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NVIDIA Corporation (NASDAQ:NVDA)

F4Q 2014 Earnings Conference Call

February 12, 2014 5:00 PM ET

Executives

Chris Evenden – Investor Relations

Jen-Hsun Huang, Co-Founder, President and Chief Executive Officer

Colette Kress – Executive Vice President and Chief Financial Officer

Analysts

Ian L. Ing – MKM Partners LLC

Patrick Wang – Evercore Partners

Michael McConnell – Pacific Crest Securities

Suji De Silva – Topeka Capital Markets

Jim E. Schneider – Goldman Sachs & Co.

Chris Caso – Susquehanna Financial Group

Kevin E. Cassidy – Stifel, Nicolaus & Co., Inc.

Christopher Hemmelgarn – Barclays Capital, Inc.

Ambrish Srivastava – BMO Capital Markets

Christopher Rolland – Friedman, Billings, Ramsay, & Co., Inc.

Betsy Van Hees – Wedbush Securities, Inc.

Operator

Good afternoon. My name is Albert and I will be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. (Operator Instructions)

I will now turn the call over to Mr. Chris Evenden. Sir, you may begin your conference.

Chris Evenden

Thanks Albert. Good afternoon everyone and welcome to NVIDIA’s conference call for the fourth quarter of fiscal 2014. With me on the call today from NVIDIA are Jen-Hsun Huang, President and Chief Executive Officer, and Colette Kress our CFO.

After our prepared remarks, we will open up the call to question-and-answer session. Please limit yourself to one initial question with one follow-up.

Before we begin, I’d like to remind you that today’s call is being webcast live on NVIDIA’s Investor Relations website and is also being recorded. A replay of the conference call will be available via telephone until February 19, 2014 and the webcast will be available for replay until our conference call to discuss our financial results for our first quarter of fiscal 2015. The content of today’s conference call is NVIDIA’s property and cannot be reproduced or transcribed without our prior written consent.

One important event I’d like to alert you to is our Annual Investor Day, which is taking place on Tuesday the 25th of March in San Jose. Email me or check our websites to register.

During the course of this call, 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 the disclosure in today’s earnings release, our Form 10-Q for the fiscal period ended February 27, 2013 and the reports we may file from time-to-time on Form 8-K with the Securities and Exchange Commission

All our statements are made as of today, February the 12, 2014 based on information available to us as of today and except as required by law, we assume no obligation to update any such statements. Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or Jon Peddie Research.

During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our release, which is posted on our website.

So, let’s begin. Revenue came in well above our outlook driven by high-end PC gaming. Our GeForce business benefited from the launch of many excellent graphically intensive games including Call of Duty: Ghosts, Assassin's Creed IV: Black Flag and Batman Arkham Origins.

In Asia Blade and Soul has proved hugely popular. It has very high system requirements relative to the vast majority of games played in China, which is a very promising development that is driven GeForce GTX sales there.

The PC gaming market is now launched in console gaming or mobile gaming according to TSC intelligence. The same format makes revenue from graphics intensive PC games will approach $20 billion this year.

We’ve recently added a physical charter [ph] blade to enable gamers to save and share their best moments. They’ve already saved over 3 million clips. If this seems like a niche application, consider that Twitch TV, which exists the string game play to global audience and leverage shader play with actually the fourth largest generator of internet traffic in the U.S. for the week ending February 3rd. That put it on Netflix but ahead Hoodoo and Amazon.

On the special side of the business, Tesla has established its position at the center of the high performance computing market. This quarter we Tesla partnership with IBM, possibly the biggest name in supercomputing. According IDC 32% of all HPC computing systems are build by an IBM.

Having IBM’s world spanning sales force pitching Tesla is a natural consequence of the agreement. But perhaps is more interesting that IBM is looking to apply GPU acceleration across its entire portfolio of enterprise applications, potentially opening up very significant new market for us.

