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Executives

Rob Csongor - VP Investor Relations

Jen-Hsun Huang - President & CEO

David Shannon - EVP, General Counsel & Secretary

Richard Tonge - Senior Software Engineer

Analysts

NVIDIA Corporation (NVDA) Annual Meeting of Stockholders Conference Call May 15, 2013 12:00 PM ET

Operator

Rob Csongor

Let’s get started. Good morning and welcome to our 2013 Stockholder’s Meeting. My name is Rob Csongor. I am NVIDIA’s Vice President of Investor Relations. In addition to the live audience that we have here today, all of you, we have stockholder’s attending online. If you are attending this meeting in person, you can share your votes at the back of the room until the poll’s closed. If you are attending online, you can vote your shares online until the polls closed. In addition, when we get to the question-and-answer session later in the meeting, we will be taking questions from those stockholders attending online as well as well as those attending here in Santa Clara.

So members from NVIDIA who are here today, Jen-Hsun Huang, our President and Chief Executive Officer; David Shannon, Executive Vice President, General Counsel and Secretary and Karen Burns, Vice President and Interim Chief Financial Officer.

Before I turn the meeting over to Jen-Hsun, I also would like to take this opportunity to introduce certain outside members of our Board of Directors that are present here today. Gentlemen, please stand as I mention your name; Jim Gaither, Harvey Jones, William Miller, Mark Perry, and Mark Stevens. I would also like to introduce Wayne Hedden from PricewaterhouseCoopers LLP, our independent registered public accounting firm and John McKenna from Cooley LLP, our outside counsel who will serve as our inspector of elections.

At the end of the formal portion of the meeting, I will give a presentation. There will be time at the end of the presentation for general questions from both those attending in person as well as those attending online. However, we will not provide any updates to our financial guidance.

During the course of this meeting, we may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to our Form 10-K for the fiscal period ended January 27, 2013, and the reports we may file from time-to-time on Form’s 10-Q and 8-K filed with the Securities and Exchange Commission.

All our statements are made as of today, May 15, 2013, based on information available to us as of today and except as required by law, we assume no obligation to update any such statements.

I would now like to turn the meeting over to Jen-Hsun.

Jen-Hsun Huang

Thanks Rob. Good morning and welcome to our 2013 Stockholders’ Meeting. The meeting will now officially come to order. I will serve as the Chairman and David Shannon will serve as the Secretary of the meeting. David can you report on the mailing of the meeting notice and the stockholder list?

David Shannon

I have at this meeting a complete list of the stockholders of record of NVIDIA’s common stock on March 22, 2013 the record date for this meeting. I also have an affidavit from Broadridge certifying that they commenced the mailing of the relevant proxy materials on April 2, 2013 to each stockholder of record at the close of business on the record date.

Jen-Hsun Huang

Thank you, David. At this time I would like to introduce John McKenna of Cooley; John please raise your hand. I am appointing John to act as the inspector of elections at this meeting, David can you describe the duties of the inspector and also cover the status of a quorum for this meeting.

David Shannon

As the inspector of elections John will decide on the qualifications of voters, accept their votes and tally the final votes when balloting and all matters is completed. John has taken and subscribed the customer oath of office to execute his duties with strict impartiality. We will file this oath with a record of this meeting. As to a quorum, our bylaws provide that the presence in person or by proxy of a majority of the shares entitled to vote at the meeting will constitute a quorum. John has informed me that proxy have been not received for approximately 80% of the total number of outstanding shares on that date, which represents approximately 495 million of the approximately 618 million shares outstanding. This constitutes a quorum for today's meeting and we may now carry out the official business of the meeting.

Jen-Hsun Huang

The first item of business today is to elect Tench Coxe, Jim Gaither, Jen-Hsun Huang, Mark Perry, Brooke Seawell and Mark Stevens to serve as directors until our 2014 annual meeting. The second item of business is to approve the amended and restated 2007 equity incentive plan. The third item of business is to approve the compensation of our executive officers as disclosed in our 2013 proxy statement. And the fourth item of business is to ratify the selection of PricewaterhouseCoopers, LLP as our independent registered public accounting firm for the fiscal year ending January 26, 2014. David, would you please describe the voting procedures?

David Shannon

Polls are currently open for voting. Voting is by proxy, written ballot or online, if you are a stockholder attending virtually. You do not need to vote if you have already send in your signed proxy or voted online or by telephone. Each share of common stock is entitled to one vote. If you want to vote in person at this meeting, please go see John at the back of the room or do so online. As the company has not received notice of any of its stockholders on any other matter to be considered at today's meeting no other proposals will be addressed at this meeting. The time is 09:13 and the polls are now closed.

Jen-Hsun Huang

David, may we have the results of the voting?

