Project Shield, [NGRID], while controlling OpEx at target for the year. This year we transitioned Kepler across our GPU businesses. Gaming was a key area to benefit. Massively multiplayer games or MMOs continued to drive a robust PC gaming market. Worldwide MMO revenues grew 21% last year to $13 billion according to market research firm Newzoo. And GeForce is the gamers choice of GPU by a margin of almost 2:1 according to gamers on steam.

Our notebook share is a near a record high. Kepler is also starting to ship into Quadro with revenues up 10% this quarter. With Tesla, we are leveraging GPUs beyond graphics into massively parallel processing in supercomputers. Just three years after we entered the market, 50 of the world's top 500 fastest computers are now powered by Nvidia GPUs, including the fastest and most energy efficient. We introduced Nvidia GRID visual computing appliances. GRID is a first of its kind graphics system that serves graphics intensive applications to many concurrent users at once.

One of the major applications is cloud gaming. More than a dozen cloud gaming trials are up and running around the world and others will be announced by more TELCOs as the year progresses. At CES, we announced Tegra 4, the world's fastest mobile processor. It is the first four plus one quad-core A15 processor with an extra energy saving core and 72 graphics cores, compared with Tegra 3’s 12 cores. It delivers the world’s fastest web browsing performance and new, always-on, high dynamic range computational photography. At this point in time, we already have more design wins with Tegra 4 than we had in total with Tegra 3.

We see significant new growth opportunities in the LTE connected device market which is projected to be 150 million units in 2013 and growing at 50% a year. We are now sampling our i500 4G LTE multi-band multi-mode voice and data modem. More efficient and 40% the size of conventional modems, i500 delivers four times the processing capability of its predecessor. This is the first result of our Icera acquisition. Icera is the first company to successfully create and commercialize a software-defined radio modem and has been building modems since 2006.

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