The top ingredient supercomputers are now powered by Tesla GPU accelerators and it is the fastest supercomputer in Europe. And only this week Ansys announced for the fluid dynamics application is now accelerated by Tesla. Ansys fluid is the world’s most widely used commercial HPC application. More than 40,000 companies worldwide depend on Ansys in industries from consumer products to civil engineering. We lost the Tesla K40 this quarter. It has doubled the memory of past products and we are seeing a lot of interest from consumer internet companies as we expand our market footprint into big data analytics, the topic we will explore further at our investor day next month.

GRID is our GPU accelerated cloud computing platform. Our invention of the virtual GPU gives OEMs a major weapon to help drive virtualization across every aspect of the enterprise, including desktop PC applications. The number of GRID trials continues to grow strongly up 46% from last quarter. Enterprise IT purchases have a long buying process, but they are long-term and we are looking forward to share more when the time comes.

In mobile we launched our latest Tegra system on chip at the CES Show in January. Tegra K1 is our first mobile processor to incorporate the capital GPU Architecture and is the first mobile processor to deliver PC class graphics. This means we can leverage our investments and those of others in the PC and console ecosystems. For example on Epic's Unreal Engine 4 now runs on Tegra K1. PC and console game developers can port modern AAA Titles to android platforms powered by Tegra.

And developing android as a major game platform is an important element of our strategy and we are excited about Unreal Engine running on Tegra K1. so too is Tim Sweeney founder of Epic Games and developer of the Unreal Engine. He said he didn’t think the industry would be at this level on mobile for another three or four late years. Tegra K1 is quite literally game changing.

During on CES event we showed android running on a 64-bit Tegra K1. The CPU was our own custom Denver call and it is the first time anyone, who had publicly shown android running on a 64-bit chip. We expect devices based on the 32-bit version of Tegra K1 to ship in the first half of 2014 and 64-bit of devices in the second half.

Along with PC graphic features Tegra also brings CUDA to mobile with 192 fully programmable processor cores. So, it can be used the greatly accelerated applications like image recognition or computational photography. For tablets and phones we can imagine a future with devices that see your face and adapts to your moods or open a browser in response to adjust you.

For cars however the implications are quite startling. At CES we demonstrated K1 recognizing in real-time the white lines on a road from a video feed. It simultaneously identified other vehicles ahead and traffic signs at the side of the road. These capabilities are the fundamental building blocks at the Advanced Driver Assistance Systems that manufactures will include in future cost, with all these CES keynote where Jen-Hsun spoke, one of that vehicles drove itself on to the stage at now we announced that Tegra K1 will power it’s product to driving and self parking initiatives.

Specialty analytics expects the market for Advanced Driver Assistance Systems to be worth around $15 billion by 2016 with a CAGR of 23%. As he also announced for this next generation in-vehicle systems will be powered by Tegra. these include a revolutionary high resolution digital cockpit with 3D graphical displays that we’ll start shipping later this year as an automotive grade smart display winning android for integrated passenger entertainment. increasingly, the driver of AKAI is surrounded by pixels and the quality of those pixels communicates as much about the car as once did in light walnut and hand stitched leather graphics matters.

Repeatedly, Audi’s Chief Engineer Electrical Electronics noted that 90% of the innovation in automobiles today involves history of electrical and electronics NVIDIA’s automotive initiative is focused squarely at this car revolution. as we start fiscal 2015, we have 64% of the PC discrete graphics market, 81% of workstation graphics units and Tesla in pilot projects at 44% of all HPC sites. these numbers are from Mercury, Odyssey and Intersect360 respectively.

Tegra 4 has shipped in tons in China and our motive has been certified by both AT&T and Vodafone, our automotive business has a $2 billion pipeline and we’ve laid the foundation for the next generation of in-car electronics and advanced driver assistance. GRID our first product obviously in the enterprise desktop is being evaluated at hundreds of sites worldwide.

And with that I would like to turn it over to Jen-Hsun.