David Shannon

The preliminary report of the inspector of elections covering the proposals presented at this meeting is as follows. The proposal to elect Tench Coxe, James Gaither, Jen-Hsun Huang, Mark Perry, Brooke Seawell, Mark Stevens as directors of NVIDIA is carried. The proposal to approve the amended and restated 2007 equity incentive plan is carried. The proposal to approve the compensation of NVIDIA’s executive officers is carried. The proposal to ratify the selection of PricewaterhouseCoopers, LLP as NVIDIA’s independent registered public accounting firm for the fiscal year ending January 26, 2014 is carried. A full tally of the votes will be published in the Form 8K which will be filed with the SEC within four business days.

Jen-Hsun Huang

Thanks David. That concludes the formal portion of today’s annual meeting and I declare the business portion of the 2013 Annual Meeting of Stockholders adjourned. Thank you very much.

I would now like to hand back to Rob who will update you on our business and take you through our growth strategies. Rob?

Rob Csongor

Thank you very much Jen-Hsun. As I mentioned earlier, my name is Rob Csongor, I am the Vice President of Investor Relations. I'm going to walk you through an update on our growth strategies. I'm also going to give you updates on some new news things that have happened very recently and give you an update on some things we think are exciting, some milestones in our progress to our growth strategies. We also have demos here for you today. There's no NVIDIA presentation complete without demos, so we have live demos that I will present as part of my demonstration as well as a lot of hands-on demos following the presentation you are welcome to go and take a look at the hands-on demos with the NVIDIA personnel who are here to work with you on and answer your questions and you can take a look at the work that we are doing.

Okay. As usual, please note our Safe Harbor agreement. Since our founding in 1993 NVIDIA has been dedicated to the art and science of visual computing. The beauty of visual computing is compelling to the markets and the customers that we serve in no other way; whether you are a designer who wants to visualize the finished product and have it look as real as possible before you actually build it is enormously powerful to a designer; whether you are looking at a movie and seeing special effects like you saw in Life of Pi, all of the movies that were nominated for Academy Awards this year all used NVIDIA Quadro products to create the special effects in the world’s best people immerse themselves and when they were watching the move.

But I think the most magical component of visual computing is the fact that you can interact with it to create something that looks real, acts real and then interact with it is not only extremely difficult but evokes a very passionate response from our customers and the end result is that we have very deep relationships with our customers with gamers, with professional people and that reaction comes through and is a very close relationship that NVIDIA has with those customers. So that's why we have for example the picture of a guy with a tattoo on his arm, that's not Jen-Hsun, that's actually one of our customers, right.

Now we take visual computing, you know the enormous work we do in visual computing, we bring it to the market in a variety of end to end solutions. Back in the day NVIDIA brought all our solutions to market in the form of a semiconductor; you know, we were a chip company, but today we have a variety of solutions starting with technology, IP licensing on one end and then component solutions like chips, modules, [words] we now have modules that go into an Audi, they go into cars, they go into PCs, they go into servers and most recently I think as you've noted and you've seen on news that we've done, NVIDIA is now developing systems. In many of the cases over the years we've built up the core competency in support, in software, in expertise, in knowledge of the end market where it makes most sense for us to develop the solution, the complete system and bring it to market and that’s opening up a whole new bunch of opportunities for us which I'll cover.

Now we take these solutions and we target some very specific segments of the market, where there is either a real complex problem that needs to be solved or there are people who are really going to appreciate. These markets are typically characterized by a couple of things. If you are interested in word processing and spread sheets, chances are this is not something you would care about, but for the segments that we target, visual computing is just something that they just can’t get enough off. That's one characteristic that you have. Good enough visual computing never is for these customers. So those customers are gaming for example. Now it used to be that for gaming we had a brand that we used, that we went after the gaming market with and it was called GeForce. It turns out now that we're leveraging solutions across our different brands and using them to go after specific markets. So in many cases now, you have a complex case where you have multiple brands that are targeting an overall system solution. I will give you some examples of that later on.

In the case of gaming, we not only have GeForce now, we have Tegra, we have GRID. All of these are now combining to give a gaming a different kind of overall solution. Within Enterprise, Quadro, Tesla, now GRID, I'll talk about that and then visual computing, not just being used for growing the PC, one of the common questions we get from the street, how is it possible for your GT business to be growing when the PC market is in decline and the answer is this. We don’t address the entire PC market. We address specific segments of the PC market that are very robust and have a strong demand for visual computing. We presented recently at investor conferences and in fact the data that we showed is 5% of the PC market drive 75% of NVIDIA’s gross margin, 5% of the PC market drives NVIDIA.

