nvidia business overview july 2014
DESCRIPTION
NVIDIA CEO and Co-founder Jen-Hsun Huang shared his business overview during an investor tour in July 2014.TRANSCRIPT
THE WORLD LEADER IN VISUAL COMPUTING
SAFE HARBORFORWARD-LOOKING STATEMENTSExcept for the historical information contained herein, certain matters in this presentation including, but not limited to, statements as to: our strategies, performance, growth drivers, growth, opportunities, leadership, pipelines and design wins; estimates and forecasts; the expansion of visual computing; value to shareholders and our commitment to capital return; growing markets for our products; the performance and benefits of our products and technologies; and other predictions and estimates are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements and any other forward-looking statements that go beyond historical facts that are made in this presentation are subject to risks and uncertainties that may cause actual results to differ materially. Important factors that could cause actual results to differ materially include: global economic conditions; our reliance on third parties to manufacture, assemble, package and test our products; the impact of technological development and competition; development of new products and technologies or enhancements to our existing product and technologies; market acceptance of our products or our partners products; design, manufacturing or software defects; changes in consumer preferences and demands; changes in industry standards and interfaces; unexpected loss of performance of our products or technologies when integrated into systems and other factors. For a complete discussion of factors that could materially affect our financial results and operations, please refer to the reports we file from time to time with the SEC, including our Form 10-Q for the quarterly period ended April 27, 2014. Copies of reports we file with the SEC are posted on our website and are available from NVIDIA without charge. These forward-looking statements are not guarantees of future performance and speak only as of July 6, 2014, based on information currently available to us. Except as required by law, NVIDIA disclaims any obligation to update these forward-looking statements to reflect future events or circumstances.
FINANCIAL MEASURESThis presentation contains historical revenue amounts for certain of our product lines and businesses which provides investors with additional information to supplement the segment reporting information contained in our Form 10-K for the fiscal period ended January 26, 2014. In addition to U.S. GAAP financials, this presentation includes certain non-GAAP financial measures. These non-GAAP financial measures are in addition to, and not a substitute for or superior to, measures of financial performance prepared in accordance with U.S. GAAP. See the Appendix for a reconciliation between each non-GAAP measure and the most comparable GAAP measure. Where we present non-GAAP financial measures, we generally exclude stock-based compensation, acquisition related items, net warranty charges, and other income and expense.
3
GAMING
GPUs and SOCs
AUTO
SYSTEMS
GRAPHICS
CARDS
IP
DESIGN and
VISUALIZATION
HPC
4
FY'11 FY'14
$0.81
$0.99
FY'11 FY'14
$2,856
$4,116
Revenue 13% CAGR
Revenue excludes chipset. Non-GAAP GM and EPS, see reconciliation in Appendix.
DRIVING GROWTH
FY'11 FY'14
45.1%
55.1%
Record GM % + 1,000 BPS
EPS 7% CAGR
5
PCGeForce growth is driven by more gamers globally and games with ever-increasing production value.
CLOUDTesla and GRID are cloud GPU platforms that are made possible by technologies we invented — GPGPU and virtual GPU. Their growth is driven by enterprise virtualization and internet service provider adoption of high performance computing and big data analytics.
MOBILETegra leverages NVIDIA’s visual computing capabilities for mobile gaming, intelligent cars, robot computer vision, and mobile devices.
GROWTH DRIVERSIN
GROWING MARKETS
6
Global PC gaming growing at 12% CAGR
Steam, #1 digital game store, grew to 75M active accounts (from 65M last Oct)
Tencent, #1 PC game company, grew 23% Q-Q
Huge new titles this fall — Call of Duty, Battlefield, Assassin’s Creed, Evolve and The Crew
4K monitors need more powerful GPUs — forecasted to grow from 2M to 12M over next 3 years
Upcoming NVIDIA Maxwell GPU & Intel Grantley start new workstation cycle
GROWTH IN PCGeForce and Quadro
Q1'14 Q1'150
100
200
300
400
500
600
700
800
900+14%
SOURCE: Core PC gaming 12% CAGR: Newzoo. 4K monitor growth: Display Search.