Jen-Hsun Huang

Well before we turned it over to Colette, let me first make a comment about an organization change. Many of you know that Rob Csongor has been recently assigned by me to head of our automotive business. Rob Csongor was previously your contact along with Chris in IR. I decided to put Rob Csongor in charge of automotive because it is becoming a very large business and very fast growing business and also very important business. in fact, before I tasked Rob to head up Nvidia’s corporate marketing worldwide, Rob started the automotive business and to now that he ran it for several years and now that it is becoming quite a sizable business with great important to us in customers all over the world, I have asked Rob to take range back again and run our automotive business. He will report directly to me with the new automotive group

Chris will become the lead of IR and many of you most of you in fact, know Chris very well. In addition to his masterful ability to read I just love to listen to him read, he also is one of the people in the graphics industry with extremely long tenure, he knows this market like the back of his hands, he grew up with this market and to long before he was in IR, he was an product marketing and so he knows this industry very deeply and he knows our company very deeply.

I know that many of you have reached out to me and over the years recognized how wonderful it is to work with Chris and I think all of you would be delighted that he is setting up our IR team now.

Okay, so with that I’ll hand it over to Colette.

Colette Kress

Thanks, Chris and Jen-Hsun. hello, everyone. Let me provide some details on the quarter and full-year results. Revenue for the fourth quarter of fiscal 2014 was $1.14 billion up 9% sequentially and 3% year-over-year. Revenue results were well above our outlook for the quarter, reflecting stronger than expected growth in GeForce, GTX, desktop and notebook GPU sales.

The GPU business revenue was $947 million, up 8% from last quarter and 14% year-over-year. The GPU revenue increased from last quarter led by desktops and notebook GPU sales. On a year-over-year basis, the increase reflected nearly 50% growth in GeForce, GTX, GPU sales as our products were well positioned for the overall gaming market segment demand.

Also Quadro workstations grew 4% and Tesla for high performance computing was up more than 20% year-over-year. Customer evaluations of our GPU accelerated Quadro technology GRID continue to grow at a fast pace. The Tegra processor business grew 18% from Q3 to $131 million led by increased volumes for Tegra mobile devices, primarily from Tegra 4 sales to Xiaomi for their M3 smartphones. Tegra infotainment systems for auto increased more than 60% from the year-ago quarter.

Revenue for fiscal 2014 was $4.13 billion, down 3.5% strengthen our high-end GeForce GPUs, Quadro, Tesla and Tegra for automotive products was partially offset by a decline in the market for desktop PCs and notebooks, which drove a decrease in volumes of our lower priced mainstream GPUs. The transition from Tegra 3 generation to Tegra 4 generation of products also contributed to the decline.

For the quarter, GAAP gross margins was 54.1% non-GAAP gross margin was 53.8%. The gross margin percent was slightly below our outlook for the quarter as a mix of Tegra and high margin GPU products was different reflecting the higher than expected revenue. Gross margin continues to reflect the growth in volumes and stable average selling prices of higher margin GeForce, GTX, GPUs and strong sales of Quadro and Tesla.

Tegra platforms have lower gross margins than most of our GPUs. so as the mix can fluctuate our gross margin quarter-to-quarter. For the full year, GAAP and non-GAAP gross margin reached record highs at 54.9% and 55.1% respectively. GAAP operating expenses for the fourth quarter was $452 million; non-GAAP operating expenses were $408 million. Operating expenses came in below our outlook and incorporated leveraged expenses and a slowdown in employee hiring for the quarter.

GAAP interest expense for the fourth quarter included an incremental $7 million related to the convertible debt offering, $2 million for the coupon interest and $5 million for the debt discount amortization. We expect ongoing quarterly interest expense related to the convertible debt to be about $11 million for quarter, $4 million of coupon interest and $7 million of debt discount amortization.

GAAP net income and EPS for the quarter were $147 million and $0.25 per share, reflecting sequential growth of more than 25% as revenue increased and operating expenses were contained. Now turning to some key balance sheet items, as previously announced, we completed a convertible debt offering in the fourth quarter of fiscal 2014 for $1.5 billion with the net proceeds to be used primarily for the repurchase of common stock and quarterly dividend payments. We repurchased 2.3 million shares for $37 million in the fourth quarter and a total of 62 million shares for $887 million for the full fiscal year 2014. More than 10% of our shares outstanding have been repurchased since the beginning of fiscal 2014.

