輝達 (NVDA) 2012 Q1 法說會逐字稿

Good afternoon.

My name is Doris and I will be your conference operator today.

At this time I would like to welcome everyone to the NVIDIA earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr.

Michael Hara, Senior Vice President of Investor Relations.

Sir, you may begin your conference.

Thank you, Doris.

Good afternoon and welcome to NVIDIA's conference call for the first 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 will open up call to a question-and-answer session.

Please limit yourself to one initial question with one follow-up.

Before we begin, I would 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 May 19, 2011 and the webcast will be available for replay until our conference call to discuss our financial results for our second quarter 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 fiscal period ended January 30, 2011 and the reports we may file from time to time on Form 8-K filed with the Securities and Exchange Commission.

All of our statements are made as of today May 12, 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.

With that, let's begin.

Our desktop and notebook GPU product lines exceeded internal expectations for Q1.

In our desktop business we continue to be well-positioned in the performance and enthusiast categories and continue to see good momentum in China.

We added to both ends of our product lineup with the additions of the GeForce GTX 550 Ti and the GeForce GTX 590.

The GeForce GTX 550 Ti is the best entry-level gaming GPU for the next-generation Intel systems.

And the GTX 590 is simply the fastest little GPU adding card for enthusiasts.

John Peddie stated in TechWatch quote the GeForce GTX 590 is the best overall add-in board in every parameter we measure.

Compared to other dual GPU add-in boards and dual add-in GPU boards, it has the highest performance per watt, the highest performance per dollar, the lowest power consumption, the lowest noise, the biggest gain from overclocking and the best Pmark, regular or over-clocked, end quote.

The X11 GPU has continued to experience good growth driven by a wave of great new games such as the recent release of Crysis 2.

And we still have many highly anticipated titles yet to be released this year.

In the discrete notebook GPUs we expect to increase share on the Sandy Bridge platform.

We felt this growth as Sandy Bridge started to ramp in April.

The Sandy Bridge transition is expected to reach the 75% crossover point exiting the second quarter and should drive another increase of both our revenue and share of the notebook GPU segment as a result.

Our consumer products business which includes Tegra processors and embedded products achieved record revenue of over $122 million.

The record performance was due to our first group of Tegra 2 based Android products hitting the market.

Among them are the Motorola Atrix LG Optimus 2X Superphone as well as tablets like the Motorola XOOM, LG Optimus Pad and G-Slate, Asus EE Transformer, Dell Streak and the Acer ICONIA A500.

The second wave of superphones and tablets from Acer, Motorola, Toshiba and Samsung are expected to ship in Q2.

In addition, Sony announced that their S1 and S2 tablet projects will be using Tegra 2.

Based on market research from In-Stat, tablets represent the fastest growing segment for mobile processors with a compound annual growth rate of 124% from 2009 to 2014.

We continue to drive the lead role in the Android tablet market and expect to further solidify that position with our next-generation project KAL-EL based tablets hitting consumer shelves later this year.

We announced this week that we will acquire Icera, a baseband and RF technology leader.

We believe this move will further accelerate our Tegra momentum and enhance our position in mobile computing while providing another major growth driver for our Company.

Icera is the pioneer in next-generation wireless modem technologies software-defined radio or SDR technology.

They've created an ultralow power, high-performance processors especially designed for processing multiple modem protocols.

Icera's deep execution processor known as DXP is a programmable processor designed to execute communications algorithms at extremely low power and is super elegant and is much smaller than conventional basebands.

In a way, DXP is the technical equivalent of the programmable shaders we invented for GPUs which revolutionized the graphics industry.

Icera has more than 550 patents granted or pending worldwide and those products have been approved by more than 50 carriers across the globe.

By combining the companies products and technologies including our Tegra processor, we expect to enhance our position as a leading player in the growing phone and tablet markets.

The market for baseband processors is one of the fastest growing segments of the technology industry with an estimated $15 billion a year.

Our immediate plans are to accelerate Icera's entry into the voice basebands followed by the introduction of 4G LTE basebands.

Together we will offer the two most important processors that make up the modern mobile computer.

Not only is this combination strategically powerful in the market, we expect it will also drive growth for Tegra processors and Icera basebands.

Icera will leverage Tegra's momentum and deep customer engagements globally.

We're very excited to welcome the Icera team to NVIDIA.

They posses a great entrepreneurial spirit, engineering focus with great people and great technology.

They make a perfect fit with the NVIDIA team.

This is a key step in our plans to be a major player in the mobile computing revolution.

With that, let me hand the call over to Karen.

