Source: Seeking Alpha
NVIDIA Corporation (NASDAQ:NVDA)
Q2 2015 Earnings Conference Call
August 7, 2014 5:00 pm ET
Chris Evenden – IR
Colette Kress – EVP and CFO
Jen-Hsun Huang – Co-Founder, President and CEO
Gabriela Borges – Goldman Sachs
Vivek Arya – Bank of America Merrill Lynch
Harlan Sur – J. P. Morgan
Ross Seymore – Deutsche Bank Securities
Blayne Curtis – Barclays Capital
Matt Ramsay – Canaccord Genuity
David Wong Wells Fargo
Rajvindra Gill – Needham & Company
Doug Freedman – RBC Capital Markets
Good afternoon. My name is Colin and I will be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA Financial Results 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 period. (Operator Instructions)
I would now turn the call over to Mr. Chris Evenden, Senior Director for Investor Relations with NVIDIA. Sir, you may begin your conference.
Chris Evenden – IR
Thanks, Colin. Good afternoon, everyone, and welcome to NVIDIA’s conference call for the second quarter of fiscal 2015. With me on the call today from NVIDIA are Jen-Hsun Huang, President and Chief Executive Officer; and Colette Kress, Executive Vice President and Chief Financial Officer. After our prepared remarks, we’ll open up the call to a question-and-answer session. Please limit yourself to one initial question with one follow-up.
Before we begin, I would like to remind you that today’s call is being webcast live on NVIDIA’s Investor Relations Web-site and is also being recorded. A replay of the conference call will be available via telephone until August 14, 2014, and the webcast will be available for replay until our conference call to discuss our financial results for our third quarter of fiscal 2015. The content of today’s conference call is NVIDIA’s property and cannot be reproduced or transcribed without our prior written consent.
Beginning in September, we will start to use our Company blog and Twitter to inform investors about our participation in upcoming investor and industry conferences. The next conference for NVIDIA will be the Oppenheimer Conference next week on August 12.
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 April 27, 2014, and the reports we may file from time to time on Form 8-K filed with the Securities and Exchange Commission.
All our statements are made as of today, August 7, 2014 based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements. Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or Jon Peddie Research.
During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our financial release, which is posted on our Web-site.
So let’s begin. Revenue was $1.1 billion, up 13% year-on-year and in line with our outlook. Gross margin was a record 56.1% and we delivered EPS up 38% year-on-year. The quarter’s gross margins and overall profitability were better than we had anticipated, driven by strength in PC gaming GPUs and in datacenter and cloud platforms.
PC gaming continued to deliver year-on-year growth in an expanding industry. GeForce sits at the center of the PC gaming ecosystem, now powering close to 100 million gaming PCs around the world. Our new entry-level GeForce GTX GPU delivers the performance of the latest generation consoles, making the GeForce gaming PC the largest target for developers of latest generation games. There’s no better place to look for evidence of the strength in PC gaming than eSports.
Last month’s DOTA 2 Tournament in Seattle was televised on ESPN and carried total prize money of over $10 million, more than the British Open Golf Championship. The number of players playing League of Legends rose to about 67 million and they accumulated over 1 billion hours of playtime under the strong pipeline of AAA games launching on PC this fall, including new versions of Assassin’s Creed, Far Cry, and Call of Duty.
In the workstation market, Adobe continue to push the use of GPUs with the addition of acceleration to Adobe Illustrator CC. Illustrator have millions of users worldwide. They could get up to a 10x performance boost by adding Quadro making the experience silky smooth.
Tesla had a record quarter and demonstrated continued momentum in big data analytics and machine learning with some high volume purchases from consumer Web companies for image and voice proc4essing. Tesla sales for high-performance computing also grew and several OEMs announced they will ship Tesla-based servers combined with ARM64 SoCs. ARM64 server processors were initially targeted at micro Web service but GPUs expanded their market opportunity by providing them muscle to tackle HPC workloads.
NVIDIA Tesla GPUs now power the world’s 15 most energy-efficient supercomputers as listed in the Green500 list. Tesla also powers the faster computer in the U.S., the fastest in Europe and the world’s fastest enterprise supercomputer.
GRID sales continue to ramp in Q2, and also during the quarter we launched wrinkles we launched GRID Test Drive to help enterprise IT professionals experience the benefits that GRID can bring to their virtual desktop infrastructures. The services attracted more than 10,000 users in its first eight weeks.
Companies are realizing quantifiable benefits by adopting GRID to virtualize demanding PC and workstation applications. GRID enabled Turkish Aerospace to rapidly scale its design team. Roger Williams University is providing students access across its vast campus to architecture and engineering applications 24×7, and Daewoo Shipbuilding is doubling the number of engineers who can collaborate live on their cloud based system.
Moving now to mobile computing, this quarter we saw some major development. We launched the next member of the SHIELD family, the SHIELD tablet. Powered by Tegra K1, the SHIELD tablet is the highest performance tablet on the market. From top to bottom, processor, tablet, software and peripherals, the SHIELD tablet is designed to be the ultimate tablet for gamers.
To understand the market for the SHIELD tablet, consider that Newzoo, a research company, estimates there are 1.6 billion gamers in the world today. Many of them are looking to buy a tablet, an idea supposed by the fact that 90% of Google Play revenue is generated by gaming.
Press reaction has been great. Gizmodo described it as a gaming beast and so much more. AnandTech said that it’s incredibly important to get the controller right for gaming devices and NVIDIA has nailed it. SlashGear said that it’s the new high watermark for a well-rounded tablet.
There are 400 plus games optimized today for touch and controller on Tegra and more and more are leveraging the power of Tegra K1. For example, the SHIELD tablet comes with Frozenbyte’s Trine 2, a hit game on PlayStation 4. And Portal and Half Life 2, both from Valve software, have been optimized to Tegra K1. Half-Life 2 is the highest rated PC game in history having won over 50 Game of the Year awards and multiple Game of the Decade awards.
An interesting new development is cross-platform multiplayer. War Thunder to be launched on SHIELD this fall by Gaijin Entertainment will offer massively multiplayer combat across Tegra, PC and PlayStation 4. As with GeForce on Windows, our strategy with SHIELD is to build the best game platform on Android, now one of the largest gaming platforms in the world. The SHIELD tablet is one more important element of our gaming strategy.
Google used its annual developer conference, Google I/O, to announce the Android extension package for its next version of its operating system, Android L. It brings, in the company’s words, desktop class gaming to Android, and they leveraged Tegra K1 to demonstrate its capabilities with Epic’s start-of-the-art Unreal Engine 4. Tegra K1 also runs many other desktop-class engines including Source, Unity, CryEngine and id Tech. Supporting these game engines makes it much easier for developers to bring games to Android on Tegra K1.