Cash dividend paid during the fiscal year totaled $181 million. Total capital return to shareholders in fiscal 2014 was $1.68 billion. Cash flow from operating activities was $401 million in the fourth quarter of the full-year and was $835 million for the full year.

Depreciation and amortization expense for the fourth quarter amounted to $55 million. Capital expenditures were $66 million. In fiscal 2014, we leased and occupied an office building within the boundaries of our main Santa Clara campus and it has balanced the workspace need for our current Santa Clara staff. Given that this additional space meets our present needs, this gives us the opportunity to refine the design for the previously announced new campus building to optimize for functionality and cost.

Now turning to the outlook for the first quarter of fiscal 2015. As you will recall, we provide guidance for just the next quarter out, which we believe is helpful to articulate where future business growth opportunities are. Following the strong revenue results in Q4, our outlook for the first quarter of fiscal 2015 is expected to be $1.05 billion plus or minus 2%. GAAP and non-GAAP gross margins are expected to be approximately 54.2% and 54.5% respectively.

GAAP operating expenses are expected to be approximately $454 million. Non-GAAP operating expenses are expected to be approximately $413 million, nearly flat with the levels of Q4 as we work to optimize and leverage, the level of spend to address our growth initiatives.

GAAP and non-GAAP tax rates for the first quarter and annual fiscal 2015 are both expected to be 20%, plus or minus 1%. If the U.S., R&D tax credit is renewed, the tax rate is expected to be 16%. As previously announced, our capital return strategy for fiscal year 2015 includes plan to return $1 billion to shareholders through stock repurchases and cash dividend. Thus in the first quarter, we intend to continue the repurchase of our outstanding shares.

With that, let me turn it back to Chris.

Chris Evenden

That concludes our prepared remarks. We’ll answer questions, please limit yourself to one question and one follow-up.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Ian Ing with MKM Partners. Please go ahead.

Ian L. Ing – MKM Partners LLC

Yes. Thanks for taking my question. So in GeForce, I mean is it possible you’re seeing some strength from console users, switching to PCs there is this ongoing major console transition, not all that compatible, it seems like some of the game pedals, if you listen to game staff might have disappointed?

Jen-Hsun Huang

Yes. I’m not sure about that. But I think the Megatrends associated with gaming is relatively clear now. The PC platform is the only open-platform for gaming and GeForce is obviously, very strong within that. The open-platform allows you to do things to support joiners that are massively online that are free to play that have micro transactions for in-game commerce and because its an open platform its supported in every country, its supported in China, its supported in Russia and we know there are people who love playing games globally.

And also because of the global ability to now develop games of different joiners and different cultures, we are seeing that games is a global phenomenon now and so there is a fair number of fundamental dynamics that’s driving PC gaming growth and then the one that you mentioned recently is important as well, its important because for the first time, for the very first time in history the architecture of a game console is exactly the same as the architecture of a PC, although a PC is still more advanced, its more open, its more flexible the game console titles that are developed these AAA titles with such enormous production value the developers can take them the modern – the state of the art or next generation game consoles at the same do they take at the PCs.

And its great for them because there are only a couple of 2 million, 3 million next generation consoles, but there is already a couple of 100 million installed base of PCs and so they protect themselves that way, this generation of transition is really much more friendly to the game developers and as a result its much better for PCs as well.

Ian L. Ing – MKM Partners LLC

And as my follow-up it’s in mobile. So as we look pass Chinese New Year, can you talk about Tegra 4 seasonality and diversification and when we expect Tegra 4 iWin?

Chris Evenden

Well the next catalyst for Tegra driver, growth driver comes from two places, one of them is TK1, Tegra K1. Tegra K1 is the first time that we’ve brought our state of the art GPU architecture to Tegra and it’s such a great discontinuity with a 192 fully programmable processor cores that we decided to rename it to Tegra K1 and to reflect this discontinuity. The other component of Tegra K1 is our 64-bit custom Denver processor, people have been really excited about this processor for some time, because they know what we are building I guess and at this point based on what I know about the market and what is coming Denver is likely to be the most advanced 64-bit ARM processor in the world. And so Tegra K1 will as Chris mentioned earlier start to ramp in the first half and it will ramp further in the second half. So that’s one growth catalyst.