Thanks, Mike.

Revenue for the first quarter was $962 million, up 8.5% sequentially.

GAAP gross margins of 50.4% was a record for the third consecutive quarter.

Gross margin exceeded our expectations we had at the beginning of the quarter primarily as a result of richer product mix within our GPU business.

GAAP OpEx was $329.6 million, in line with our estimates.

Combined, these results generated a GAAP net income of $135.2 million or $0.22 per diluted share.

Revenue by business segment was as follows.

Our GPU business was up 3.8%.

Our MCP revenue was down significantly as we entered the final phase of that business but this was more than offset by a strong growth in notebook discrete.

Demand for notebook GPUs increased significantly as OEMs ramped production of Sandy Bridge notebooks.

Our professionals business was relatively flat.

Quadro increased sequentially, however, our Tesla business was down relative to the prior quarter as the fourth quarter benefited from a particular large transaction.

And our consumer business achieved record revenue driven by our Tegra customers bringing their first Android products to the market.

Turning to the balance sheet, our inventory levels continue to be at target levels.

Inventory at the end of the quarter was $381 million.

Our view of the channel shows inventory within our target.

Cash, cash equivalents and marketable securities at the end of the quarter were $2.73 billion, up $236 million over the prior quarter.

Excluding the Icera acquisition, our outlook for the second quarter of fiscal 2012 is as follows.

Revenue is expected to be up 4% to 6% from the first quarter.

GAAP gross margin is expected to be between 50.5% and 51.5%.

We believe this is the right level for gross margin for now.

This level allows us to maintain a healthy balance between growth and profitability.

GAAP operating expenses are expected to be between $332 million and $336 million.

GAAP tax rate is expected to be 14% to 16%.

That concludes our prepared remarks.

We will now take questions.

(Operator Instructions) Alex Gauna.

Congratulations on the nice result.

I was wondering, there's an investor concern out there that some of the first-generation tablets are perhaps mispositioned or mispriced.

Could you maybe describe how your Tegra business is being driven, smartphone versus tablet and as we look through the year, what percentage we should expect to come from next-gen platforms versus current generation?

A large part of our Tegra business comes from phones.

The first generation of tablets initially came out from carriers and with 3G.

I think that is recognized that the vast majority of tablet users are actually buying it on retail and wi-fi only.

And without 3G, obviously the tablets would be much more affordable.

So I think that's one of the factors that affected the initial reviews of the early waves of tablets.

But those concerns have been largely addressed at this point and now you can buy tablets from retail stores all over America.

And a new wave of tablets are now ramping up and are even more affordable and available on retail channels with WiFi configurations all over the world.

You're also starting to see a lot of different shade of platforms, from devices that are like the Asus transformer where it is a tablet in one configuration and has a detachable keyboard in another configuration.

And so those kind of devices are getting a lot of interest and available in computer channels all over the world.

We're going to expect another wave of tablets that are coming out to the marketplace now, ones that are even thinner and even lighter than the best offerings from anyplace, any supplier in the world.

And those devices are just in the process of ramping.

There's the really exciting new build of Honeycomb called Honeycomb 3.1 that Google just demonstrated the other day at Google I/O.

We are basically stitching that up now.

It is available -- it will be available to end-users as a over-the-air download in the very near future.

And so you'll get music services, cloud music services, cloud video services, cloud book services, and there will be cloud magazine services and all kinds of really interesting offerings to be used on these tablets in the very near future.

And so I think that the -- another wave of these tablets are now starting to show up around the world.

But the first generation of tablets with the over-the-air Honeycomb 3.1 that is coming out imminently are really, really fabulous and they are selling really well.

Not to get too far ahead is my follow-up, gents, and I was wondering in addition to 3.1 at Google I/O, Ice Cream Sandwich was center stage.

And I was wondering how that does or does not intersect with your quad-core KAL-EL chip and the complexities of what Google is trying to do and what that means for your quad-core technology?

We're really excited about the work they were doing on Ice Cream and I can't comment too much more on it than that, but we're working very closely with their teams on Ice Cream Sandwich.

As is all of these products, they come to the market when they're great and I'm certainly expecting them to be great later on this year.

Thank you.

Congratulations again.

Romit Shah.

With respect to guidance for the second quarter, can you give us a sense at least directionally how you see the three businesses trending and also what sort of contribution we are going to see from licensing in the July quarter?

What was the second part -- let me answer the first part.

The GPU business, about flattish; the professional business, about flattish; and the consumer business, uppish.

And as a result of that, we are able to overcome the Q2 which tends to be seasonally down.

