This summary is based on the third quarter fiscal 2007 earnings call conducted by NVIDIA Corporation (NVDA: chart) on November 8, 2007.

President, Chief Executive Officer and Director: Jen-Hsun Huang
Chief Financial Officer: Marvin D. Burkett
Senior Vice President - Worldwide Sales: Ajay K. Puri
Vice President, Investor Relations: Michael Hara

Key Investors Issues

- The earnings per share rose to 38 cents from 18 cents in the prior year quarter.
- Quarterly revenue rose 36% year over year to $1.12 billion.
- For the first nine months of fiscal 2007, the net income was $540.7 million, on revenue of $2.90 billion.
- NVIDIA ended the quarter with 4,609 employees, up 236 from the second quarter.

Third Quarter Fiscal 2007 Financial Highlights

The revenue for the third quarter was $1.12 billion, which is up 19% quarter to quarter and up 36% year to year.

Obviously it was a very strong quarter, and the management’s concerns at the beginning of the quarter as to the sustainability of the strength it saw in Q2 never manifested. Also at the beginning of the quarter, there were concerns related to production limitations. Through the efforts of the firm’s partners and operation staff, the firm was able to overcome most of those limitations. In a few cases, the revenue was limited by production but relative to the firm’s concerns at the beginning of the quarter, these were minor.

- In GPU business, the growth was led by notebook, which grew 41% quarter to quarter and 120% year to year.
- The desktop business grew 14% over the second quarter and was up 33% over the prior year. In the quarter, GeForce 8X products accounted for more than 80% of the desktop and notebook business.
- The MCP business grew 23% quarter to quarter, as the firm begins to see traction in its new Intel platform products.
- PSB, the workstation business, grew 20% over the second quarter and 37% over the prior year.
- The consumer business grew 6% over Q2. All in all, there was strong growth in all segments.

The company reported GAAP gross margin of 46.2%, which is up 90 basis points from Q2.

Non-GAAP gross margin was 46.4%. The firm had anticipated strong gross margin based on the growth in GeForce 8X products, the increase in professional solutions, and the increase in PlayStation 3 royalties. All of these contributed to the increase in gross margin.

Operating expenses were $268 million GAAP and $238 million non-GAAP.

This was slightly higher than the firm’s guidance. A major factor in this increase was the improved performance and outlook for the whole fiscal year and how that affected the firm’s variable compensation programs. For the quarter, the company had to accrue an additional $8 million as a catch-up based on the increased financial performance and expectations. This is a one-time catch-up.

The company ended the quarter with 4,609 employees, which is up 236 from the second quarter, as the firm continues to aggressively hire, particularly on R&D. One-hundred-and-fifty-five of the 236 new employees were in R&D.

Depreciation for the quarter was $33 million and capital expenditures were $70.4 million.

The increase in capital expenditures can be attributed to two factors.
- The firm bought additional testers of $22 million. These testers are consigned to the company’s contractors in Asia for the increased production.
- The company also purchased some land for $27 million in anticipation of building additional space.

Interest and other income was $19 million in the quarter, and the tax rate was adjusted down to 12% for the year-to-date.

This resulted in a tax rate for the third quarter of 11.7%. This slight downward adjustment results from more international sales than anticipated, as well as higher R&D tax credits.

The cash and marketable securities ended the quarter at $1.85 billion.

This represents an increase of $281 million from the second quarter, despite repurchasing $125 million of stock during the quarter. Operating cash flow hit $400 million in the quarter for the first time.

- Accounts receivable were $552 million, an increase of only $44 million from the second quarter as the even profile of shipments during the quarter helped collections.
- DSO for the quarter was 45 days, down from 50 days in Q2.
- Inventory grew slightly to $306 million in spite of the strong sales and production limitations. Most of the increase can be attributed to new products that were not introduced until after the end of the quarter. DSI for the quarter was 46 days.