The second is T4i and our modem products, devices with modem in it and we are still on track on that, there is nothing new to report today, we have mentioned earlier that late in Q – late Q1 or early Q2 is when we expect deices to be announced and I’m looking forward to that and it is still on track.. And the third growth catalyst is our automotive business, it has grown to be quite a large business and at a time when the car industry is really going through a renaissance, just as the phone became a smartphone, TVs are becoming Smart TVs, these cars becoming or getting revolutionized by computing technology and we are seeing our application processors being used initially in infotainment. We recently made a big breakthrough and have our processors drive the digital cluster, which for the automotive industry, the cockpit is really important grounds and because it’s so vital to the driver experience, they’re very protective of it. We have demonstrated our graphics technology and our software stack is capable of supporting such mission-critical application, it became a second growth driver for us and now the third, which is using supercomputing technology and the CUDA GPGPU that we invented for autopilot and self-driving cars. And so those are the near-term growth catalysts for the Tegra business and I’m looking forward to that.

Ian L. Ing – MKM Partners LLC

Thanks, again.

Operator

Our next question comes from the line of Patrick Wang with Evercore Partners. Please go ahead.

Patrick Wang – Evercore Partners

Great. Thanks. Hey, Jen-Hsun, I’m just curious when you look at the Tegra integrated SOC side of things, how do you view that, I mean how important is the integrated SOC when you think about or I guess with regards to your vision for Tegra going forward?

Jen-Hsun Huang

Hi Patrick. First of all, mobile is more than phones, and that’s just really important to remember and we’re starting to see it now. Mobile is both a device, short for phones it’s also a technology, people kind of gave it name of application processor that’s an SOC built for low power applications and people call that mobile, mobile technology. And so the mobile is more than phones. Tegra is designed with a mobile technology sensibility, but it has an application space that’s more than phones. We’ve only really targeted the superphone segment since the beginning.

Our core market, our core targets are tablets, gaming set-top boxes, gaming smart TVs and automotive. Those are really our core target markets for Tegra. And we build the right products for the right time for those markets and that’s really our focus. Maybe, another way of saying it is what is our non-focus and our non-focus is mainstream phones. We’ve always been very clear about that and our focus is plenty of growth opportunity for us and it’s an area where we can add value and where the unique capabilities of our company and now with Tegra K1 where we’ve brought the world’s best GPU, it’s years ahead of the competition to the Tegra market. The Tegra opportunity, so we’re really excited about that.

Patrick Wang – Evercore Partners

Got it. That makes sense. My follow-up, I wanted to talk a little bit about GRID, I think it’s probably the business line of yours that’s my favorite one. Can you give us a milestone that we should look forward to over the next couple of quarters here, clearly there’s a lot of demand for virtualizing graphics NVIDIA, but we could just kind of maybe plan a couple of things we should look for? Thanks.

Jen-Hsun Huang

Yes, I appreciate that Patrick; it’s one of my favorites too. And this is an invention that has taken about seven years to do. As you know, revolutionized enterprise computing is very, very hard. The software compatibility challenges, the infrastructure compatibility challenges are truly great and you have to be backwards compatible with since the beginning of time. And GRID, GRID has really achieved some really great milestones and in fact, you’re seeing it all the time now. now internally we are tracking trials, we have several hundred trials around the world, it has grown a lot and it grows every single week, you know that the number of OEMs that are following it and supporting it around the world.

Just as it today Vmware and Google announced that there would be streaming desktop applications to devices. You could see that the industry wants to virtualize everything, we’ve been able to virtualize storage, we’ve been able to virtualize networks, we’ve been able to virtualize servers, but we’ve not really been able to virtualize every aspect of desktop computing. And by been with virtualized desktop computing you could put applications of any kind in the cloud and make it available to anybody anywhere and so turning enterprise PC or commercial PC into a service if you will is quite liberating for enterprises around the world.