And if you look at other people's guidances in the computer industry, Q2 was seasonally down.

And so you are starting to see expansion in our core businesses, core GPU businesses, and you're also seeing growth in our consumer business or consumer mobile business.

And that is making up for the decline, the expected decline of our MCP business that we've talked about now for quite some time.

If you looked at our MCP business year over year, it declined about $150 million and we made up for that through the growth of our core GPU business and Tegra business this quarter.

We expect another decline in our MCP business next quarter, and we're expecting to make up a lot of that again with the rest of our business.

The second part of the question was?

Just on licensing, how much licensing revenue are you guys going to see this quarter?

Incrementally about $40 million more.

We had $20 million (multiple speakers)

Okay great.

Just a follow-up, I think you guys haven't given official guidance for Tegra for this year, but I believe publicly you've endorsed $400 million to $600 million as a reasonable range.

Is that still on the table?

Well, we provided guidance for the next quarter and it looks like it's going to be pretty good.

And so we are looking forward to the new products coming to market with Tegra in the later half of the year.

And then also we have the introduction of our next generation quad-core processor called Project KAL-EL.

And so that should also contribute later in the year.

So I think we are -- I would characterize the Tegra business as lifted off and so we'll see how it goes and then we'll report its progress as we go.

James Schneider.

Good afternoon and thanks for taking my question.

First of all on the Icera acquisition, could you give us a little bit of color around the accretion expectations you provided in the earlier press release?

What revenue assumption you are assuming to make that accretive by the end of next year?

And then can you talk about at what point you will plan on introducing an integrated Tegra plus modem in one chip or if you plan on doing that at all?

The answer to your first question is we expect the acquisition to be slightly dilutive for the remaining part of the year.

With respect to revenue contributions, we obviously haven't completed the the acquisition yet, and so we should probably comment on that one when we are done with that.

With respect to the integration, we have no current plans to integrate their modem.

We think that the ability to offer both processors and they're the two most important processors for mobile computing gives us the opportunity to leverage the momentum of Tegra and also the quite broad penetration they've already achieved with carriers all over the world to increase the momentum of both processors.

We also see that in the vast majority of the projects we're working on whether it's tablets or superphones, the ability to keep the two processors separate allows us to mix and match the best processors for the devices that we are in.

So if you look at most of the superphones in the world today and most of the tablets in the world today, the application processor and the baseband processors are in fact separate.

And so the ability -- and then finally the ability to integrate the two, we surely have that capability and we will look at the market and look at where the technology makes sense to integrate, to operate either the smallest footprint or the lowest cost.

And we will do so when the timing is right and we surely have the capability to do that now.

Great, thanks, that's helpful.

And then as a follow-up, with the incremental $40 million of licensing in Q2, I think that contributes about 180 basis points to gross margins if I'm doing my math correctly.

But you are guiding up your gross margins a little bit less than that.

Can you talk about what is going on in terms of the business mix or pricing going into Q2 that would make that happen?

Well that's our guidance for now and Q2 obviously there's still a lot of the quarter to do yet.

So we'll come back and report on the quarter when it's over but that's our guidance for now.

Thanks very much.

Hey, Jim, let me add on that -- this is Jen-Hsun Huang -- question also.

Q1 we had a nice lift from the launch of the dual GTX 590, so that basically was a benefit to Q1.

That helps mix, I understand, thank you.

Mike McConnell.

Yes, just on that note, thinking about the gross margin guide, should we also think, Mike, with respect to the notebook business since that's going to be the growth driver within GPU and now the GTX 590 was a driver in Q1, we should probably expect then a pretty significant drop in the GPU gross margins for fiscal Q2?

Is that what's kind of implied behind that?

No, actually you know, the notebook margins are actually pretty decent.

The costs are coming down, and the margins are traveling back up.

But as the notebook business grows, it actually doesn't have as much of an effect as you think.

Okay, so it's mostly then just the GTX 590 like you talked about.

So it's just more of a normalization of the mix as we move into FQ2.

That's right.

Okay and then Jen-Hsun, just kind of a longer-term one.

When we think about Project Denver and a lot of people think your company is going to be the company that's going to be moving ARM potentially into traditional PCs, and we talk to the incumbents that's in the traditional PC market, they make an argument that it -- to be very difficult for NVIDIA and the ARM ecosystem to move into traditional PCs because of the standardization, the lack of standardization, the fragmented nature of the market and the ARM ecosystem.

Could you talk about those hurdles and looking at Project Denver how those will be overcome?

Well, first of all, Project Denver is --

Tegra 2, sorry.