So we have taken this GPU visual computing solutions, the GPU goodness, the complexity in soft oriented technology and we have now realized that there are other markets outside of the PC in the server new types of computing devices that have the same demand for visual computing and that’s resulting in new businesses that we are targeting with Tegra. Now probably the best evidence that NVIDIA does not serve like a peanut butter spread across the PC market is this, last year was arguably one of the toughest years ever for the PC market. If you look at the PC market over the last four years, it has been arguably flat to down and if you look at PC companies, their result have basically mirrored that industry. However if you look at NVIDIA and arguably one of the toughest PC years ever, NVIDIA had a record year, record revenue, record profits, record gross margins and the end result is that the financial performance looks like this.

So what we are doing is not just growing the PC, we are growing beyond the PC. So if you take a look at what it looks like, we are growing to PC and beyond. If you look at our last four years, since FY ‘10 to FY ‘13 we have grown our GPU business at a 12% CAGR every year excluding our chipset business. We have taken our Quadro business, grown up by 15% and then we are now moving beyond the PC into the data center and for server, the Tesla business is starting to ramp, and then of course that we have announced recently we are now moving in with GRID in to the server, we are bringing graphics and putting it into data center into the server room, and then our Tegra business is poised for an amazing opportunity with all of things we are doing here and again I will update you that. But overall since FY ’10 till now in the midst of the flat PC market, we not only grown the PC but beyond resulting in the 20% CAGR since FY10.

Now one of the ways that we have been able to do this is that we are leveraging work that we have done in the GPU, in dealer side technology and enormous amount of software. In NVIDIA we have more software engineers than hardware engineers with content technology and with process R&D. Now as it turns out, for all of these opportunities that we are going after, we actually need all of these components. If you can imagine the work that we do to enable a game under a PC with GeForce requires the lot of the same components to enable the game to run on grid in the cloud or taking that same GPU and putting it into a Tegra all right.

So a lot of these investments that we have already made fundamentally over close to 20 years of work, we now can leverage into a variety of different opportunities with total $20 billion as we detailed in our last investor conference. So just to give you an idea, the great opportunity for us leverage a lot of the work we did in Kepler. Kepler are architecture and new architecture for GPU, power efficient but also allows you to virtualizes the GPU. So with an incremental $10 million investment, we can now go address of $10 million opportunity to bring GPUs and enable enterprise solutions as well as gaming. Tegra again Tegra is a vehicle for delivering visual computing and graphics to our number of new types of computing devices. We don't have to go and create the GPU from scratch. We get to go over to the GPU house and shop and have a choice of variety of different GPU solutions. So a lot of that is very leveraged again. SHIELD device that I'm going to give you an update on and we will show you there are some new recent news on a $10 million incremental investment. So the result of this has been FY ’14, we have an estimated total R&D of about $1.2 billion which allows us to go after a total opportunity of over $20 billion, and we think this is a very important component of our strategy which is our ability to leverage core R&D investments going forward.

Now one thing that I think has become very obvious. We understood this a long time ago, but I think one thing that is becoming obvious now to others is that graphics is more important than ever. You don't have to listen to NVIDIA. You don't have to listen to our marketing presentations or anything like that. You can just look at other companies. You look at other companies and see what they are saying. Companies who are in the mobile space, companies who are in the PC space, companies who are building devices. If you look at Apple’s launch of iPad last year, what did they talk about? They talked about graphics. So graphics is becoming more important than ever. Now we like to believe and we agree that graphics is more important than ever. However there's a big difference between graphics and world class graphics. Anybody can license an ARM core, anybody can license a GPU core and create something with those creates graphics. But doing world class graphics is very, very hard. We believe and part of our strategy is to take the core world class graphics that we've developed and we see a variety of different opportunities out there all of which need high performance, great visual computing. Whether its from grid, remote work stations, PCs, workstations, clam shells, tablets, gaming devices, phones and automobiles. And by the way there's a variety of order devices I just couldn’t fit it into this slide. But the one thing that's clear is that all of them demand visual computing. Now NVIDIA’s strategy at this point is to bring and address those through two fundamental businesses which are GPUs and Tegra. And in fact the line is blurring between the two of them. In fact you’ll notice that at the very top you have clam shells and tablets. The line is actually blurring even between those. You know a lot of the new devices that you see, I will cover a new announcement that just came out today. If you show that to a consumer you would ask them what is this, is this a tablet, is it a clamshell and for many people it doesn't matter any more. It just simply become micro small computer.