And so I’m quite excited about this and you are seeing milestones being announced all the time and so this is of course a new area for us its taken us several years to get here, but this really Nvidia’s first enterprise computing product and it’s the first products that we’ve ever had the benefit of the global enterprise sales force of large enterprise companies selling on our behalf. So I think this is going to be a big opportunity for us.

Operator

The next question comes from the line of Mike McConnell – Pacific Crest Securities. Please go ahead.

Michael McConnell – Pacific Crest Securities

Thanks. Colette I would like to ask about OpEx, I think most of us are expecting inner models for fiscal 2015 a double-digit increase in OpEx, it looks like you have shown some pretty good controls here looking at guidance for the April quarter, could you give us an update kind of on how you think OpEx is going trend for this fiscal year coming?

Colette Kress

So as indicated, at this we are really looking one quarter out and steady as we go, we do take a hard look at this as we did both in Q4 and in Q1 to really start leveraging and thinking about how well we’ve done on the employees that we have hired and how we can utilize them well. So more to come later, but at this time we just have guidance for Q1. Thank you.

Michael McConnell – Pacific Crest Securities

Okay and then just one more maybe for Jen-Hsun. Jen-Hsun looking at growth in the your desktop business, it looks like you guys have put a strongest year-over-year growth since fiscal 2008 and I know you have gone through some of the drivers for the gaming market overall. There had been some discussion I think going into the report concerning some shortages that your competitor was experiencing at the high end of the market. I wanted to know how much do you think that benefited growth in fiscal Q4 or do you think it was mostly market driven. Thanks.

Jen-Hsun Huang

Yes, first of all I guess I’m not sure. On the other hand our growth year-over-year is greater than their market share in that segment of the market and so we must be growing to market maybe that’s the easiest way to think about it and I think for all, for our own sense of purposes the anecdotal evidence is that we are growing the market every market whether its China, the gaming market is growing and its growing in two ways more and more people are playing games, there are more games that are becoming free to play, and even though it’s free to play you still need a gaming PC to enjoy it. and also this quarter, the work that we did with the game developer, the largest game developer in the world Tencent to produce Blade & Soul was a huge success.

We found together in China that there is a market for high production value games and so high production value usually translates to requiring a great deal of technology. And so you’re also of course, seeing this last holiday, three very important games, in shop on the PC, many of which are also available on game consoles, because of the dynamic that I mentioned earlier. And people are now talking about 100 brand new games coming out to the new generation of game consoles next year. Next year may very well be the year where we see more high production value games than anytime in history for the PC. And so we’re quite excited about the high-end segment.

Operator

Our next question comes from the line of Suji De Silva with Topeka Capital. Please go ahead.

Suji De Silva – Topeka Capital Markets

Thanks, guys. Nice job in the quarter. Just a couple of clarification questions on the Tegra 4i. Do you think the superphones will go within modem applications or more integrated, and I know they would be ramping up 64-bit. So I’m curious if kind of the up processor alone is good there in that market. And is the 4i applicable to the other target Tegra market that you described here beyond superphones? Thanks.

Jen-Hsun Huang

Well superphone market is really moving fast. And so integration is sometimes a good thing and integrations sometimes hurt you. It’s just a higher risk to integrate four things that are – that needs to be state of the art at the same time. And so some companies use things like Tick-Tock to articulate the benefit of strategies and methodologies to reduce your risks. Some companies like us, we call them ping-pong and we try to reduce our risk by moving one piece at a time, so then you can innovative on rhythmic and continuous basis even though the market is moving dramatically. And so integration sometimes helps you, sometimes it doesn’t help you. And it’s just hard to say.

Our focus for Tegra is pretty consistent; we care very much about the superphone segment. We care even more about the tablet segment where we can add more value, because we are a performance oriented company, gaming consoles, set-top boxes and of course, automotive where performance and functionality are so important. And so those are really, our target market, some of them can benefit from Tegra 4i, most of them that the large catalyst for our company going with Tegra has always been about bringing our state of the art GPUs to Tegra.

