NVIDIA Business Overview July 2014


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NVIDIA CEO and Co-founder Jen-Hsun Huang shared his business overview during an investor tour in July 2014.

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NVIDIA Business Overview July 2014

  2. 2. SAFE HARBOR FORWARD-LOOKING STATEMENTS Except 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 MEASURES This 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.
  4. 4. 4 $0.81 $0.99 FY'11 FY'14 $2,856 $4,116 FY'11 FY'14 Revenue 13% CAGR Revenue excludes chipset. Non-GAAP GM and EPS, see reconciliation in Appendix. DRIVING GROWTH 45.1% 55.1% FY'11 FY'14 Record GM % + 1,000 BPS EPS 7% CAGR
  5. 5. 5 PC GeForce growth is driven by more gamers globally and games with ever-increasing production value. CLOUD Tesla 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. MOBILE Tegra leverages NVIDIA’s visual computing capabilities for mobile gaming, intelligent cars, robot computer vision, and mobile devices. GROWTH DRIVERS IN GROWING MARKETS
  6. 6. 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 PC GeForce and Quadro 0 100 200 300 400 500 600 700 800 900 Q1'14 Q1'15 +14% SOURCE: Core PC gaming 12% CAGR: Newzoo. 4K monitor growth: Display Search. Revenue(inmillions)
  7. 7. 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 CLOUD Tesla and GRID 0 20 40 60 Q1'14 Q1'15 +29% SOURCE: “Top 15” in Green500 list, June ‘14. Revenue(inmillions)
  8. 8. 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 ARM 1st Android TV 1st Android extensions for gaming (AEP) 1st Tablet with computer vision 1st Android Auto GROWTH IN MOBILE Tegra 0 20 40 60 80 100 120 140 160 Q1'14 Q1'15 +42% Revenue(inmillions)
  9. 9. 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. 10. 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. 11. 11 Augmented Reality HUD FUTURE CARS NEED VISUAL SUPERCOMPUTERS Intelligent Driver Assist Driver Interactions Natural Language ProcessingPhotorealistic Materials High Fidelity Navigation 20+ brands 100+ models ~30M cars NVIDIA WINS IN: ON THE ROAD TODAY: 5.1M cars with NVIDIA
  12. 12. 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?
  13. 13. 13 25% 50% 75% Q111 Q112 Q113 Q114 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. 14. 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 Virtualization 1.0 TASK WORKER ENTERPRISE VIRTUALIZATION IS A LARGE MARKET. HOW DO WE ESTIMATE THE SIZE OF THE OPPORTUNITY?
  15. 15. 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? 0 1000 2000 3000 4000 5000 6000 7000 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0% 10% 20% 30% 40% 2006 2007 2008 2009 2010 2011 2012 2013 2014 0 200 400 600 800 1000 June July Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun GRID GROWTH TESLA GROWTH PATENT PORTFOLIO GROWTH % total Top500 performance from GPUs ANDROID BEYOND PHONES 1st 64-bit ARM 1st Android TV 1st Android for gaming 1st Tablet with computer vision 1st Android Auto # enterprise trials
  16. 16. 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. $3.3 $3.5 $4.0 $4.3 $4.1 39% 55% 30 % 40 % 50 % 60 % $1 $2 $3 $4 $5 $6 FY'10 FY'11 FY'12 FY'13 FY'14 Revenue Gross Margin Billions GROSS MARGIN HAS INCREASED TO A RECORD 55%. WHAT CAN WE EXPECT GOING FORWARD?
  18. 18. 18 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 dividend Long-term commitment to capital return
  19. 19. $835 $488 $- $250 $500 $750 $1,000 FY'14FY'10 STRONG CASH GENERATION OCF/Millions Total of $3.7B in last five years (Operating cash flow)
  20. 20. 612 617 568 500 550 600 650 700 FY'12 FY'13 FY'14 $- $300 $600 $900 $1,200 FY'12 FY'13 FY'14 FY'15 CAPITAL RETURN ENHANCES SHAREHOLDER VALUE Millions SHARES OUTSTANDINGCAPITAL RETURN Capital Returned to Shareholders Intended Return to Shareholders Millions
  21. 21. GROWTH IN LARGE MARKETS Cash generation in large growing market PC Automotive base and opportunities in gaming MOBILE Proven growth and exposure to cloud & enterprise virtualization CLOUD
  22. 22. APPENDIX
  23. 23. 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
  24. 24. RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES Non-GAAP Stock-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.
  25. 25. 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
  26. 26. RECONCILIATION OF NON-GAAP TO GAAP FINANCIAL MEASURES Non-GAAP Stock-based compensatio n (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.