Revenue (
in m
illio
ns)
7
Google, Facebook, Baidu, Netflix revealed machine learning efforts on Tesla
15 of “Top 15” most energy-efficient supercomputers in the world now powered by Tesla (Last year was 10 of “Top 10”)
IBM announced supercomputer with Tesla
VMware announced support for GRID
Broadcom, Cavium, AMCC announced ARM64 CPU supporting Tesla
>800 enterprise GRID trials on-going
GROWTH IN CLOUDTesla and GRID
Q1'14 Q1'150
20
40
60 +29%
SOURCE: “Top 15” in Green500 list, June ‘14.
Revenue (
in m
illio
ns)
8
Tegra K1 is the highest performance mobile processor — powers Xiaomi’s first tablet
Auto >$100M in FY15, ~$2B win pipeline to ship in next few years
Google announces new initiatives to extend Android beyond phones — Tegra K1 featured prominently:
1st 64-bit ARM1st Android TV1st Android extensions for gaming (AEP)1st Tablet with computer vision1st Android Auto
GROWTH IN MOBILETegra
Q1'14 Q1'150
20
40
60
80
100
120
140
160 +42%
Revenue (
in m
illio
ns)
9
1st Android TV
ANDROID BEYOND PHONES — GAMES, TV & CARS
1st 64bit ARM (Android L)
1st AEP/Mobile Gaming
1st Android Auto1st Tablet with Computer Vision
1-of-2 Chromebook ARM SOCs
10
“ It would be an understatement to say that apart from Google’s new playthings, NVIDIA has been ubiquitous at the I/O developer conference as well – with its Tegra K1 chip seemingly at the heart of all things cool.”
“ It will be exciting to see a new generation of games enabled by more powerful hardware like NVIDIA’s Tegra K1”
“ NVIDIA has been a pervasive presence at the show, though you mightn’t noticed… Tegra K1 lies at the center of many of Google’s recent efforts.”
“ A new focus on Android gaming has emerged at Google’s I/O 2014 event, with Nvidia’s Tegra K1 processor showcasing the raw processing potential of the next wave of mobile technology.”
“ Google Kicks It Up A Notch and Both NVIDIA and Lenovo Win at Google I/O.”
“ At the Google I/O Keynote, NVIDIA has a central role to play, and as it turns out, the company’s Tegra K1 will be the powerhouse fueling Google’s recent endeavors.”
“ The Google I/O showcased the close collaboration between Google and NVIDIA, Tegra K1-powered devices is everywhere on the show floor.”
11
Augmented Reality HUD
FUTURE CARS NEED VISUAL SUPERCOMPUTERS
Intelligent Driver Assist Driver Interactions
Natural Language ProcessingPhotorealistic Materials High Fidelity Navigation
20+ brands100+ models~30M cars
NVIDIA WINS IN:
ON THE ROAD TODAY: 5.1M cars with NVIDIA
Leveraging our GPU assets, we can consistently build the most advanced mobile processors and capture design wins — Xiaomi, Google, etc.
We partner with leading wireless, connectivity, and analog companies — ICERA, EMP, BRCM, INTC, Maxim, TI — to create differentiated platforms.
And we can license GPU IP to vertically integrated companies to create specialized mobile products.GFXBench
GAMING AND AUTO ARE LARGE AND GROWING MOBILE OPPORTUNITIES. WHAT ABOUT MOBILE DEVICES?
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25%
50%
75%
GeForce is about PC gaming — global PC gaming is growing at 12% CAGR.
PC is vibrant because it is an open platform that allows new business models that are friendly to developers —League of Legends, DOTA, etc.
PC technology continuously advances to enable new experiences — 4K displays, Oculus VR, etc.
