輝達 (NVDA) 2009 Q3 法說會逐字稿

Good afternoon. Thank you for holding. I would now like to turn the call over to Michael Hara, Vice President, Investor Relations. Thank you sir. You may begin.

Thank you Tim. Good afternoon and welcome to NVIDIA's conference call for the third quarter ended October 26, 2008. Today's call is being recorded. If you have any objections, please disconnect at this time.

On the call today for NVIDIA are Jen-Hsun Huang, NVIDIA's President and Chief Executive Officer; and Marv Burkett, NVIDIA's Chief Financial Officer. Before we begin, I would like to remind you that you can find copies of our SEC filings, our earnings release and a replay of this webcast on the investor relations page of our website at www.NVIDIA.com.

The webcast will be available for replay until our conference call to discuss our financial results for the fourth quarter of fiscal 2009. Also, shareholders can listen to a live webcast of today's call via the investor relations page of our website.

During this call we will discuss some non-GAAP financial measures about diluted net income per share, tax rate and gross margin when talking about our results. 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.

Unless otherwise noted, all references to research market and market share numbers throughout the call come from Mercury Research or Jon Peddie Research. 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 conference 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 including statements about our financial outlook and projections, importance of and uses for the GPU and CUDA, the impact, performance and availability of and demand for our products and technologies, our competitive position and our growth and strategies.

Our actual results may differ materially from results discussed in any forward-looking statements. For a complete discussion of factors that could affect our future financial results and business, please refer to Form 10-Q for the fiscal period ended July 27, 2008 and the reports on Form 8-K filed with the Securities and Exchange Commission.

All forward-looking statements are made as of the date hereof based on information available to us today and that, except as required by law, we assume no obligation to update any such statements. The content of the webcast contains time-sensitive information and is accurate only as of November 6, 2008.

Consistent with the requirements under regulation FD, we will provide you public guidance directly in the conference call and will be unable to provide significantly more information in offline conversations or during the quarter. Therefore questions around our financial expectations should be asked during this call.

At the end of our prepared remarks there will be time for your questions. In order to allow more people to ask questions, please limit yourself to one question. After our response, we will allow one follow-up question. With that I will hand the call over to Jen-Hsun.

Thanks Mike. Good afternoon and thank you for joining us. We reported revenue of $898 million and GAAP diluted earnings per share of $0.11, in line with our expectations. Non-GAAP diluted EPS was $0.20.

During the quarter we accomplished several important objectives that positioned us to return to growth. We improved our financial performance by increasing our non-GAAP gross margins from 39.1% to 41.9% while managing our operating expenses tightly. We transitioned our performance segment GPUs to 55 nm and now have the fastest products at each price point, positioning us to recapture share.

Together with Apple, NVIDIA launched a new GeForce 9400M motherboard GPU for its new lineup of Mac notebooks. The GeForce 9400M is the industry's first processor to integrate three complex chips -- the northbridge, the IO/network processor, and a GeForce GPU into a single chip and it delivers up to five times performance improvement over Intel integrated graphics in one-half the space.

The MacBook and MacBook Air come standard with the 9400M. The MacBook Pro comes standard with a hybrid combination of two GeForce GPU's where the 9400M is used for maximum battery life and a GeForce 9600M GT for high-performance mode.

We announced the NVIDIA Quadro CX, the industry's first accelerator for Adobe's Creative Suite 4 content creation software. NVIDIA specifically designed and optimized the Quadro CX to enhance the performance of the CS4 productline and give creative professionals the ultimate in performance and productivity.

CUDA continues to gain momentum all over the world. There are now well over 750 research papers published on how GPU computing with CUDA can dramatically accelerate computing intensive algorithms such as n-body simulations for molecular dynamics and astrophysics, linear algebra, CT imagery construction, image and video processing such as image recognition and search, stream processing for gene sequencing and string search and so on.

CUDA has received PC Magazine's Technical Excellence award. There are now over 50 universities around the world teaching CUDA in their computer science curriculum. And we have now shipped over 100 million GPU's with CUDA.

At this year's SIGGRAPH, NVIDIA set a new milestone in computer graphics by demonstrating the world's first real-time fully-interactive ray tracer. Our interactive ray tracing solution adds a new capability to our Quadro visual computing solutions and will enable customers like the auto industry to preview car designs and demonstrate new cars to customers.