So I think you are going to see the line of blurring very much now in terms of how do we take visual computing and deliver it out there. Tegra is an SOC it’s a system-on-a-chip which has a GPU in it and that's required to address certain solutions. But over time we may see these two things blur and become more similar. Now let me take an example in the case of gaming, and we have a brand called GeForce and to go after the gaming market we developed the GPU. Now the GPU we developed is called Kepler and one of the things we did and I'm trivializing it to say that we just developed Kepler, redeveloped Kepler and we took it to market. It was the result of thousands of engineers both in software and hardware developing the single most complicated piece of semiconductor technology on the planet, over 7 billion transistors. We put all of those work in there because we know how complex graphics is and we know how hard visual computing is and we do it because we understand that performance leadership is important. It's not just important for winning reviews. It's important to deliver the level of visual computing that will differentiate NVIDIA and then translates the financial results that our shareholders can appreciate, but it's not enough. We can’t just develop a chip like Kepler and take it to market. You actually have to make sure that there is content out there that can take advantage of it. You can’t just lob it out there.

So what NVIDIA does is we focus and we understand this very, very well and we leverage this understanding in to other markets like Tegra. We understand that differentiated content is really important. So we spent a lot of time working on that.

And then finally, beyond the GTU, we work on including other types of devices and you can imagine GeForce as a gaming strategy now gets combined with GRID, now gets combined with [FIELD] and delivers a new solution for a gamer that is going to delight them and deliver them new possibilities that they may not have had before. So I am going to try to walk you through some of the components of the things that we're doing here and then give you an opportunity to understand how it applies to other markets as well.

So I am going to take one thing. I am going to, just as an example, to illustrate you. So you get a sense of the kind of work that we do and the value that we do and how it translates to our audience. I am going to take one component, water. By the way, this is a scene from a game called Age of Wushu, Age of Wushu is one of the most popular games in China and this is a scene from the game. It looks very nice. If you play Age of Wushu on a PC with integrated graphics, it looks like this and it looks fine, right. There is nothing wrong with this.

However, if you play this game and you have this exact theme and you play it on a GeForce GTX, it looks like this. Now the difference here I can go into the details of this and just say the difference is GeForce GTX has a bunch of shedders that make the water pretty, all right. Gentlemen in the back of the room actually can describe it better than anybody.

So what you have done now is you have made water, water just got pretty, but that’s not enough. If you are a gamer, what we have done is an addition to the work that we have done on Kepler, we recognize the long time ago that we could use the GPU using a programming language called CUDA and we could do things to increase the realism beyond just visual fidelity.

So for example, if you take this water and it looks pretty, the next thing is we want to make water behave like water. We all take it for granted, you need to take a couple of water and you throw it and whatever, but getting water to not just look real, but act real it's something that’s extremely hard to do, but we have taken the challenge and we have realized that a GPU could be used to do that.

So I would like to actually show you, could we switch to our first demo? And actually to show this demo I would like to introduce and I can't do this myself, I would like to introduce Richard Tonge, Richard Tonge is a Principal Engineer in our Physics DevTech Group. Richard is from Oxford University, has a Bachelor’s Degree and a Master’s Degree in Computation. He has been working on physical simulations, on fluid simulations, rigid body simulations his entire life for video games.

He is actually the Principal Engineer for our GPU Rigid Body dynamics and he actually designed the Rigid Body component of the Fishtank demo. So Richard I think what we are going to do here is we have a simulation, this is basically a tool that we provide to developers and what we do is we simulate a volume of water, right and we want it to behave like water, right. So can you explain to us how we do that?

Richard Tonge

What you see here is volumetric simulation and with volumetric simulations you get the effects of water which are most interesting and beautiful, so things like breaking waves and spray and splashes things like this. And so I can share an example of that if you like them.

Rob Csongor

So just what Richard did basically what you just did, he dropped it, he took a bunch of water and dropped it and actually the water actually consisted of, can you switch the particle view, so what you are looking at is a 100,000 particles all right, the 100,000 fluid particles and you have a 128,000 defused particles right, so the things like foam and bubbles and things like that, all right. So let's push back to the water view, all right and you can drop the water again, right. We are causing that to happen, it's not a video, all right, but just you say hey that’s canned, that’s just a canned animation right. Let’s move to the side, all right, then Richard let's this time drop the water and not the side of the tank.

It’s not a caned animation, it is doing some very different now. This water is behaving this way. Now as it turns out, right all the things that I take for granted when I look at water, go ahead and reset, right. There is every particle of water is actually interacting with 25 neighboring components, right, neighboring bodies and then you have to consider things like the viscosity and density and pressure and what are all the forces that you have to think about when you are seeing like this water.

Richard Tonge

Yeah, there is lot of forces and they are all necessary to see what you have here, so you have viscosity and pressure forces, just attention vorticity, all these things.

Rob Csongor

Vorticity.

Richard Tonge

Yes, vorticity.

Rob Csongor

Vorticity, well, I am not even going to go there, all right. Just one last thing, you go ahead and drop the water, but let's do something different, fire a bullet through or do something here you go, okay now we got water coming up both sides. In fact, you can even fire through and you get awake as the bullet goes through. Okay, that's awesome, thank you very much.