Is two generations away for our SOCs, our Tegra SOCs.

And so there's still plenty of -- a lot of time between now and the time that Project Denver will enter the market.

But obviously it has to be competitive, and the things that we do that we're really good at it has to matter.

And so computer graphics have to matter, parallel computing has to matter, GPU computing has to matter.

And we have to build a product that really makes a difference in the marketplace.

There's still a lot of ideas that we haven't introduced in Project Denver.

It's probably a little bit too early.

But suffice to say that we wouldn't build a me-too product.

You've known our Company a long time and when we introduce a product, there's usually something pretty special about it and we expect Project Denver to carry on that tradition of delivering something innovative and special.

With respect to standardization, standardization comes from compatibility with software.

And the thing to keep in mind today is that the vast majority of the software developers around the world for consumer computing are increasingly developing on ARM processors.

And, if you take a look at the number of devices that are being shipped today, there are far, far, far more ARMs computers being shipped than there are x86 computers being shipped.

And if that attracts more software developers, then there's more rich software being developed for ARM that over time you would think that ARM becomes the most valuable platform for enjoying software.

And so that's how standardization happens and you know how fast mobile computing and the Internet and these application stores is causing new platforms to make a difference.

It was only a few years ago that these ARM-based either iPhones or Android phones came to the marketplace, and just look at how many applications have been downloading, how many gigabytes have been downloaded of applications.

And this is just the first few years.

The next few years is about to happen to us and it's growing at exponential rates.

And so I think that's what standardization is all about.

And I think it's pretty much a foregone conclusion that ARM is just going to be probably the most important standard for applications for consumers anyhow.

Arnab Chanda.

Just a couple of questions.

First of all, historically you have been basically on the digital side, Icera is more on the physical layer side and they have never succeeded in voice.

Can you talk to why you think you'll be able to take that or are you going to have to start a design from scratch to migrate that?

As soon as we figure out what you said, I'm going to answer it.

You broke up.

Okay, sorry, I was just saying you know in the Icera acquisition, historically you've been more on the digital side, they are more of a baseband physical supplier, never been in the voice market which is a lot harder than data.

What are you going to do to take them in there?

Do you have to design a new chip or can you talk a little bit about that?

That's a good question, I mean that's what's really special about the Icera architecture.

This is one of the world's if not the world's first unified software-defined radio-based baseband.

The way they've designed baseband processors, this multiprotocol baseband processors the same way we have designed our GPUs that allows for multiple effect shading.

And as a result of that through software upgrades, they are able to provide voice capabilities.

They have the full TPP comm stack for voice.

This isn't being done from scratch.

The Icera team based in France is one of the reputed teams in voice.

And these guys have done it for years and years and they're starting from the baseband -- the software stack of TPP comm which is the starting point for a lot of basebands today for voice.

And also they are making -- they've made incredible progress already.

We haven't introduced the product yet but we expect that the path to getting there is pretty well known at this point.

There's still a lot of development to be done and surely this is -- there's a lot of execution to do.

But it's not easy but that's kind of the exciting stuff.

Icera has invested nearly $300 million between -- in all of their different rounds of financing and have created a pretty terrific starting point for us.

And so between these two processors now, the Tegra processor and the Icera baseband and their RF, we have two of the most important pieces for mobile computing and we will start it from there.

Just a follow-up on the Tegra business.

You are obviously the lead partner for Honeycomb.

It sounds like for Ice Cream, maybe TI is.

Now is that going to to put you at a disadvantage or maybe you are ahead in quad core and that helps you?

Can you talk a little bit about what happens in the next generation?

Well, I'm not exactly sure what TI is talking about but they're obviously making a lot of for nothing.

But we're working very closely with Google on Ice Cream Sandwich and it's a very important new generation of operating system based on -- starting from the Honeycomb base.

And I'm expecting it to be really terrific.

So we are working really closely with the Google team and Tegra will surely be wonderful for Ice Cream when it comes.

And then just last question on ARM in Windows.

Should we expect that to happen reasonably soon and what time should we be looking for that and is that even likely?

ARM for Windows, I can't report on the Windows plan, that will have to come from Microsoft.

But we're working very closely with their teams.

The progress is fabulous and you know that we have one of the best Windows software development teams in the world anywhere.

And this team is not only experienced, they have a starting point of quite a bit of assets that has been created over the years and it's also very, very large in scale.

This is a software team that has the ability to support a few hundred notebook designs per cycle in OEMs all over the world and it's the -- aside from us, Intel and AMD, that such a team does not exist.