Visual computing took center stage during the presidential election television coverage. Every dynamic graphic was rendered live on NVIDIA Quadro.

The underlying applications from our close ISV partners, Vizrt, Brainstorm and [Reality Check] used NVIDIA technologies including CGFX for shader effects and NVIDIA Scene Graph to deliver what broadcast experts are calling one of the most successful election broadcasts in history.

Perceptive Pixels interactive touch displays were even the highlight of a skit on Saturday Night Live. CNN pushed the boundary even further with holographic projections of its newscasters from remote locations.

Leveraging camera tracking technology used in sports and film, they composited NVIDIA real-time rendered virtual sets with live video to enable effects never seen before. All of these effects and experiences were made possible by Quadro.

Visual computing is revolutionizing many aspects of our lives from broadcasting to the PC to mobile devices and to the Internet. NVIDIA is at the center of this revolution. I will return later to highlight a number of our key initiatives later in the call. Let me now turn the call over to Marv to discuss our financial results.

Thanks Jen-Hsun. My comments today will cover the third fiscal quarter of fiscal year '09 that ended October 26 including comments on both GAAP and non-GAAP results. A full reconciliation between GAAP and non-GAAP is included in our press release and on our website.

As Jen-Hsun stated earlier, revenue for the quarter was $898 million, up $5 million or less than 1% from the second quarter. With all the turbulence in the financial markets in Q3, we might have expected our business to be even more impacted.

That is not to say that our business wasn't impacted, it's merely to say that our markets showed some resiliency in the face of disruptions in the financial markets. Revenue in our GPU business which includes desktop, notebook and memory was down 8% quarter to quarter or $42 million.

Desktop was down 12% and notebook was down 4%. Within desktop, the softness was unit related as ASP's actually increased slightly from the second quarter. As we transitioned our performance segment GPU's to 55 nm, we re-established performance leadership which helped ASP's. Within notebook it was the reverse as units increased but there was a slight decrease in ASP's.

ASP's for the Montevina refresh are lower in general but gross margin is still good. GPU gross margin improved in the quarter from the low levels in Q2.

MCP showed strong growth of nearly 19% quarter-to-quarter or $31 million as we ramped volume production of MCP79 which is the GeForce 9300 and 9400 series. Total MCP79 revenue was more than $75 million in the quarter.

Professional solutions including our workstation business grew by 11% or $20 million quarter to quarter. The consumer business was relatively flat quarter to quarter and had growth in the Sony royalties offset by a decline in the mobile business.

For gross margin we improved our GAAP gross margin to 41% and our non-GAAP to 41.9%. The difference between GAAP and non-GAAP is stock based compensation of $3.6 million and $4.5 million for our royalty dispute.

Operating expenses in the quarter were $311 million which includes $8.3 million of restructuring cost. We're pleased with our progress in restraining our OpEx. Headcount at the end of the quarter was 5293 which is down by 260 from the end of the second quarter.

Depreciation was $49.3 million up $3 million from Q2 and capital expenditures were $109 million. That includes the [transmittal] license.

Within the interest and other income, there were three discrete items that caused an impairment charge totaling $8.8 million. On the tax rate, the renewal of the R&D tax credit resulted in a tax benefit for the quarter of $745,000 and a year-to-date tax rate of 7.7%. The result of all of this is that GAAP diluted earnings per share was $0.11 for the quarter and non-GAAP diluted earnings per share was $0.20.

On the balance sheet, cash and equivalents and marketable securities were $1.3 billion which is down by $352 million from the second quarter. We repurchased $300 million worth of stock during the quarter.

The operating cash flow was a positive $43 million for the quarter. Accounts Receivable were $608 million which is down $72 million from the second quarter and DSO was 62 days, also an improvement from the second quarter.

Inventory grew by $92 million quarter to quarter and the DSI grew to 90 days. The growth in inventory was primarily in new GPU products and in MCP79 as we ramped volume.

We believe the channel inventory decreased slightly from Q2. And 90 days of DSi is about as high as we would want and we will work to bring down the inventory levels in Q4. Accounts payable and accrued liabilities declined by $131 million during the quarter.