And finally, this season, this last quarter, we were able to announce Tegra K1, which has been a huge endeavor of ours and now we not only brought a state of the art GPU to the mobile market, we also unified the architecture in our company. And so the effort of building Tegra is now even more leveraged than even before. And so we used one unified architecture now, one unified software stack, everything is identical. And so it’s very powerful lever for us to expand our GPU market.

Suji De Silva – Topeka Capital Markets

Okay, then. For a quick follow-up the gross margin, I know you guys don’t want to guide beyond one quarter, but you’ve done a great job getting gross margin up here. Can you talk about the puts and takes going forward in terms of where gross margin could potentially go and is it really just mix or are there other factors we should be aware of in terms of secular improvements? Thanks.

Colette Kress

Yes. let me comment about the gross margin. as you can see, our businesses tend to differ quarter-to-quarter in terms of that mix. I think our ASPs have been extremely solid over a long period of time. And we do expect that to continue, when we think about our high growth businesses, particularly in the professional, the enterprise and the GRID, which have very nice margins above our overall company average and just seen how those play out as they can be influenced by very large deals.

as you can see, just finishing the Q4 and our overall GeForce GTX business and it’s a tremendous success, did have a change in terms of our overall gross margins. As I spoke, the overall Tegra business has slightly lower gross margins. so again, depending on the volumes of what percentage that business is of our total will have an influence. But we’re extremely pleased in terms of the progress that we made on gross margins for the full year, fiscal year 2014, I mean worth living and then heading into Q1, I think it looks very solid as well.

Jen-Hsun Huang

Thanks, Suji.

Operator

Our next question comes from the line of Jim Schneider with Goldman Sachs. Please go ahead.

Jim E. Schneider – Goldman Sachs & Co.

Good afternoon and congratulations on strong results. I was wondering if you could maybe address the Tegra business for a moment, can you talk about whether from here, you had expected to decline more or less seasonally than the rest of business in the Q1. and then do you think it’s going to be likely the October quarter that we would see a meaningful pickup by the new generation design wins or do you think it’s – it is possible it could happen in the July quarter?

Jen-Hsun Huang

Yes, Jim first of all, thanks a lot. The growth drivers, the next catalyst for growth for us are the three that I mentioned, Tegra K1 and T4i devices coming to market, and other modem devices coming to market and our automotive business. Those are the three near-term catalysts for growth and they really kick in starting in late Q1, mostly in Q2 and then very largely in Q3. Okay, so but they start kicking in, in late Q1 and in Q2, and very largely in Q3. and so that’s kind of the way to think about it. Overall for our Q1 guidance, seasonality aside we’re growing Q1 year-over-year 10% and so we’re seeing nice growth across the board for the company.

Jim E. Schneider – Goldman Sachs & Co.

That’s helpful, thank you. I was wondering if you can comment on the – within the professional space, the Tesla piece in particular obviously, that can be lumpy driven by some specific data center and other large scale deployments. what’s your little visibility on the Tesla piece of business as you have throughout the year?

Jen-Hsun Huang

Well, these are – there is partly supercomputing business and they tend to be lumpy; the second part of it is enterprise business and we tend to have visibility out quite a long time; and the third part of it is really about expanding Tesla into new fields of use, one of the most important commercial large scale simulation software packages in the world is answers fluent. I don’t know how many companies use it, but I surely know we use it and most manufacturing companies in the world use it. And this is a piece of software that is vital to the industrial economy. And finally we’ve been able to accelerate in port Fluent and to CUDA. This is a multi-year effort for us. This was a very, very significant announcement. We are supper, supper excited about it. And so this opens up a new field of use, there are applications like that are cropping out of the wood works all over the place. And the reason for that is because I think that accelerated computing with CUDA hasn’t really reached the tipping point that if no longer, whether this computing model is viable, if no longer whether this computing model is going to be around, those are full grown conclusions. It is now how quickly can I port my application so that I can accelerate it and have a competitive advantage.

