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NVIDIA Second Quarter Earnings Call
Author: Albena Toncheva
Last Update: 9:15 AM EDT August 15 2007


The leading graphic chipmaker reported record revenue of $935.3 million, representing an increase of 36% from the prior year. NVIDIA, which is facing supply constrains in the midst of growing demand, has marked its entry into the high-performance computing industry by launching Telsa. The company has repurchased $125 million of its stock and has announced a 3-for-2 stock split. For the third quarter, the revenue is expected to grow in the range of 5% to 7%.

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This summary is based on the second quarter fiscal 2008 earnings call conducted by NVIDIA Corporation (NVDA) on August 9, 2007.

President and Chief Executive Officer: Jen-Hsun Huang

Chief Financial Officer: Marv Burkett

Vice President of Investor Relations: Michael Hara

Key Investors Issues

- Earnings per share increased from 22 cents in prior year to 43 cents.
- Quarterly revenue grew to $935.5 million from $687.5 million in previous year.
- At the end of the quarter, the days sales in inventory were 49 days.

Second Quarter Fiscal 2008 Financial Highlights

For the second quarter, revenue increased to a record $935.3 million compared to $687.5 million for the second quarter of fiscal 2007, an increase of 36%.

The strong revenue growth exceeded the company’s guidance. The strength was primarily in the GPU business. While MCP grew $12 million or 8% quarter to quarter, the firm had expected this in its guidance. The strength in the GPU business included both desktop and notebook. In total, the GPU business grew 20% quarter to quarter. Within the GPU business, notebook grew 50% quarter to quarter, as the Santa Rosa launch was well accepted. Much of the growth in desktop was in mainstream products. Year to year, GPU revenue was up 55% and MCP was up 16%.

Net income computed in accordance with US GAAP was a record $172.7 million or 43 cents per diluted share, up 99% from prior year.

Non-GAAP net income for the second quarter of fiscal 2008, which excludes stock-based compensation charges and the associated tax impact, was $198.1 million or 51 cents per diluted share, an increase of 77% compared to the second quarter of fiscal 2007.

GAAP gross margin improved by 280 basis points from a year ago to a record 45.3%.

Non-GAAP gross margin improved to a record 45.6%, an increase of 290 basis points from a year ago. With the very high growth experienced in mainstream GPUs, the firm expected margin pressure, but it was able to overcome that with continued execution of the transition to GeForce 8X products and good operational execution.

Non-GAAP operating expenses in the quarter were $212.5 million.

The GAAP operating expenses were relatively flat quarter to quarter, as the total equity-based compensation dropped by approximately $8 million from the first quarter. The firm had expected this roll off due to several contributing factors, one of which is the transition from Black-Scholes to a binomial valuation model that it made several years ago.

- During the quarter, the company continued to hire and added 299 new employees. Two-thirds of the additions were in the R&D area.
- The tax rate stayed constant at 14%.

- The firm ended the quarter with $1.57 billion in cash, even though the company repurchased almost $125 million in stock.
- The operating cash flow was over $300 million for the second quarter in a row.
- Accounts receivable were $508 million, which generated days sales outstanding of 50 days. The fact that the quarter was more evenly loaded than expected helped with the reduction in days sales outstanding.
- Inventory was down $56 million to $276 million, and resulted in days sales in inventory of 49 days.

- Capital expenditures in the quarter were $30 million and depreciation was $32 million. Both for the quarter and year to date, capital expenditures and depreciation almost offset each other.
- The company announced a 3-for-2 stock split in the form of a stock dividend.

During the quarter, the company launched a new family of GeForce 8M series GPUs.

This was in support of the production ramp of nearly every notebook PC OEM in the world including Acer, Apple, ASUS, Dell, HP, Lenovo, Samsung, Sony and Toshiba. The global notebook PC segment continues to grow significantly faster than the overall PC market. The firm believes third quarter growth will continue its strong momentum.
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Sources: Data collected by and from company press releases, filings and corporate websites.
Market data: BATS Exchange. Inc.

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