And so we have -- we're beneficial and able to bring this team to the Windows on ARM and this is one of our ways to -- one of our differentiators really for the PC OEMs and mobile companies who would like to get into this space.

So I'm expecting Windows 8 to be fabulous and we're working very closely with Microsoft on it.

Thank you, gentlemen, it seems like the future I've been waiting for is getting closer and closer.

You're absolutely right.

Thanks a lot, Arnab.

Vivek Arya.

Jen-Hsun, I'm curious, what's driving the flattish trends in the professional solutions business?

Is it just the timing of projects, is it something else?

What will it take to sort of reinvigorate growth in that segment?

Frankly I wish our professional business was growing faster too and we're spending a lot of time on that particular topic ourselves.

There's several reasons for that.

One, the workstation industry needs to be reinvigorated with new capabilities.

That's one of the reasons why we built Fermi.

The Fermi GPU brings a level of capability and functionality to the workstation industry it never had before.

And we are in the process of rolling out those capabilities into the marketplace.

We call it internally the Fermi transition.

By making computer graphics not just about OpenGL but about CUDA and computational capabilities, we can bring things like -- capabilities like photorealistic rendering, the ability to do simulation and visualization at the same time, the ability to do image processing at a much, much higher rate.

So in a large group of industries from design to styling to broadcast to seismic analysis, whether you are in oil and gas to imaging for medical, there's all kinds of applications where Fermi is really transformative.

And so we're in the process of introducing these capabilities into the professional markets, and that is what we call the Fermi transition.

Until we do that, I think that the workstation marketplace is growing basically at the rate of GDPs.

And so we need to reinvigorate that growth through new capability.

So that's one.

The second is the Tesla business needs to continue to get application adoption and continue to get those applications accelerated through CUDA and we're making excellent progress there and the OEMs are now engaging customers all over the world with what we call proof of concepts, and there's a large number of projects in the pipeline.

So HP, Dell, IBM, Supermicro and many others are working with large companies to get these projects certified, qualified and then ramped up.

So I think part of that just simply has to do with the time that it takes a large enterprise to understand the capabilities of the supercomputing workstations and supercomputing servers and then also to get it certified and rolled out into their companies.

But I certainly expect that to happen.

Is that you think something that is standing between the gross margin outlook you have in the near term versus getting to sort of the mid-50s gross margin that I think has been alluded to before from an overall Company perspective?

There's no question that unless the professional business grows, our gross margin will not grow with it.

And so that is -- the NVIDIA professional solutions group is completely aware of this and everybody is working hard to get growth happening.

This is something that the growth is not -- no competition is in the path of our growth.

This is innovation that will be necessary to grow this business for us and grow this business for all of the OEMs around the world.

The workstation business is frankly waiting for us to bring the innovation that had been designed into Fermi in CAD tools from (inaudible) and Autodesk and medical imaging companies all over the world.

They're waiting for us to roll this out into the world and when we do that, that growth will happen for us, it will happen for the OEMs.

And the same thing for Tesla.

When the proof of concept is complete and all of these projects in the pipeline are rolled down into production, it will generate growth for us and it will generate growth for the OEMs.

So both us and all of our OEM partners and all of our software partners are all intensely focused on bringing this level of innovation to the marketplace so we can all grow.

One last question if I may.

Do you think Tri-Gate technology is a viable technology for mobile?

And could it even become table stakes next year?

And if yes, how do you think you or your foundry partners are positioned to deliver it?

Well, the FIN [fed] which is the industry technical term for what is now a marketing term called the 3-D Gate has been on the horizon now for many semiconductor companies for sometime.

And this is then one of the next steps in the advancement of semiconductors.

There were talks of [having your own] technology is now I guess yesterday and metal gate and all of those things are needed to advanced semiconductor technology and many others.

And so this is just one of the next-generation technologies and semiconductor companies around the world from TSMC to global foundries to others -- Samsung to others obviously has to continue to innovate in order to make semiconductor technology continue to advance.

And I fully expect it to.

And in terms of in the case of -- your question actually has a larger question which is how important is semiconductor technology to mobile advance.

And the answer is a great deal.

I mean without semiconductor technology, how could we have any advance?

Whether it is desktop computers or workstations or servers or cell phones.

The answer is of course very important.

But, for mobile processors, by far the greatest contributor to low-power and efficient performance is architecture.

It is the un-core, it is the SOC.

It is everything that is not the CPU core as well as the CPU core and the process technology and the software technology and the operating system, and everything above that.

All of it has to come together to deliver on an extraordinary experience, not just the transistor.

