NVIDIA Corporation (NVDA) Earnings Call Transcript & Summary

Then you mentioned about turbocharging Arm's investment given NVIDIA's greater R&D capacity. I think a lot of that was targeted towards the data center side of things, but it could be a broader statement overall as well. How do you think about the profitability, that 35% number you're looking at? As you're turbocharging that, is that something where the OpEx is going to rise? How does that relate to the revenue? Any sort of target profitability or kind of road map on the profitability side of things would be helpful as well.

Now, I believe the business of Arm, the IPG business, is continuing to improve their overall financial metrics, both their margins as well as the overall revenue on the top line. So even through the overall 18 months, I think we'll see them actually improve through that period. I think the investments are really helping them build the opportunities in terms of the top line. And I think both of those things driven together could have an improvement in the margins over time. There could be a possibility of getting back to higher margins, some of the ones that we had seen back in the 2016 time before they went private working for SoftBank.

Great. Then the last question on this is -- actually 2 final questions. I'm not sure you're going to answer either of them, but I got to give it a shot anyway. When you talk about the gross margin accretion upon the conclusion of the deal. I think everybody gets that at face value. The EPS accretion seems like it's a little more complex potentially. Are there any significant revenue growth and/or margin expansion assumptions behind there? If you're not willing to give any specific numbers, which I suspect you're not, any sort of assumptions being more dependent on one side versus the other, the revenues versus the margins?

No, so there's no specifics on there. Again, the business will likely continue to grow between now and the overall close of the acquisition, which can be accretive. We're buying a business that is profitable right off the bat, and I think that will help our overall EPS. And you're correct. The gross margin is an easy piece because it is mostly software. And that does absolutely turn to be positive gross margins versus where our corporate company averages.

Great. Thanks for all that color, Colette. Why don't we give you an actual break from talking about the deal today, which I suspect you're going to continue to do after you and I are done chatting, and let's go over to different parts of your business, and pivot specifically to the gaming side of the equation here. You just announced 1 week or 2 ago, the RTX 3000 family, the Ampere 7 nanometer, or 8 nanometer, I guess, in this case, based on Samsung. Talk a little bit about that launch. It seems the performance benefits are quite enormous, but the strategy on the go-to-market side seems to be a little less about the pricing side than the Turing generation or the Pascal generation, and much more about performance and seemingly going for unit growth. So talk a little bit about the technology benefits that you're delivering and then the pricing and growth targets that you have strategically for the RTX family?

Yes. So Arm has certainly been exciting over the last 24 hours, but we can't forget our exciting launch of our Ampere architecture for gaming as well: our GeForce RTX 30 series. The GeForce RTX 30 series is probably one of our biggest generational beep in gaming that we have had. It is 2x the performance improvement versus Turing, and it is 1.9x the power efficiency that we had with overall Turing. An unbelievably compelling lineup kicks off our Ampere architectural product cycle in gaming. This will be our second generation of RTX, our real-time ray tracing, which extends our overall leadership in ray tracing with GeForce. It also has 2x the performance that I think you referred to with the overall same price bands or overall price points. This is also our second generation of our RT cores with 2x the throughput versus the previous generation. And it's our third generation of our Tensor Cores with over 2x the throughput of the previous generations. So your statement regarding given that the performance is increasing quite strongly with the overall price points, what can we expect in terms of both the units? Or is there also an ASP position in here? So focusing in terms of the growth of the market and the ability to attract both a refresh of their existing overall desktops and/or PCs is definitely an opportunity as well as attracting new overall gamers to this market. Right now, this has become one of the most important entertainment mediums that are out there. A lot of this has been influenced by a change which may just be the new norm going forward. Many of us are looking for live overall entertainment as we work from our homes, as we teach from our homes, and therefore play from our homes or game from our home. And a lot of that has influenced the excitement that this new generation of cards will provide. The second thing that is very key in terms of why people are coming to the market are the new games that are coming to the market. Not only did we launch the overall Ampere architecture, we also launched a significant amount of software that will help influence that gaming experience, the gaming experience, whether or not you are just a normal gamer and we have new games coming to market using our ray trace technology and/or our DLSS, improving with AI that ray tracing experience. Or you're a broadcaster and looking for keys on how to better represent your work in terms of gaming on the web. So, so many different things to bring people into the market right now to buy gaming. The price points, though, are an opportunity for us to continue to raise the bar of that entry-level and/or your refresh on where do you want to game out. So for example, we're really looking about our overall average ASPs for overall gaming. In the past, we've had some volume SKUs, volume SKUs that are very important around the world that allows whether they be first entrants or refreshers that are common for them to both get access to ray tracing at what their overall affordability. But what's been interesting is our top overall performance cards have taken off quite nicely because of the performance and the increased content that we have in terms of ray tracing. So we expect probably an increase in the mix of the types of cards that people are buying and towards the overall higher end. With that, we can also continue to have an increase in average ASPs also influenced by the increase in units from new users as well as those that are refreshing.