On the outlook. Given the economic uncertainty, it is probably unrealistic to give any outlook at all and certainly a precise one. So I would caveat our outlook that there can be a wide range on the outcome.

I also believe it is unrealistic to expect any sort of robust Christmas spending on the part of the consumer. Therefore we believe our revenue will be down for the fourth quarter and a point estimate with a wide range of approximately 5%.

The revenue line is the most difficult to forecast. We believe gross margin will be relatively flat and operating expenses will also be relatively flat.

This means a gross margin in the range of 41% and operating expenses of approximately $310 million. Other income should improve over Q3 and the tax rate for the fourth quarter should be approximately 13%. With that, I will turn it back over Jen-Hsun.

We are driving several initiatives to strengthen our competitive position while expanding into new segments and markets. First, we captured lost share in the performance segment. We have superior performance and market-changing differentiators like CUDA. With our efforts this quarter we're now properly cost positioned as well.

Second, increase our exposure to the notebook market by using our new motherboard GPU to bring five times better graphics performance to Intel notebook platforms, the fastest-growing segment of the PC market. Third, with the announcement of Adobe's Creative Suite 4 and our Quadro CX accelerator for CS4, we have expanded our market footprint beyond gamers and industrial designers to include the creative generation.

Gamers want performance and with the GeForce GTX 280 and 260 and the recently announced three-way SLI, GeForce delivers the best performance at each price point. And gamers buy new GPUs to play the latest games. The top games this fall are Crisis Warhead, Far Cry 2, Call of Duty, World at War, Fallout 3, and Deadspace. Gamers will experience up to 30% faster frame rates with GeForce GTX GPU's.

Enthusiasts want the fastest machines. This fall that machine is built on Intel's new Core i7 Bloomfield CPU and our new three-way SLI technology. And for the first time, SLI is available on SLI licensed Intel x58 motherboards as well as nForce.

Reviewers all over the world have concluded that a three-way SLI configuration with GeForce GTX 280 is unambiguously the fastest. Fast 3-D graphics is important but the market wants and needs more than just more of the same, more than just graphics.

We believe the industry must deliver new and surprising capabilities that delight and awe the world again. To do so requires revolutionary technology.

With NVIDIA's CUDA parallel computing architecture inside every new GeForce, we believe we can. There are amazing software algorithms for applications like computer vision, image recognition, physical world simulations that are possible but only of computers are 100 times faster. With CUDA, those capabilities are possible today.

In this new GPU era, the GPU does more than just graphics. Whereas the competition has just graphics, GeForce with CUDA gives you graphics plus.

Graphics plus means that your GeForce has lightning fast graphics and because of CUDA, you get much more. You get physics processing on the GPU.

Our PhysX physics engine enables games to do realistic simulations of physical properties in a world 20 times faster than the CPU alone, like dust blowing in the wind, water running in a stream and natural looking cloth. The PhysX engine has been adopted by game studios all over the world.

It's incorporated into the number one game engine in the world, Epic's Unreal Engine. PhysX is free to developers and is the only physics engine that is accelerated by the 100 million GeForces in the world. A pipeline of developers and games supporting PhysX will be announced in the near future.

With graphics plus you get image and video processing. There is a ground swell of new applications enabled by CUDA from digital photography to the excruciating process of converting movies for your iPod.

Users are performing more processing intensive tasks than ever. Elemental Technologies announced their BadaBOOM transcoder. Pegasus, Nero, CoreCodec have announced plans or demonstrated CUDA acceleration in their video processing players.

RSoft, CyberLink and Corel have announced applications that utilize the massively parallel array of CUDA processors in our GPU's to do sophisticated computational super resolution algorithms to magically enhance DVDs to 1080p HD resolution. The result is simply awesome and frankly surprising.

Finally, this quarter we will announce a groundbreaking product that is starting to create buzz throughout the industry -- stereoscopic 3-D glasses for GeForce. This is a product we have been working on for over three years.

We're going to bring the 3-D experience that is sweeping the movie industry to PCs. We will reserve the exciting details for launch but we previewed this at NVISION and the enthusiast press was entranced.

BizTech wrote that 'I have to say, the effect is amazing. I seriously did not want to stop playing.' GotGame said that what they were seeing was pure, undiluted awesome.

