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NVIDIA (NVDA)

Q3 2013 Earnings Call

November 08, 2012 5:00 pm ET

Executives

Rob Csongor

Karen Burns - Interim Chief Financial Officer and Vice President

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

Analysts

Alex Gauna - JMP Securities LLC, Research Division

Romit J. Shah - Nomura Securities Co. Ltd., Research Division

David M. Wong - Wells Fargo Securities, LLC, Research Division

Harlan Sur - JP Morgan Chase & Co, Research Division

Brian C. Peterson - Raymond James & Associates, Inc., Research Division

Michael McConnell - Pacific Crest Securities, Inc., Research Division

Daniel L. Amir - Lazard Capital Markets LLC, Research Division

Ambrish Srivastava - BMO Capital Markets U.S.

Dale Pfau - Cantor Fitzgerald & Co., Research Division

Ross Seymore - Deutsche Bank AG, Research Division

Rajvindra S. Gill - Needham & Company, LLC, Research Division

Craig Berger - FBR Capital Markets & Co., Research Division

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 Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to your host, Mr. Rob Csongor, Vice President of Investor Relations. Sir, you may begin your conference.

Rob Csongor

Thank you. Good afternoon, and welcome to NVIDIA's Conference Call on Third 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. [Operator Instructions]

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 16, 2012, and the webcast will be available for replay until our conference call to discuss our financial results for our fourth quarter of fiscal 2013. 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 fiscal quarter ended July 29, 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, November 8, 2012, 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 reference 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 that NVIDIA achieved record revenue and record gross margin in the third quarter, driven by strong demand for our energy-efficient Kepler GPUs and Tegra 3, the world's only 4-PLUS-1 mobile quad-core processor. Our strategies to reinvent our company are driving growth. They are: first, create the most energy-efficient processors; second, invent mobile and cloud-computing technologies that will grow us beyond the PC; and third, create solutions for special-purpose PC markets, where we can make a significant contribution such as gaming, design, media and entertainment and GPU-accelerated computing.

This quarter, we not only grew our PC business. We also significantly increased our business beyond the PC: in tablets, quad-core phones, data centers and automobiles. NVIDIA processors rolled out in Q3 in a range of new devices and settings, from Google's Nexus 7 tablet and Microsoft's Surface to Oak Ridge National Laboratory's new supercomputer and Tesla's latest electric sedan, which was just named Car of the Year by Automobile Magazine.

3 years ago, non-PC revenues were 7% of total revenues. This quarter, they grew to a record 30%. Our notebook GPU business recorded a second consecutive record quarter.

In the premium segment, we increased market share with Kepler as part of the Ivy Bridge design cycle. Consumers are also now starting to realize that a great tablet is better than a cheap PC. Because of Tegra, Android and Windows RT, the entry-level PC market is now a new opportunity for us. Our desktop GPU business increased again this quarter. With improved supply now available, we delivered Kepler into the volume PC gaming market. With the majority of gamers using graphics cards that are below the recommended specifications of the wave of new games coming out, Kepler is a great upgrade for the millions of PC gamers around the world looking to play Assassin's Creed III, Far Cry 3 or Call of Duty: Black Ops 2 this Christmas holiday.

Our Professional Solutions business was up, driven by a record quarter for Tesla. In Q3, we shipped more than 18,000 NVIDIA Tesla K20 GPU accelerators to Oak Ridge National Laboratory for their new Titan supercomputer. With 50 million CUDA cores working together, these new Kepler-based GPUs delivered 90% of Titan's 20 petaflops of peak processing performance, making Titan the fastest open-science supercomputer in the world.

While the Quadro business was roughly flat quarter-to-quarter, it was down from last year, consistent with softness in the global workstation market. Our strategies to grow better than the market include new Kelper Quadro products to refresh Romley-based workstations in the latter part of the year, as well as new capabilities like Maximus, enabling both modeling and simulation in one workstation.

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