This is a simulation of water in a volume. So now let's go to the next demo, can we just go to the next demo? If you are trying to simulate water and trying to get it to the real, it turns out you can either have a volume of water right but just you know a volume meaning that it’s all order different particles or there might be another type of applications. So for example in this case, you are actually simulating the surface of water okay. So this is a demo that we have. This is called WaveWorks. This is another one of the two that we supply to developers so that enabling them to do things. And just to give you an idea of what this is. First of all, this is again -- this is interactive so right this is graphics.

So I can tell you to turn the light on, right let's make it day time. Okay, great. So now we are at day time and one of the things that this does is it simulates. This is a Beaufort simulation right. So what that does is Beaufort is an empirical measurement of wind force over a body of water or land, okay. It actually goes on a scale from 0 to 12. So for example, a Beaufort level of 0 would be a completely calm sea, it would be like a mirror. Beaufort level of 12 would mean hurricane gale winds. And the wind affects the water which affects the boat, right. It’s a cascade of physical realism and behavior that has to be computed.

And just to give you a sense of the computational work, that's being involved here. This simulation actually simulates a one kilometer spread of water, but it also has the ability to stimulate down to 1 centimeter. This is something you could not do on a CPU. That's why in video games or in simulation the water which you see is just very small waves, but in this case right now we had a Beaufort level of four, right. Michael let's go ahead and crank it up, all right. So now what he has done he has increased the Beaufort level to six which is just increasing the wind. The wind is having an effect on the water which is increasing the amount of waves and go ahead and crank it up some more.

Let's give this boat a hard time. What you are actually seeing now, all right this is in addition to the waves, the spray. The GPU is now computing not just the simulation of water, there's a 100,000 sprayed particles, 100,000 smoke particles. The boat actually has 100 sensors around it which is tapping into the simulation of the water and then calculating the effect on the boat. In other words, if this boat was a rowboat or if it was an aircraft carrier, it would respond very, very differently, okay. All right, that's good, Mike thanks.

The two different simulations of water volumetric as well as surface, an enormous amount of work and an enormous amount of computation. Now I know what you are thinking, who cares! You've got to be kidding me. How many engineers did you dedicate to this? If you work in a world of spreadsheets and word processing documents, I don't think you care, right. But fortunately for NVIDIA, there's an audience that this kind of thing evokes an enormously powerful reaction.

If you can create a video game or a simulation that is so real, this is an article that was written two weeks ago. This wasn't a product launch for NVIDIA. This wasn’t the launch of a new game. This was just a demo, but this is response from PC gamer. I showed you that water got pretty and it got real. Their responses, water just got a thousand times more awesome. And this is just one example; what NVIDIA does in differentiated content is not just work on components like water, but if you look at video games, if you look at entertainment, hair typically tends to be just a helmet, it doesn’t move; clothing doesn’t move but there is not really any particles, there is no turbulence, destruction. All of the things that you would associate with reality is not just visuals fidelity, but how things behave and all of these things are just enormously complicated to do. One of our key strategies is to not just develop leadership in GP use in silicon but to also work on differentiated content and we understand that better than anybody and unfortunately for NVIDIA, doing this is extremely hard.

So I showed you kind of a progression of technology and demos. Now, let’s take a look at how we could come together. And what I am going to show you now is a demo from a company called Epic. Epic has created this game and this demo which is called the Infiltrator, which is using the new unreal engine 4 and this combines a lot of the elements that I talked about here into one demo. So please switch the demo and let’s run it.

[Video]

Alright, great. We always have to get to those the customary scene where there is a lot of volume inside, but I would stop at this right here. Alright, now what you are seeing here is, I mean it may look like a movie, but I promise you this is graphics, in fact let’s go to the wireframe and just take a look at it, okay. So this is just a wireframe, so every 3D scene, 3D graphics starts with fundamentally a bunch of polygons. So just to give you an idea in this case, this particular demo Infiltrator can use up to 16 million polygons in any frame, any one frame, all of which have to be computed and moved in 3D space. But it's actually a lot more than just having a bunch of polygons on the screen, in fact, Mike go ahead and just show us the components of the lighting equation, okay.

Aside from polygons and then which you don't have to texture and you have light, this particular demo has a level of realism that’s enormously complex. So if you breakdown the lighting equation for Infiltrator, it breaks down to a large number of lighting affects which are all done in a post processing, so that is what you are looking at, diffused colors, secular, subsurface which is the glow that you are get in the scene, all of these components basically represent lighting effects which are post processed.

So just to give an idea all of these things combined and then the lighting equations themselves require the GPU to do 6000 operations per pixel, so every single pixel on the screen; at 1920 x1080 that’s over $12 billion shade or operations for second for the entire frame. And then remember that we are running this demo like 40 frames per second, so the combined, this is over 500 billion shade or operations per second just to the lighting equation to create the realism that you are seeing here. So go ahead and run it and Michael just breakout to the main, so you can see the final effect.