It's important, but it is just one part of the overall equation.

Thanks and good luck.

Daniel Berenbaum.

I was hoping you could calibrate me a little bit on the graphics segment compared to where it was.

If I look back at where -- your GPU plus chipset back when you used to break it out, that peaked at around $900 million on a quarterly basis.

And right now that segment if I back out the royalties seems to be at about $615 million or so.

Do you ever expect to get back to that $900 million?

As chipset goes away, you expect that segment to get back to that $700 million standalone GPU number?

Or are we sort of asymptotically approaching something below that?

Well, maybe the easier question to answer is do we expect growth from our GPU business and the answer is first of all, yes.

And the reason why it is yes is as you guys may remember, we were not as fast to the DX11 generation as our competition.

We lost a step there.

And we paid for it earlier on a couple of years ago, if you recall.

So it took us a while to recover from that position with Fermi.

And the first implementation of Fermi as you recall wasn't as graceful as we all wanted it to be.

And so we had a lot of catching up to do and we reevaluated the way that we design our chips, we reorganized our engineering so that we could be more efficient, and we came back really, really strong with the second generation of Fermi and started to gain share again.

In the notebook space, the DX11 notebook space, we have been gaining share from our low a couple of quarters ago, and we should improve this quarter, we are going to improve next quarter and improve even more the quarter after that.

So I think that our GPU business has every opportunity for growth and we are expecting it to grow and we have to.

It's digital computing (multiple speakers)

Okay, and that kind of address the share point and clearly you guys have executed well in technology to regain market share there.

Maybe comment on the market side.

And I guess I mean do you think just realistically that the market ever could be big enough with your share gains to get you back to above that $700 million level on a quarterly basis?

On an overall level of GPUs, I think the answer is it's likely that the overall GPU market is larger than it ever was.

GeForce -- the GeForce consumer side has -- the GPU attach has stabilized and the fastest growing part of GPU attach is China which also happens to be the fastest-growing segment of PCs.

So that's a positive factor.

In the workstation space, we want to reinvent and redefine the workstation and bring visual computing to a new level there with CUDA and computational computer graphics.

And of course in the servers where we invented a technology called CUDA and used in servers for accelerating applications, numerically intensive applications, and so the server market becomes a large business opportunity for us.

And we have several ideas yet that we're going to introduce to the world to increase the adoption of GPUs.

So I think if you look at the overall GPU market, there's no question it has an opportunity to grow yet.

Okay, great, thanks.

If I could just follow up with one mechanical question.

Would you guys care to hazard a guess on tax rate for the remainder of the year?

For the remainder of the year we have guided at 15%.

So that will be the full year, 15%?

That's right.

Uche Orji.

First question here (multiple speakers) this is Steve Eliscu.

First question is on the Quadro business, in the past you had looked to the creative professional as one of the growth drivers.

Can you give us a sense of what is happening with GPUs in the Adobe Creative Suite world?

And given that you showed some pretty compelling demos in the past, why do you think the uptake is not driving that type of growth that you had talked about in the past?

We think there's about 1 million or so digital video professionals or creative professionals that use video and probably another 3 million or so that are prosumers and those 3 million prosumers, probably a whole lot of them are already use GeForce.

And we just have to keep evangelizing so that they understand how to get the best possible performance from it.

Of the 1 million, some of them use Final Cut Pro and that hasn't been optimized for CUDA.

And a lot of them use Adobe and some of them use Sony and some of them use Avid.

And so GPU acceleration is being incorporated into almost all of them in the near future.

So as more and more of the different suites becomes GPU accelerated, my expectation and our expectation is that the consumers will -- the creative professionals will incorporate.

So I think it's just a matter of time and that -- I just gave you the scope of the overall market opportunity.

But over time, I expect those 4 million video users, video editing users, professionals are all going to be GPU accelerated and that is one of the reasons why we expect Quadro and GeForce to continue to grow.

Because it's just such a compelling benefit to use GPU acceleration in video editing.

Hopeful.

Just following along on that in PSP with Tesla, I know there was a prior question.

But I think about the lumpiness of the business that you refer to in the commentaries suggests that we're still in the early adopter phase.

What are some of the milestones you are looking towards to really crossing the chasm here into the commercial space such that we get a less lumpy type of business?

That's the perfect observation.

We are still in the early adoption phase with a foundation of industry by industry by industry by industry that is being built up.

There is an overlay if you will of baseline business at Tesla that is just strong.

It's not huge yet, but it is building.

We feel it every single month that there's sellthrough every single month, it's in every single geography.