Gamers are loyal to GeForce because we deliver the highest quality software and the best gaming experience. GeForce is rich with software capabilities that are designed just for gaming — GeForce Experience, ShadowPlay, GameWorks.
GEFORCE IS GROWING IN THE FACE OF A SLOWING PC MARKET, COMPETITION AND CONSOLES. CAN IT CONTINUE?
GeForce market share, calendar quarters: Mercury Research. Core PC gaming 12% CAGR: Newzoo.
GeForce Share
14
625M enterprise users
/20 concurrent users per GPU
*$1750 GRID GPU ASP
/4 enterprise IT refresh rate
= ~$13.7B TAM
DESIGNER
KNOWLEDGE WORKER
POWER USER
25M
200M
400M
100M
Virtualization
2.0
Virtualization1.0
TASK WORKER
ENTERPRISE VIRTUALIZATION IS A LARGE MARKET. HOW DO WE ESTIMATE THE SIZE OF THE OPPORTUNITY?
15
NVIDIA monetizes innovation through product sales and technology licensing. We expect to see continued contributions from core and IP licensing in the future. One of the important elements of our Tegra strategy is licensing IP to vertically integrated companies. It is difficult to estimate the mix of product sales to royalties. We expect significant growth from Tesla, GRID, Tegra, as well as IP core licensing. Our focus is driving overall earnings growth.
HOW IMPORTANT IS IP LICENSING TO OUR EARNINGS GROWTH?
2003 2004 20052006 2007 2008 2009 2010 20112012 2013 20140
1000
2000
3000
4000
5000
6000
7000
2006 2007 2008 2009 2010 2011 2012 2013 20140%5%
10%15%20%25%30%35%40%
June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun0
200
400
600
800
1000GRID GROWTH
TESLA GROWTH
PATENT PORTFOLIO GROWTH
% total Top500 performance from GPUs
ANDROID BEYOND PHONES
1st 64-bit ARM1st Android TV1st Android for gaming1st Tablet with computer vision1st Android Auto
# enterprise trials
16
NVIDIA has transformed from a PC components business to a visual computing solutions business where complex software is a major part of our value.
For example, GRID is possible because of GPU virtualization software, Tesla is special because of the CUDA parallel programming architecture and tools, and GeForce is special because of GameWorks and GeForce Experience.
Growth in Tesla, Quadro, GeForce gaming, and GRID will increase corporate margins.
Growth in Tegra will decrease corporate margins while increasing earnings.
Gross Margin is a Non-GAAP measure, see reconciliation in Appendix.
FY'10 FY'11 FY'12 FY'13 FY'14$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
30 %
40 %
50 %
60 %
$3,326.4$3,543.3
$3,997.9$4,280.2
$4,130.0
39%
55%Revenue
Gross Margin
Billions GROSS MARGIN HAS INCREASED
TO A RECORD 55%. WHAT CAN WE EXPECT GOING FORWARD?
DRIVING RETURN ON INVESTMENTExtending into Mobile-Cloud
ENTERING NEW MARKETS EFFICIENTLY LEVERAGING IP
Q1'14 Q1'15
+42%
Q1'14 Q1'15
+29%
MOBILE CLOUD
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CREATING SHAREHOLDER VALUE
Revenue comparisons Q1 FY15 vs. Q1 FY14. Non-GAAP GM, reconciliation in Appendix.