[Video]

Okay, I think that’s good, thanks Michael. Okay, I just want to give you an idea right, and I will take one component of visual computing and the work that we do not just in terms of GPU technology, but in terms of the work we do to enable this type of content and hopefully I think what you get an idea is not just that it’s important that its extremely hard to do and that’s why we spend all the effort that we do and we believe that’s why it ultimately drives financial results for our shareholders.

Now everything you saw there was enabled on what we called the Kepler series of GPU that was running on GeForce, GTX tightened. The Kepler is the architecture. It’s an extremely power efficient architecture which we developed, which has enabled the consumer graphics market. So in the past year you may have noticed and you may have seen from previous presentations, our market share grew quite a bit. We captured in fact the latest numbers just came out from Mercury Research and our market share grew a couple of more percentage points. But Kepler is just beginning to flow through our businesses. So one of the things we did this quarter is we introduced the K series, Quadro K-series which is Kepler coming to Quadro. The same power efficiency and this architecture imagine a whole new class of applications now instead of video games, its design applications like Autodesk, Adobe, SolidWorks and things like this. The net result though is 50% faster visualization performance and twice the computer horsepower.

The Kepler series is also started coming to the Tesla. Now in addition and I can't go through everything, so I'm going to try and highlight just a few key things that might be of interest to you. I think you may have noticed and you've heard that Tesla goes into supercomputers. It’s been adopted by Oak Ridge National Labs and the Titan supercomputer which is the number one supercomputer in the world. But one new application that I think might be of interest to you is that it is going into a new type of market segment and new problem called Big Data. An example of this; if you have a cell phone many of you maybe familiar with an application called Shazam. Shazam is an application which if you launch it and you are in a mall or you are somewhere and you hear some music you can hold your phone up, it will actually listen to the music compared against the database and then come back and tell you what the song is and then give you the option to purchase it or listen to it. So this application every time you use Shazam and it comes back and tells you what the song is, you've used an NVIDIA Tesla GPU.

So just imagine all of the opportunities from video, big data with Shazam, ESPN is using this. Anyone of these websites and large sites where large amounts of data have to be computed and matched, this is now an opportunity for Tesla and we think this is going to be exciting for us to drive growth in Tesla. The other thing that we've done is we've taken the GPU and now extended this need for visual computing and taken it into the data room, taken it into the data center and the server. So we announced the product called GRID. The vision of GRID is that you should be able to enjoy rich graphics anywhere on any device. It could be a mobile device, it could be a PC, could be a Mac in other words the opportunity for NVIDIA just went from delivering the goodness of a GPU to a large a GPU had to have a large PC. Now basically the goodness of a GPU can be delivered to any high resolution display, that's connected to the internet, okay.

So this quarter we announced a brand new product, this is one of our grid solutions that used to target the enterprise. This is called NVIDIA GRID. It’s a visual computing appliance and what we've done is we've taken 16 GPUs, they can be configured in a number of different configurations four, eight or 16. We have them over there on the table if you like afterwards you can go and take a look at it. But basically what this does is pack an enormous amount of visual computing, put it into a 4U rack that you can put into a server and then working together with a number of partners both to take it to market as well as applications you can now enjoy visual computing. So we are going to show you a demo, but before we go to the demo let me just illustrate. Applications that we fill up there, for example the ability to use Adobe Premier or SolidWorks if you are a designer or Autodesk, every single one of those applications used to require that you have a big PC under your desk with a very complex Quadro product and what we're going to show you is something very different. So let’s go to the demo. I have with us Ian Williams. Ian Williams is going to demo this. He has been with us a long time. Ian, first of all, I noticed that you are running on a Mac.

Unidentified Company Representative

Sure. Absolutely, Rob, this is a Mac-Pro, Mac-Retina, in case you can see behind the (inaudible) and as such you can see a stand of Mac desktop and it looks like it got four window. Well, I actually do have four windows running on this Mac desktop but as Rob mentioned, each of these windows is actually connected to a GRID VCA server and within that GRID VCA server, each of the windows represents essentially a virtual machine but that virtual machine is like having a complete workstation running inside of that server and so I have four of these virtual machines they are running one of workstation applications that Rob was mentioning, things like the Adobe Premier, SolidWorks in the manufacturing side, 3D Studio Max for creation and concentration and architectural design, as well as another one called RTT and essentially, these applications are streaming the video from the server to the Mac desktop here and because of that, its effectively like I have that work station and I can go, for example, do things if I was editing video and I wanted to do things like real-time blur adjustments which is things stuff of the video game. So I can actually real time adjust that blur on the playing movie. That’s the thing that requires a big GPU.