And there's pickup every single month, just steady pickup every single month overlaid with some very large deals every now and then as data centers get built out for high-performance computer and today you just really can't build out a supercomputer without GPU acceleration because otherwise the computational capability is just so low relative to anything else that's being built, it's really not possible to have something like that built.

So I think that those supercomputing centers distort if you will the basic baseline run rate of the business.

But that still says that the baseline run rate business from each industry still needs to be developed and we still need to continue to port applications which we're actively doing, and the industry is working with us very, very hard to make sure that their applications are accelerated by our GPUs because the benefits are just so overwhelming.

When you see five to 10 times acceleration of an application by porting a small part of the code, you port 10% of the code and you get five, 10 times acceleration.

That's just really, really too compelling to ignore especially for people who use their workstations to advance research or advanced time-to-market of product development.

And so one industry after another we're porting those applications.

And then there is the idea of -- and more and more people are seeing their workstations becoming really not just for visualization but for simulation as well.

And I think that's going to be a large opportunity for us.

There's several million workstations sold period year.

Windows workstations become supercomputing workstations and are used for simulation as well as visualization.

I think we're going to see a really significant market opportunity for us.

And that's what we are driving towards.

Last quick question here.

Just now that you're going to have a baseband shortly, do you see the need to acquire connectivity or NFC or GPS that some of your competitors have?

Our focus is to make sure that we have the most important pieces of the mobile platform.

The application processor and the baseband for the wireless communications processor are the two by far the most important processors on the mobile platform.

And the reason for that is because there's so much software to do.

The rest of the connectivity devices are important surely, no doubt.

But it's available from a lot of different players.

They are basically standards, the software stack is pretty standardized and it's -- there's a great deal of interoperability.

So I think these two processes are by far the most important processors and that's our focus.

Glen Yeung.

Jen-Hsun, somewhere in your discussion you mentioned China and the attach rates there.

There seems to be some controversy over what we're seeing in emerging markets in general and what the overall PC environment looks like.

I wonder if you can just shed any light you may have on the overall PC environment.

I don't know that we have any new insight over what's happening in the emerging markets.

China is very different than other emerging markets though.

The dynamics of China versus those in India of Brazil are very, very different.

China has -- is the home of some of the -- most gamers in the world and is the fastest growing game market and the game market is growing incredibly fast with virtual goods on top of that.

And it's just a very, very fast developing marketplace for gamers and they're not just playing leftover games from the West, but they're really revolutionizing new business models.

When games are free and they are as enjoyable as they are, obviously it's going to attract a lot of new players.

Okay, thanks for that, and then thinking about the relationship you have with Sandy Bridge which in the April quarter was quite good, as Intel migrates that down the stack of its processors, how do you think your attach rates will trend?

Or another way of saying that is did you happen to see a very strong attach rate out of the gate because it was a very high-end oriented chip out of the gate?

I think that the important thing is to realize that there's more than just technology at play and our CPU technology at play.

There's a segment of the marketplace that really prefers to have the best graphics performance and the best graphics experience and just as there are baseline cars and premium cars, there are going to be baseline PCs and premium PCs.

And in the premium PCs, the best way to create a premium PC and deliver a premium experience that is a meaningful step up from the baseline PC is to add a GPU.

Higher resolution displays and a state-of-the-art GPU with our Optimus technology is really the best way to create a premium experience and create a premium PC.

And so I think that that method of creating great products is not going to go away.

I think just as there are some consumers who would like to have a premium platform given a choice, there are OEMs that would like to create premium platforms to serve that marketplace and I think the GPU is known all over the world to be by far the best way to do that.

Can I actually just follow up on that comment?

Because I agree with you, I think we can see in high-end notebooks today a real premium paid for having a GPU, a discrete GPU and having better screen technology and not.

But are you seeing a scenario now where people are -- to sort of maintain the wallet for the PC build are actually downscaling the CPU in favor of an architecture that favors the GPU and screen technology a bit more?

We see a lot of different architectures around the world.

There are people who use Core i7s with the GeForce, there are people who use Core i5s with the GeForce.

There are people who use the Pentium Dual Core with the GeForce.

And so what you just described is characteristic of the different architectures all over the world.

And that's how the PC industry differentiates, by creating the best product for certain niches in the marketplace and there's a lot of different niches, a lot of different geographies with very, very different tastes.

And so I think what you described there is exactly what happens.

Craig Berger.

On the Icera acquisition, I mean getting into baseband and addressing all of the global standards and countries is a pretty large undertaking.

So how do you think that changes your R&D investment profile over the coming years?

How many heads might you have to scale into this effort?