That's very helpful. You mentioned in answering that a little bit about potentially a structural or secular change to the consumption of gaming in general during the unfortunate COVID pandemic, but I guess there can be some upsides from the gaming side for you guys. About a year ago, you had talked about the base business for gaming at NVIDIA being about 1.4 billion a quarter. You then -- upside of that, did about 1.65 billion. You're there now, and now you're guiding to a little over 2 billion. If we think about that increase, about 25% year-over-year or even more versus that 1.4 base that you talked about a year ago, what do you attribute the upside to? And how much of that do you believe is sustainable versus some sort of COVID-related pull-in that is nice for now, but might actually not persist going forward?

Yes. So it's amazing what a year can do in terms of changing so many things here on the planet. So for one thing, yes, our baseline business and the pieces of growth that we have seen continues to just both change the overall market, but better overall expand the overall market for gaming. So keep in mind, we have 3 different overall platforms within our gaming business. We have our overall desktop platform, which we sell cards to our AIC or add-in card manufacturers. And they put them in the market, either through retail or e-tail. Our second overall market is our notebook business. Our notebook business is currently a very important business where OEM manufacturers have concentrated in bringing high-end laptops to market for specifically gaming, and with that, bringing the thin and light and the high-performance business that we can provide. Additionally, we have our overall consoles, and our consoles are focused on our Nintendo partner. And they are doing quite well with their overall Switch that has been market -- have been in market for some time. Now what is interesting is the mix just keeps changing within that business. So yes during COVID, there were some changes. The access to the overall retail market at the very beginning of COVID was shut down, and things had to move towards what we saw in an e-tail market. We were able to swiftly move with our manufacturers to the e-tail market to address the overall demand that was there. The demand was about working from home. It was about playing from home. It was about teaching from home. But it also was aligned to what we've been seeing over several years that gaming has become an entertainment sport. It is not just about playing the game and winning the game. It is about the overall conversation with your friends, the collaboration with your friends, and the connections that gaming provides. We do believe that in this world, everybody will become a gamer at some point. So we've seen a shift in terms of COVID in terms of how those things happened. Yes, we have seen a very -- interest in this entertainment area. But I think this is just a continuation that we'll see from now until we get to a new norm. We have a big overall holiday season in front of us, a big holiday season, which is fueled with new games coming to market. New games, many of them also focused on ray tracing as this is also the time where overall consoles will endorse overall ray tracing. Our 2-year head start on overall ray tracing can be extremely helpful as we look at the overall holiday market in front of us. This is a time where gamers are in market to buy games. And our 2 years still puts us with one of the top overall GPU technology to really enhance overall real-time ray tracing, not only with the hardware, but with the software. So overall yes, there has been a lot of shifts associated with COVID. But more importantly, I think there's just been a shift of gaming to an entertainment medium.