Software developers are thrilled too. Mark Rein, the CEO of Epic Games, stated that the Age of Empires stereoscopic 3-D demo they showed in the NVISION keynote looked absolutely amazing. Stereoscopic 3-D is a great example of how consumers continue to demand more of graphics hardware. With our graphics plus initiative, we're moving the industry forward and bringing new and exciting innovations to delight the world again in a way that just graphics simply can't.

The fastest-growing segment in the PC market today is notebooks. Notebooks are now 55% of all PCs shipped, 140 million units this year and growing at 25%. Although visual computing is also important for notebook users, the tight space and power constraints have caused the adoptions of GPU in notebooks to lag desktop PCs.

We are addressing this by creating ever more power efficient GPU's and by integrating all of the chipset functionalities into the GPU that conserve space. A couple of weeks ago, Apple was the first company to announce our new GeForce 9400M designed for Intel processors and which integrated three chips into one for amazing space savings.

It performs five times faster than current integrated graphics. Apple was the first company to announce and today Toshiba announced new notebooks based on the 9400M. Toshiba announced a gaming notebook that has three NVIDIA GPU's inside of them, the 9400M and two 9800 GT's in SLI.

There is a pipeline of design wins and new design win momentum for the 9400M is extremely strong. With the 9400M and others on our roadmap, we now have exposure to the growing notebook market like we have never had before.

Another brand-new market for us is the creative professionals and consumers. These are professionals who use Adobe's award-winning tools to create digital content such as movies, commercials, ads, games and websites or consumers making home movies -- digital photo albums, or the millions of movies that are being shared on YouTube.

As the resolution of images and movies increase, and as the image processing effects become ever more sophisticated, the editing experience is painful even with the fastest quad core CPUs. That's why Adobe and NVIDIA engineers worked so closely for the past several years to GPU accelerate all of the CS4 applications. The result is amazing.

John Loiacono, Senior Vice President of Creative Solutions at Adobe said that a critical element of CS4 was to capture the enormous power of the GPU. The difference is astounding.

Performance is important to creative professionals and with the NVIDIA GPU they are sure to be able to interact with images and videos in a much faster, smoother more engaging way. The creative generation is a significant expansion of our TAM.

Adobe estimates the addressable market to be 6 million creative professionals and over 38 million creative nonprofessionals. To put these numbers in context, the total Quadro professional industrial design TAM today is only 4 million units. So another 44 million potential new users represents a very significant addition.

We still have much work to do to be where we would like to be. But we made great strides this quarter. We transitioned to 55 nm and have a great lineup with graphics plus.

With our single chip notebook GPU, we have a market changing offering for notebooks, the fastest-growing segment of the PC market. And with Adobe and Quadro CX, we have expanded our TAM by over 40 million people, 40 million new visual computing users.

We're happy to take your questions now.

(Operator Instructions) Glen Yeung, Citigroup.

I guess my first question is around your gross margin outlook; Marv, maybe a question for you. We've been hearing a lot about 55 nm and a lot of discussion about what the yields look like. I wonder if you can address that issue and also talk about what your ASP assumptions are in the gross margin outlook?

Well we're doing just fine with 55 nm. The yields are just fine. The assumption with regard to ASP's is that I think it's exactly like we told you last quarter. We don't see major changes in ASP's in any particular segment going forward.

The issue is what is the volume of each of those segments. Now I said with regard to the outlook [that there's] probably a lot of variability in those segments. I think that Jen-Hsun would tell you that we are focused on regaining some market share in what I would call the performance and high-end portion of the desktop GPU market that would enhance ASP's. So I guess I feel comfortable with our outlook on ASP's.

Maybe as a follow-up also for you Marv, as you look out over the next four quarters or so, pick a timeframe, what is the potential for NVIDIA to do incremental cost cutting versus what you've already announced and beyond what's just the potential, what's the intention?

The intention is to hold the line on operating expenses and grow revenue. We're totally focused on our opportunities to grow revenue. We have some significant opportunities and we don't want to jeopardize those by doing something foolish in cutting operating expenses. I'm happy with the job we have done so far, but I'm not focused on further cuts in operating expenses. I'm focused on revenue growth.

Okay, thanks.

James Schneider.

Maybe just as a follow-up to the gross margin question, could you talk about your progress in the 55 nm ramp? When do you feel you will be fully on production of 55 nm and how much 55 nm inventory do you have remaining?