That's a good question.

That's exactly the reason why we decided not to start an effort from scratch.

Icera is -- has carrier relationships all over the world.

As you know, they already sell millions of modems and growing very, very fast.

And so this is a team that has relationships with Nokia and GTE and Samsung.

They have carrier relationships with AT&T and Vodafone and Orange.

So the list is pretty broad, and so that's exactly the reason why we decided to acquire Icera, a company that has invested nearly $300 million of investment into it.

So we'll have to wait on the more specifics.

Can you talk about -- ?

Craig, I also told you with respect to additional investment, we expect the Icera acquisition to be slightly -- but very slightly diluted, which tells you how we think about the growth of the business and the additional investment we have to make to it.

Okay, thanks for that.

Can you give us some color on the state of Tegra design wins lately and what that tells you about that business opportunity say 12 months from now?

We're still engaged in design wins on both Tegra 2 and Tegra -- or Project KAL-EL.

We have quite a large number of Project KAL-EL design wins for tablets and phones.

And simultaneously we are doing refreshes of Tegra 2 Superphones while we're also developing new more affordable mainstream phones.

So all of those things are happening at the same time.

We are also getting designed into more and more cars which is an important growth opportunity starting with next year and looking at a larger and larger number of smart TV opportunities which requires the software stack, the rich software stack we have developed for Tegra.

So design wins are going all the time.

Last question.

Are you guys able to provide cash from operations?

Usually you guys have the cash flow in the report.

And also do you consider stock comp expense to be part of your core operations or not?

Thank you.

While Karen looks for the cash from operations, surely we think about stock-based compensation or the use of RSUs and stock options very, very carefully.

And the reason for that is because of dilution factors and because it does have value to the employees.

And then, Karen, on cash flow?

I recall it was something like $180 million or so plus or minus, something like that.

Well, for the year it was $235 million.

From operations, I'll have to get that from the cash flow statement.

Thanks, guys.

We will get that.

Chris Caso.

I just wondered if you could clarify back on some of the opening comments with the gross margin, and I think the comment was you think that was the right range for now.

Could you give a little more color on that?

And then perhaps as we go through the year, just remind us where the mix levers are with respect to those gross margins.

I think Karen wants to answer a question real quick and then I'll get to that one.

Cash flows from operations $199 million.

Okay and then with respect to gross margins, at this point, we feel pretty comfortable with the gross margins where it is.

It's always a balance between that, more profitability and more growth.

And we think that we are in positions in the marketplace which allows us to grow quite rapidly.

So we want to get there as quickly as we can.

And so there's always a fine balance but this is a good balance for now.

Some of the areas that could accelerate our gross margins further are our professional solutions businesses, both Quattro and Tesla.

If we can get those two businesses growing as we expect to, when it does at a much more significant rate, it will contribute to gross margin improvement in a much more significant way.

So those are two of the businesses we're counting on for growth and we're working incredibly hard to get the new technologies that we have created into the marketplace so that the market can embrace it and drive our next generation of growth for PSG.

Okay?

All right, and just as a follow-up, and it sounded like with regard to the Tegra business, the majority of that revenue I guess for the first half of the year is coming from the cell phone space.

How do you see that -- well if you can confirm that -- and just as you go through the year, what you see as the mix between tablets and smartphones and tablets become a substantial part of the mix as you go into the second half?

We expect phones and tablets to both contribute to Tegra's growth.

And so the exact percentages are hard to say and they'll change from quarter to quarter depending on whether it's a full cycle or a computing cycle.

And so I think that suffice to say that tablets is one of the fastest growing segments of the computer industry.

And whether a tablet is a notebook or a notebook is a detachable tablet or a transformable tablet is really increasingly hard to say.

And so I think the growth opportunities for tablets, obviously still quite significant ahead of it and this is an area where we can make a large contribution.

On the other hand, the smartphone marketplace has really just begun.

It only represents the top tier of the overall phone marketplace today and yet we all know that someday every single phone will be a smartphone.

Instead of just a couple hundred million smartphones a year, it ought to represent the full billion units of phones around the world that are sold every year.

Every phone in the world in the near future will have the ability to access the Internet and enjoy content and otherwise.

So that's an enormous growth opportunity and one of the reasons why Icera is so important to us.

Okay?

Okay, thank you.

Thank you very much.

That's all the time we have for questions.

Mr.

Hara, do you have any final thoughts?

Thanks, everyone, for joining us.

We look forward to talking to you next quarter about our Q2 results.

Thank you.

This does conclude today's conference call, you may now disconnect.