Unidentified Company Representative

Just one thing I just want to make clear. The applications that you are seeing here and the reason we're demoing this on a Mac. In the case of that application up there SolidWorks, you cannot run SolidWorks on a Mac.

Unidentified Company Representative

Absolutely.

Unidentified Company Representative

You can't do that right, you can't run Autodesk on a Mac. So what we are doing here and what Ian’s done is he has created a virtual machine on the Mac, which is connecting and the application is actually being run on a virtual, on a VCA in a server room. And you are interacting with it on the Mac as if you had all of that capability inside your Mac.

Unidentified Company Representative

That’s right, three out of the four applications that we have there won’t actually run on the Mac. So as you can see this brings tremendous power to essentially any client device. So you have a lot more mobility as a creative professional to be able to do you work, but also connect into a server with a lot of GPU capability that allows you to do things that are important for the workflows, but would have tied you to a particular desk or a workstation in the past.

Unidentified Company Representative

Okay. Awesome thanks Ian.

Unidentified Company Representative

And let’s go back to the slide please. One of our other strategies, other than growing beyond, in growing PC and in growing beyond the PC, one of our other strategies as I mentioned earlier moving to new types of computing devices. So to that ended one of the things we covered at our recent investor day was a very, very important component of technology which is the LTE modem. A couple of years ago, we acquired a company called [Iserra] and we have been working very, very hard to get the LTE modem to market. As we covered at our investor day. We have made a strategic decision to move in the schedule of that product, Tegra 4i and we have been working very, very hard on the certification and qualification of that product to take it to market. So that’s consuming and is a very important thing for us to bring our visual computing solution out, and target a very large segment of the phone, a very large segment of the market, which is of course phones.

But one other things that I thought I would do for you today is not just we talked about Tegra 4i a lot at the investor day. I wanted to give you an update on the launch of Tegra 4. Tegra 4 is our next generation mobile apps processor; it’s the world’s fastest mobile apps processor, uses a quad-core A-15. This is the highest performance graphics that you can get in the mobile processor. One other things we mention was that Tegra 4 would be announcing the variety of device is coming very, very soon. We said that last week at earnings call and we were telling the truth in fact this morning, one of the first announcement since one of the first Tegra 4 devices to come out and HP announce the HP Slatebook 10x2. It’s the first android detachable device of Tegra 4, a 10 inch screen, full HD 1080 display available on August at $479.

Now this is an example of the type of product that I mentioned earlier which is blurring the line between a clamshell. If you show this to a consumer is this a notebook, is it a tablet what exactly is it, all right. So I think one other things we believe and you are going to see coming out devices from manufacturers is that consumers would rather have a really great tablet than a GPC. But one other clear things that we have recognized, I talk about gaming on the PC side and how we are addressing it in the server. One of the key things that’s become obvious is that gaming is the very big component of these new compute devices. So if you look at android and the market that’s there, the revenue of Google apps this is the data that is been released recently. 76% of the revenue on Google apps comes from games. Two-thirds of the time that consumer spend on tablet is spent in games. And one of the other telling features in the market data, what developers are focusing on now is these new types of mobile devices followed closely by PC and then out far distance is closed platforms, the traditional game console type of devices.

So one of the things that we've been very pleased and what we thought is we believed that if we could take all our expertise in gaming and bring it into a device that is open platform Android but is dedicated, specially designed to give you a more delightful experience on gaming, the result of that was SHIELD. Yesterday we announced SHIELD is now open for pre-order. We announced the price at $349, we announced our sales and distribution strategy and we are taking this to market, it’s going to be available in June.

Now the SHIELD device is targeted at really two audiences. It’s targeted at the Android gamer, now over 500 million gamers and the PC gamer, and the reason is that you can do two things, you can play any Android game and you can also stream your PC games from your GeForce, play them on a SHIELD and then display them out to the TV. Now the response from the press and by the way you know when we launched this, we believed that and we know that our GeForce gamers, the PC gamers were one of the first audiences that we thought would have acknowledge this, but a lot of reaction yesterday, these are all press quotes from yesterday had a very, very excited response, specifically from the Android community. It’s going to be a gaming beast. This is NVIDIA doing what it does best, changing the gaming scene again. These are quotes from four, I won't go through every one of them but the reaction has been extremely positive.

So as I mentioned at its core what SHIELD is, is a pure Android gaming device. You can play any Android game and you can also stream some PC games. So as my final demo, what I would like to do is let's give you a look at this and we have a couple of guys and we are going to show SHIELD, all right. So let's go to the demo. Do you guys have a SHIELD, is there a SHIELD I can hold up. No sorry, I don't want to take the demo unit. Okay. So the first thing this is [Patrick Chen], Patrick just joined us two weeks ago. He joined us just to play on SHIELD.