We have 65 nm inventory remaining, but everything we are ramping now is 55 and everything on the high-end that we're shipping now is 55.

Okay, fair enough. I guess as a follow-up, in terms of the market [data] we've seen over the last few quarters, notwithstanding the macro weakness affecting desktop GPU demand, there seems to be a pretty precipitous share shift between desktops and notebooks. Can you address your outlook over the next several quarters, whether you think that there is some kind of break point where the rate of desktop share continues or doesn't decline as much going forward?

The desktop -- what the market shows is the desktop units are relatively flat and that the growth is coming from notebooks. It's not so much that the total units are flat and there is a shifting of units from desktop to notebooks.

So desktop units are relatively flattish and notebook growth is clearly much more significant. And our focus on the desktop is continuing to bring exciting new products and ideas to the marketplace that causes people to want to come back and buy new PCs.

We have to recapture our share. We lost some market share recently and as we were transitioning. But those things are all behind us now and we are focused on going after the share that we lost.

In terms of the notebook market, we recently introduced the 9400M. This is the chip that was in the MacBook and the MacBook Air and also the MacBook Pro. And this particular chip is really amazing. It integrates three chips into one, a lot less real estate on the motherboard; much, much lower power.

And as a result -- and it's also our first Intel processor notebook GPU, the first one we have ever built for a motherboard GPU. So this is a very new market for us that we're growing into.

You already saw the initial success that we've announced and there are many more that we would like to announce in the near future. But this is a very important growth opportunity for us. So for the first time, we have exposure to the vast majority of the fastest-growing segment in the PC industry.

Mark Lipacis, Morgan Stanley.

First question perhaps for Marv. Can you give us a sense of a more normalized gross margin and operating margin target that you guys have and if you care to take a stab at when you might be able to reach that?

No, I won't take a stab as to when we might be able to reach it. I don't see anything long-term that is an impediment for us getting back to where we were before in the mid to higher 40% range. Obviously we are focused on that.

In Q2 we took a step backwards. Now we have to recover. Part of that recovery is going to be regaining market share in the performance and enthusiast segments. Part of that recovery is going to be transitioning to 55 nm and beyond. So we are focused on gross margin improvement, but I don't have a timetable for when we get back.

Fair enough. Second question -- you're successfully transitioning to 55 nm now. When would be a reasonable time to expect to see 40 nm products hit the market? Thank you.

We haven't announced any 40 nm products yet.

Krishna Shankar, JMP Securities.

Yes, Marv, can you give us the revenue mix in the quarter between desktop, notebook and CPs and professional solutions just as approximate percentages?

Wow. I think I did that because we said that the total GPU business was down quarter to quarter and the MCP business was up. So if you'll take your base line that you had last quarter in that data and put those growth rates or decline rates on them, you'll come to the breakout of the revenue for the quarter. I don't have the percentage of the revenue within those that totals up to 100%.

Then your guidance for the January quarter, are you saying basically flattish to plus or minus 5% for revenues?

No, I think I said the point estimate was a decline of 5%.

Okay, all right. And then just a final question on the performance and enthusiast graphics, with the new product line on 55 nm, do you feel that you can continue to gain market share here in the January quarter and what is the outlook for that segment of the market given consumer spending patterns?

We absolutely will regain market share and we have -- this is a segment where technology matters, performance matters, architecture matters and we have the best lineup. Our challenge was never architectural leadership. Our challenge was that we were caught flat footed at 65 and our chip and board solution was just too expensive. And so we have made that transition in Q2 and we are in Q3 and we are through that transition and we are off and running.

With respect to the robustness of the segment, historically this segment has responded to new games. Gamers buy graphics cards to play new games and this Christmas we're going to have five very, very exciting new games coming out. And if you were fortunate to have a GeForce GTX, your experience would be the best. And that is our focus now is to ship all these GeForces and get back to taking back share.

Brian Piccioni, BMO Capital Markets.

I noticed that your days receivable seems to be contracting and of course one of the concerns that many people have in this environment is bad debt expense from customers being unable to pay. We have had some -- we have seen some smaller companies reporting similar type experiences. Are you making an effort to tighten your exposure to customers or is it basically business as usual?

