NVDA - NVIDIA Corporation - Q2 2014 Earnings Call Transcript

    Our focus on visual computing enabled us to ride out a rough PC market this quarter and is setting us up for growth in new markets. Revenue came in at the middle of our outlook driven by strength in GPU offset by Tegra. PC gaming performed particularly well enriching our product mix, growing our share of GPU revenue and driving margins to another record high.

    The PC market is evolving as entry-level laptops face pressure from tablets, yet sales of specialty PCs like gaming systems and workstations continue to grow. The disparity reflects how consumers use these different classes of PCs. Many consumers look to a PC as a general purpose device they can use for browning, e-mail, social media and video but much of this can be better served by a tablet .

    In contrast, gamers are preparing their systems for a strong roster of games coming this fall including blockbuster franchises such as Call of Duty Ghost, Grand Theft Auto V and Assassins Creed 4. In a similar vein, for digital artists and designers the workstation is the tool of their trade. They depend on increasing processing power to deliver results for their clients and the use of specialty PCs could become even more with the growth in new applications like 3D printing.

    Open platforms such as PC and Android are outgrowing the walled gardens of the traditional console market. They benefit from more innovation. Nearly half the developers surveyed at GDC recently were working on PC games compared to only 11% on the exchange consoles. PC game revenues are expected to reach around 20 billion annually by 2015, whereas the total for both play stations will be less than 10 billion. An XBox is only around half of that.

    In mobile, games generate 80% of the revenue on Google's marketplace and two-thirds of the time spent on a tablet is spent playing games. It is this innovation and energy that we are leveraging with SHIELD. It started shipping July 31st and a critical reception has been excellent.

    VentureBeat described it as a game geek’s dream device. A writer of Forbes said he got excited about gaming again. And CNET called it a high quality device with stellar performance.

    Because SHIELD is an open platform, it can access anything available to an Android tablet . That means there were literally hundreds of thousands of games available for SHIELD the day it launched. It is a web browser and way to update Facebook, it excels as a Netflix movie player and has an Internet radio or Pandora music player. Thanks to the effort we put into the loudspeaker and acoustic design.

    SHIELD is the best way to play games, android games, and a key element to our strategy to generate a virtuous circle in open gaming. It links to GeForce on PCs so gamers can play PC games from their couch. One day it will be an excellent client of GRID gaming, we have paired it with Tegra Zone, a curated collection of games all tested on Tegra and many of the optimized for Tegra. Tegra Zone has been installed over 7.5 million times already and that number increases around 10% a quarter.

    The model we are building for games is familiar from music or movies. You can buy a song from Amazon and download it to your device or stream it directly from a service like Spotify or even buy it and host it in the cloud of Google. Similarly a gamer can download games to SHIELD to play, play a game online and soon stream it from GRID.

    Our content group helps develop a differentiator of games in our platforms and this creates synergy across devices. Games optimized for SHIELD will also look on Tegra 4 devices like the HP Slatebook X2 or the Toshiba Excite Pro, both of which ship this quarter. Games optimized for GeForce will be excellent candidates for GRID gaming. In this way, SHIELD, GeForce and GRID each benefit the other and gamers benefit from a dynamic ecosystem.

    Q2 is a trough quarter for Tegra but you will see more Tegra 4 devices launched through the balance of this year. Meanwhile, qualification of our modems, both the standalone baseband i500 and the integrated application processor Tegra 4i, is proceeding as expected. And we are making steady progress to all certification at a number of carriers.

    We previewed our next generation mobile processor Project Logan last month. Logan includes our first mobile Kepler GPU delivering what the technical press described as unambiguous mobile GPU leadership. Licensing our GPU cost as we announced this quarter allows us to generate revenue from market previously inaccessible such as vertically integrated smartphone OEMs.

    The mobile Kepler inside Logan has around three times the performance per watt of the iPad4 GPU , yet performs like a new desktop part. We show it running Epic Games' next-generation game engine Unreal Engine 4 and running Ira, the face as recently as Investor Day in April was restricted to high-end gaming PCs.

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