The last question for you on the gaming side of the equation is competition. It doesn't sound like the pricing decisions that you made for Ampere had anything to do with competition, but with both Intel coming in not only on an integrated basis, but next year, on a discrete basis, and AMD launching new higher-end parts within its stack, how do you view the competitive landscape within discrete and notebook GPUs? And is it changing at all as you look into the back half of this year?

When you look at either of those 2 markets whether it be desktop and notebook, we have quite a good hold on the market of gamers. Gamers love our brand. They love our overall -- working with the ecosystem and all of the technology innovation that we seek to bring to the market each and every single time. Our overall 30 series of GeForce that has come to the market couldn't have been a better launch. It is going quite well. The reviews are solid. The excitement is even better. So we're really excited for this gaming holiday -- this gaming holiday with the games. Games are not necessarily written specific to a platform. Games are written so that they can reach as far as they can to all of the different platforms. So we're well positioned with our overall gaming cards that is really bringing ray tracing and ray tracing that has been continued to improve since the very first day that we announced ray tracing to apply those types of games. So we're excited for this upcoming market in front of us. It's going to be a great holiday season.

So why don't we, in the last 5 minutes that we have, pivot over to the data center market? Which I think this is the first time that the data center market has ever only been worthy of the last 5 minutes. It shows how much other excitement you have going on. Talk a little bit about what you're seeing in the end market. There's a relatively active debate about the risk of entering another digestion mode amongst the cloud players. The last time that happened in late calendar '18 and early '19, it hit pretty ubiquitously across the industry. Even NVIDIA, who has great secular tailwinds, had a little bit of a pause, temporary as it might have been. So talk about how you're seeing demand going right now from the aggregate cloud customer base of yours?

Yes. So it sounds like we've done a lot of announcements. We've done the announcement that we plan to purchase Arm. We went back a couple of weeks and we announced GeForce 30 series. But keep in mind, we've also just recently brought out our Ampere for the data center with our A100. So we are in the early stages of ramping our A100 architecture for the overall data center. We've probably had 1 quarter, 1.5 quarter of results there. We began that work, working with our hyperscales in the A100 rollout. It was one of the fastest rollouts in speed in terms of getting cloud instances up and running. Google was able to get their cloud instances up in about a month, and we've now seen overall Microsoft also up in availability. So we're in a great position with overall A100 and its rollout. Next to come is focusing on server manufacturers that have designed and ready to go 50 different designs incorporating A100. This is an ability for those to both hit the overall hyperscales, but also the enterprise and the enterprise verticals out there to absorb overall A100. Now A100 and its launch is different, and our overall work over the last several years has been a true test of us both understanding the market, our customers and their needs. And it influenced in terms of how we went to market this time. We went to market as we have a breadth and depth of overall customers that both are aiding in terms of the work that they are doing to define their projects to find the overall products that they may need to support the projects that they are doing. That connection from an engineering standpoint are assistant in determining the products that would be best for the completion of the projects has really helped influence our both visibility and working together with each one of our partners as well as customers in this market. We've provided, over the last couple of quarters previously, our overall visibility for the next quarter. And this is enough of a case in terms of our visibility with our overall Q3 data center revenue and our plans. We will be up sequentially, and we will be up strongly versus a year ago, up probably 150% from a year ago with the combination of NVIDIA compute as well as Mellanox and its networking. So we will continue and strive to keep those relationships with the customers so that we can help them plan effectively and us to plan effectively in terms of meeting their needs. And I think that is where our focus is. From time to time, projects certainly can be volatile and different. But right now, our visibility for the quarter that we're in is what we're providing.

Well, Colette, that's a perfect answer and a great way to wrap it up. We're exactly on time. So thank you so much for taking the time today to attend our conference and chat with me. I know it's been a very busy and exciting couple of days for you, and it's probably going to continue for a few more. But we appreciate your time. So everyone, that wraps up our fireside chat with Colette Kress and Stewart from NVIDIA. Thank you all.

Thank you for having us.