We've always watched our receivables very, very closely, been very diligent about credit terms and payments. So I would say it's business as usual. We're not doing anything any differently. Our receivables even in this environment are in very good shape, very current, no overdue receivables.

I see. And you mentioned a fairly sizable impairment to your interest and other income. Would that be related to your portfolio management efforts or were these just other sort of charges that jumped out of nowhere?

No, I mean it's a little bit of everything. There was some impairment on some investments that we made. There was some impairment on some of our cash investments and there were some realized losses. But each of them individually was not significant.

Just as a final comment I guess, more or less to be viewed as hopefully nonrecurring.

I certainly hope so.

Uche Orji, UBS Investment Bank.

Marv, let me just go back to the subject of the guidance. I know you said the midpoint is down five. Just considering the way most people are -- companies are guiding recently, can you give us some color as to what could drive the range?

I know you're not disclosing what that range is but give us some color as to what could drive the range because it's really tough to understand how because with minus five midpoint, that's coming out much better than most of companies within the industry or even anywhere within the tech sector is guiding. Can you just give us a little bit of color as to how to handicap that range please?

You have got to understand that there's some businesses that are less impacted by the volatility out there today. Our workstation business is very solid and obviously had a very good quarter last quarter. So I view that as solid going forward.

I would expect another solid area to be our MCP business with the products that Jen-Hsun talked about, the 9300, 9400M products. Those will do well and could even indicate some sort of revenue growth.

The big swing factor in all of this is what happens to desktop revenue. And as Jen-Hsun says, we're focused on regaining some market share in that area. But my caution tells me that it could be a weak market in the fourth quarter. So those are sort of the factors driving that outlook.

That's helpful. Let me just ask you another question. Was there any impact from licensing SLI for the x58 motherboard within this quarter?

There was no revenue impact.

And then just another question. This is for Jen-Hsun. With the three GPU notebook announced today by Toshiba, how much more of this type of notebook should we expect to see? Is there any pipeline for such coming Jen-Hsun please?

We probably shouldn't announce our customers' products on their behalf. But the basic technology is combining SLI and hybrid GPU into one system. So in one mode the 9400M is a chipset, it's an SLI chipset and it communicates with the external dual GeForce 9800 GT GPU's. In another mode, the 9400M is a graphics chip so that the two 9800 GT's could be shut off and conserve battery power.

And so this is a way -- this technique is a way to both get very, very high performance for gamers while conserving -- considering the battery life whenever they're not playing games. So it's a really fabulous technique for delivering that discontinuity, if you will. So this is a technique I think other people may decide to adopt.

One last question, Marv. Your inventory exiting next quarter if you do hit the minus five midpoint guidance, how should we think about inventory given the jump we have seen in the current quarter to 91 days? What should we be -- is there a target for where we should model inventory for next quarter?

I don't know about the end of next quarter. If we achieve that target, we would see inventory coming down probably. We still have the same target of inventory in the 60 to 75 days DSi. That is still our target.

Shawn Webster, JPMorgan Securities.

I would like to I guess poke around on gross margins a little bit more. What percentage of your mix in Q3 was 55 nm GPU's? You mentioned the high end you were moving over aggressively. I'm just trying to get a quantitative sense of the mix now and for Q4.

Most of our high-end was 65 nm in Q3.

I would say across the board, most of our volume was 65 nm. You're talking about what we shipped?

That's right.

What we shipped was 65. What was built was all 55 and what we're shipping now is mostly 55.

Is it true that the chipset gross margins right now are greater than your desktop gross margins?

They're close.

They're close?

I would say that you're probably right but it's not a huge difference.

(multiple speakers) backward looking for the quarter.

For Q3.

Backward looking for the quarter. I would be surprised if forward-looking it is the same way.

(multiple speakers) expects improvement in the GPU margins going forward and the MCP margins are going to be relatively flat.

And as it relates to the sequential change in your gross margins, is that mostly mix or is there a segment by segment unit cost reduction or changes in things sequentially? Can you kind of walk us through the moving pieces?

There's all of the above. In some cases you are getting transition, more 55 nm, less 65 nm, that helps. In other cases you're ramping up and experiencing revenue growth in a lower gross margin line, i.e. MCP. You're going to have lower revenue in a high gross margin line, Sony royalties. And so it's all mixed together.