So this is Google, this is Android. There's nothing special here. This is just Android Jelly Bean I think Version 4.2.1, it’s standard, you can go to the apps you know -- just so you can go to the apps, you can look around and you can play a video, you can listen to music just like any other Android device, right. So one of the things you can do is obviously play some games. So let's open up the game, let's take a look at a game, and Patrick is going to play or what are you going to run first?

Unidentified Company Representative

It’s actually guys Real Boxing.

Rob Csongor

Okay.

Unidentified Company Representative

Other the games.

Rob Csongor

Okay, so this is Real Boxing, all right. This is by the way Real Boxing was just reviewed recently and Android gaming community was just blown away by this. This is actually Unreal Engine 3. What I showed you before was Unreal Engine 4. And this is Unreal Engine 3 now being played on a mobile device, okay. What used to be on a high end PC is now being played on a mobile device, all right. So this basically incorporates a lot of, this is real time motion capture that's brought forward.

One of the other interesting components that you see now is actually if you look at the screen that Patrick’s playing, he is actually playing on a screen, you can see it, but it’s different from what you are seeing here. In other words if you connect SHIELD to a TV, what this does is put you in spectator mode. So you can watch the battle as it’s going on while Patrick is getting beat up. So all right that's good. Patrick let's save you, all right. Let's go back, now you are back in Google, you are back in Jelly Bean. Now in addition to the standard Android, what you can do with SHIELD is on the SHIELD device itself is a button with NVIDIA logo on, it’s actually represented down there.

So go ahead and press that button and what that does is take you into a menu where you can see a number of things. Number one, type of SHIELD games, these are games that are designed for SHIELD that take advantage of the content, the connectivity, the controls. You have SHIELD store and then the other capability which we are currently invade on is the ability to stream PC games. So let’s go ahead and connect. Shaun, are you going to drive?

Unidentified Company Representative

Yeah.

Rob Csongor

Okay, so what we're going to do is we're going to, now what SHIELD is doing, is Shield is connecting to I think it's Patrick’s PC, right, you saw that. And just to give you an idea what are you looking at, Patrick’s PC is this PC right over here, it wirelessly connected to that PC and then it's going to stream it wirelessly to the SHIELD device and then it's going to display it back up on to the screen or at least we hope so, all right. So the game that we're going to be -- they are confident.

So the game that we are going to be playing is Batman: Arkham City, right and what we are actually -- what you are seeing is actually GeForce GTX, all right. So this is full scale PC game and in this case we're using the SHIELD controller to control the game and then display it through HDMI out to the TV. Are we going to show this demo? We are in demo now, okay and we're set, all right. So everything that you are seeing now, right, this is being input from -- this is going to be -- this is being displayed from the Shield but what you are seeing is your PC, okay. It's just the same device and you are now playing Android games as well as PC games and I think you can recognize, this is a GeForce GTX TITAN, except you are now using a SHIELD to control it. You are sitting in front of the TV in the living room and you are now enjoying a GeForce GTX game being streamed from your third bedroom directly to your SHIELD and on to the TV. Okay. All right, thanks a lot guys.

Let’s go back to the slides. The end result of this also by the way is that the work that we are doing in SHIELD is a game that in the developer community and their excitement in SHIELD means that this content is also leverageable into the other Tegra devices that yet build by our partners, whether it's smartphones or tablets. This is all a cycle that keys on itself and helps the other device out, so this is a key part of our strategy.

Okay, I walked you through all of our growth strategies on the final component of what we do of course is we are also interested in returning capital to our shareholders. I think as you guys know this past November we initiated a dividend for the company. We have initiated buybacks, approximately $1.2 billion has already been committed and we are committed not just to invest in prudently but also we believe this return of capital will continue to be a focus for the company going forward, okay.

In summary, NVIDIA’s focus is not just on growing the PC, but growing beyond the PC. We start from a fundamental belief that visual computing is more important than ever. And what that does is allow us to recognize 3 billion plus HD devices that now can receive visual computing. We continue to drive our visual computing leadership through GPUs, that means a growth of 12% CAGR. GRID extends GPU computing into service and datacenters introducing a new $10 billion growth opportunity we believe. We are taking these GPUs in this visual computing and with Tegra extending them into new types of devices. And then finally, we have a commitment to long-term profitable growth and capital return for our shareholders which is growing our business as well as the capital return that we have for our shareholders.

All right, that concludes my presentation. At this time, I would like to open it up for questions. And if there any questions from any of you or any questions online, we can answer them at this time. We have a lot of our NVIDIA people here to help answer the questions and we can also show you some things on -- with the online -- the live demos we have here.

Okay. All right, thank you very much for attending. And again if you want to hang out and take a look at some of demos, please do so and we will be here to answer any questions. Thank you very much.

Question-and-Answer Session

[No Q&A Session for this event]

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