DRIVING GROWTH
EXCELLING IN OPERATIONS
GENERATING CASH AND RETURNING
TO SHAREHOLDERS
PC up 14%Cloud up 29%Mobile up 42%
1,000 GM basis pts increase since FY′11
$3.7B cash generated since FY'10$1B allocated for return in FY′15$0.34/share annual dividendLong-term commitment to capital return
FY'14FY'10 $-
$250
$500
$750
$1,000 $835
$488
STRONG CASH GENERATION
OCF/Millions
Total of $3.7B in last five years
(Operating cash flow)
FY'12 FY'13 FY'14500
550
600
650
700
612617
568
FY'12 FY'13 FY'14 FY'15 $-
$300
$600
$900
$1,200
CAPITAL RETURN ENHANCESSHAREHOLDER VALUE
Millions
SHARES OUTSTANDING
CAPITAL RETURN
Capital Returned to Shareholders
Intended Return to Shareholders
Millions
GROWTH IN LARGE MARKETS
Cash generation in largegrowing market
PCAutomotive base and opportunities in gaming
MOBILEProven growth and exposure to cloud &enterprise virtualization
CLOUD
APPENDIX
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
(in millions)
FY2011 FY2014
Revenue, excluding chipset $2,856 $4,116
Chipset revenue 687 14
Revenue $3,543 $4,130
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
Non-GAAPStock-based
compensation (a)
Net warranty charges
(b)Other
(c)GAAP
FY2010 Gross margin 39.0% (0.7) (2.9) — 35.4%
FY2011 Gross margin 45.1% (0.2) (5.1) — 39.8%
FY2012 Gross margin 51.9% (0.3) — (0.1) 51.5%
FY2013 Gross margin 52.3% (0.3) — — 52.0%
FY2014 Gross margin 55.1% (0.3) 0.2 (0.1) 54.9%
Footnotes (a) In addition to our historical practice of excluding stock-based compensation, during FY10, the Company completed a tender offer to purchase
outstanding stock options which resulted in a charge of $140.2 million. This charge was allocated to cost of goods sold of $11.4 million which resulted in 0.3% impact to gross margin.
(b) Consists of charges for the weak die/packaging material set that was used in certain versions of our previous generation chips and the release of the remaining warranty reserve balance in FY2014.
(c) Comprised of legal settlement charges.
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
Non-GAAP
Stock-based
compensation (a)
Acquisition-related items (b)
Net warranty charges
(c)
Other (d)
Tax impact of non-GAAP
adjustments
GAAP
FY2011
Revenue $3,543 $- $- $- $- $- $3,543
Gross profit $1,598 $(8) $- $(181) $- $- $1,409
Gross margin 45.1% (0.2)% - (5.1)% - - 39.8%
Operating expense $1,096 $92 $9 $13 $(57) $- $1,153
Operating income $502 $(100) $(9) $(194) $57 $- $256
Net income $476 $(100) $(9) $(194) $57 $23 $253
Shares used in diluted per share calculation
589 - - - - - 589
Diluted net income per share $0.81 $- $- $- $- $- $0.43
RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES
Non-GAAP
Stock-based
compensation (a)
Acquisition-related items (b)
Net warranty charges
(c)
Other (d)
Other income & expense
(e)
Tax impact of non-GAAP
adjustments
GAAP
FY2014
Revenue $4,130 $- $- $- $- $- $- $4,130
Gross profit $2,274 $(11) $- $8 $(3) $- $- $2,268
Gross margin 55.1% (0.3)% - 0.2% (0.1)% - - 54.9%
Operating expense $1,610 $126 $32 $- $4 $- $- $1,772
Operating income $664 $(137) $(32) $8 $(7) $- $- $496
Net income $588 $(137) $(32) $8 $(7) $(2) $22 $440
Shares used in diluted per share calculation
595 - - - - - - 595
Diluted net income per share
$0.99 $- $- $- $- $- $- $0.74
Footnotes (a) The stock-based compensation charge was allocated to cost of goods sold, research and development expense, and sales, general and administrative expense. (b) Acquisition-related items are comprised of amortization of acquisition-related intangible assets and other acquisition-related costs such as transaction costs, compensation charges and restructuring costs relating to the acquisitions. (c) Net warranty charges are comprised of charges to cost of goods sold related to the weak die/packaging material set that was used in certain versions of our previous generation chips and a charge to operating expense related to a class action lawsuit settlement, net of insurance reimbursement and reserve releases.(d) Other is comprised of legal settlement charges and benefits.(e) Other income and expense is comprised of gain on sale of non-affiliated investments and interest expense related to the debt discount portion of convertible notes.