Okay and what were your memory sales in Q3?

$22.3 million.

Okay and then last one for me. When you look at your order book and your visibility right now, is it at the same, better or worse than this time when you set your guidance last quarter?

No visibility in either case.

So no change then? Thank you.

David Wu, Global Crown Capital.

Yes, I was just curious that you haven't really talked about a lot of products but we haven't talked about consumer products and in particular Tegra. Can you talk about -- those kind of products tend to have a good Christmas. Maybe this year is different and I was wondering when Tegra will begin to contribute to revenue and what about design win activities, that kind of stuff.

Tegra is doing really well and I have said that Tegra was not ready for production this year because the design win process tends to be longer and I also have said that Tegra's coming out party is really spring of next year and so I look forward to talking to you much more about that spring of next year.

How is the consumer business in the mean time?

What do you mean by consumer business?

You folks still have some graphics business with Motorola?

It's insignificant (multiple speakers)

Essentially I shouldn't worry about that at all in Q4?

No, it's been insignificant for a long time.

Marv, if I look at next year, your different segment of the business, I would assume that I should get growth out of your chipset. That's the highest probably of absolute revenue growth and then Tegra should be behind that. In a difficult economic environment if you execute well on the GPU side, can you actually grow revenue at all?

My answer I think is yes. But don't forget Tesla. In terms of significant revenue growth, obviously Tegra and the MCP business, but Tesla is also in that same category.

That's tens of millions of dollars.

We hope it's more than that. Here's the way I think would break it down. GeForce desktop, our growth opportunity comes from capturing share back. Our MCP business, obviously greater exposure to notebook is a wonderful thing. And then Quadro is a growth business, Tesla is a growth business and Tegra is a growth business. We know those three product lines are all going to grow next year.

Doug Freedman, American Technology Research.

Last quarter you made a significant comment about the demand you were seeing in the marketplace regarding mix shift. Can you tell us if you've seen a continuation there, any changes and just an update?

I don't think I have seen any change. Are you referring to, Doug, what we call the sort of disappearance of the low-end of the discrete desktop?

Correct.

I don't think we've seen any change to that. That's becoming in our view a mobile market.

A lot of people have called it the carving out of the mid-range and where there is the mid-range PC market and mid-range other markets. And what we're seeing is that the mid-range PC market is either moving to lower end or it's moving to notebooks. And that's why it's so important for us to have the 9400M Intel notebook platform exposure because that's a lot of the growth is in notebooks right now as you know.

Can you update us as far as ongoing negotiations to secure capacity at leading-edge nodes going forward? I know there was some concern about your partner committing enough capital to meet the demands of a $4 billion company. Can you discuss any progress you may have had there?

I would think that with -- I'm hoping that we grow next year and I think we have a good shot at growing next year. But considering there are so many people who are backing out of orders and reducing inventory and slowing wafer starts and things like that, I would think that getting capacity would be a lesser concern now than before.

And 40 nm is a solid node but so is 55 nm and we will use as much of both as we can. So we will continue to work with TSMC and they're a wonderful partner and we both obviously want to make sure that whatever opportunities are there in the marketplace for us, that we're both thoughtful about going after it. So I think we're both on the same side of the table.

My last one, Marv, just a little bit of a housekeeping question for you. You spent $300 million buying back shares. Did you have an average share price to that or can you offer us some guidance on where you think the share count will be next quarter?

The price was $12.99. I thought it was a bargain at the time. No, I have no comment about the shares going forward. That would be a function of a lot of different things -- options issued, people leaving, repurchasing, anything.

What is left on the repurchase authorization?

About 1.3 billion.

Hans Mosesmann, Raymond James.

Jen-Hsun, how defensible is a single chipset as you guys are doing it? How long will it take for the competition to do that? It seems to me it kind of locks you in in a way that it's very difficult for some of your competitors to do multi-GPU type functionality on a notebook. Thanks.

It's really, really hard to do. If you think about the current PC architecture, to deliver that functionality requires four chips and now with the new laptops with the 9400M, it only requires two chips, the CPU and the GPU.

We know that Intel is working towards a two-chip architecture as well, the CPU and then the chipset. And as you know by now, that project has been delayed by a year now. And so it is hard to do.

It's a lot of functionality to integrate into one chip and it took us a fair amount of work to build something like that for the notebook as well. And so now we have a chassis. It sits next to an amazing processor, the Core 2 Duo, the best processor that frankly anybody in the world has ever built. And it is fast and it's low-power and so between the Core 2 Duo and 9400M, it makes a wonderful notebook.

And so our intention is to introduce a few more versions of this chassis and continue to enhance the experience of notebooks going forward. So I am really, really excited about 9400M. This was a very, very hard project for us and for anybody in the world to have accomplished. And so I think this is an investment that is going to pay off for several years.

As a quick follow-up, is there any update or status on the notebook GPU recall that you guys took a charge for last quarter? Is there any risk to a desktop recall on that same topic?

It's been relatively quiet actually. We're working with all the OEMs still. Nothing has really changed. And so I don't know that there is anything new to report.

We're working -- everything was -- so far things are consistent with our model if not a little bit better than that. So we're just working with our OEMs and making sure that, number one, they understand the issues and that they are taking immediate and appropriate steps to improve whatever thermal management techniques are available in the notebooks and then working with them to support the end users if an end user were to report a problem.

So that is our strategy and we're focused on that. Nothing has really changed this quarter.

Tim Luke, Barclays Capital.

Could you, this conference, just remind us with respect to the new architecture what sort of timeline you're looking at in terms of introducing that next year? And then just a follow-up on the prior question, what are the key milestones in terms of getting through the clearance associated with any of the issues lingering from the recall or the issues that you had in terms of the write-down that you've already taken of I think $196 million?

I have to admit, I didn't completely understand your English, the first part of it. I'm sorry about that.

The second question I think I do know the answer to. We have completely transitioned out of that material set. All of our OEMs are perfectly comfortable with the new material set and we're seeing no impediments and issues anywhere as a result of that.

If anything at all, our OEMs are pleased that we stand behind our products and that we're working with them to overcome the issue for both of us. (multiple speakers) question?

So you think that the $196 million is going to cover it for sure?

We don't know until we are done but our -- nothing that we have seen so far would suggest that we should change it at this time. What was the first question?

The first question was in terms of the major offering initiative, you go from 65 to 55 then down to 40. You have in terms of new products, a new architecture I believe that's likely to come out in the middle of calendar '09. Do you have any outlays there in terms of, A, timeline; and to, B, what some of the milestones may be for that offering?

I see, if I told you, then the competition would know too. I find myself -- I want to tell you, I can't wait to tell you. It's going to be a fabulous processor. We're working really hard on it. It's a very, very large undertaking and building a new architecture of this magnitude is a multi-hundred million dollar undertaking anymore. So it's a big, big deal. I'm very excited about it and I can't wait to tell you about it hopefully next year.

Do you think that that is the key point in terms of shares either increasing again for you? Or do you think the 40 nm introduction before that may be a turning point in terms of market share dynamics?

We lost some share recently because of our transition and our competition surprised us with a significantly lower cost and we were caught off guard and we shouldn't have been. But we're not caught off guard now and it's time for us to go get our market share back.

We have better architecture and our architecture is much, much more robust in a lot of different ways; much more features, it's not just graphics. It has physics processing and has image processing and video processing. And I mentioned earlier that we're going to introduce a really amazing new capability called stereoscopic 3-D.

Those capabilities are simply not available when you just have a graphics chip. So our focus as a company is to expand the GPU market. We're trying to expand the GPU market by enabling the GPU to do more than just graphics.

And so we're going to continue to do that. Over the years we've increased the size of the GPU market beyond anyone's expectations. And I think that our imagination surely at the moment exceeds everybody's expectation in the world today.

So I think that you're going to find GPU's in supercomputing clusters. You're going to find GPU's, multiple GPU's in your workstations, some of it for graphics, the some of it for computing.

You're going to see GPU's used for video editing and image processing and physics simulations. And so GPU's will become more and more valuable and do more and more computation for your PC. So I think that that is our primary focus. I expect we're going to continue to grow our GPU business and grow the overall GPU TAM because of our innovations.

We have no more time for questions. I'll now turn the call back over to Jen-Hsun. Please go ahead.

Thank you for joining us today. We look forward to reporting our progress for Q4.

Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation and ask that you please disconnect your lines. Have a great day everyone.