Operator

Our next question comes from the line of Chris Caso with Susquehanna Financial Group. Please go ahead.

Chris Caso – Susquehanna Financial Group

Thank you. Just following on from the last question given the comments about some of the Tegra drivers starting here in late Q1; We think that that helps to offset some of the seasonality in the Tegra business such that we take a look at your guidance we should expect the GPU in the Tegra business kind of down in about equal percentage as we look in to the April quarter.

Jen-Hsun Huang

Well Chris you know we guide one quarter at a time. And we are quite happy with the guidance that we provided and when Q2 comes along we’ll guide that.

Chris Caso – Susquehanna Financial Group

No, I’m sorry I was referring the first quarter.

Jen-Hsun Huang

With the first quarter Chris, what Colette just guided? What was the question? Maybe Colette can handle it.

Colette Kress

Yes, so as we look into Q1 the overall revenue guidance is about a 10% over the prior year. We were seeing a definite strength year-over-year particularly in our enterprise business, which we will definitely see will continue. Our GPU in terms of what we have seen in terms of GeForce, but we do expect there is a sequential decline from Q4 in overall desktop and notebook shipments. So, that is baked in there from a sequential standpoint. We will see how the quarter goes in terms of Tegra, we feel pretty solid about the levels that we ended in Q4 and what we see heading into Q1. But that’s all take into account into the guidance was 1050 [ph].

Chris Caso – Susquehanna Financial Group

All right that’s very helpful and I apologize if I was unclear with the question. Just as I look forward with the buyback that you have right now. Could you clarify where your onshore cash sits now after you have competed the convert?

Colette Kress

The additional net aspect of the convert as we added 1.5 and we are sitting at about the same amount of U.S. cash as we were before, so we are now probably well over the $2 billion level in the U.S. right now as we are entering into Q1.

Jen-Hsun Huang

Thanks Chris.

Operator

Our next question comes from the line of Kevin Cassidy with Stifel Nicolaus. Please go ahead.

Kevin E. Cassidy – Stifel, Nicolaus & Co., Inc.

Hi, thanks for taking my questions and congratulations on a great quarter. In the quarter though you had said Quadro business was down quarter-over-quarter, was that seasonality or was it just that the third quarter was such a strong quarter?

Colette Kress

I think it can be a little bit of both. As you know in the Q3 we did at time Kevin announced a new product launch at that point and extremely well received, ultra well received as we go into Q4. Not a material change in terms of that sequential decline and we feel very good going into the New Year with that as well. But thanks Kevin.

Kevin E. Cassidy – Stifel, Nicolaus & Co., Inc.

Okay. Great thanks and just with the follow-up. You had a GPU licensing business open for a while and I just want to know if you’ve got anything in the pipeline or any views you can give us for 2014 on the GPU licensing?

Jen-Hsun Huang

Yes Kevin. Thanks for the question. You know that NVIDIA is a core technology company and we invented GPU, we invented GPGPU and now we invented for virtualization of GPUs. And our company has over 7,000 patents granted and approved and granted and filed.

And so technology licensing is an important part of our company strategy and is a part of strategy that we’ve implemented for some time. These discussions take long time and it’s always unpredictable and we are patient. We know how important GPUs are. We know how many companies in the world now utilize GPUs and we know how fundamental our technology patents are.

The question that you asked also includes the fact that we on July I think it was last year, we announced that we would also open up our GPU technology. GPU designs to be incorporated in the products of large third-party vertically integrated companies.

And that strategy is very important to us and we are making our latest generation GPUs available to them. And discussions are happening and that will take time. This is not something that happens very quickly because it includes people’s methodologies and designing it into the work flow and so, but we add so much value here. And this is something that I think we have a real great opportunity to find new growth venues for our company.

Kevin E. Cassidy – Stifel, Nicolaus & Co., Inc.

Okay. Thank you.

Jen-Hsun Huang

Yes, thanks a lot Kevin.

Operator

Our next question comes from the line of Blayne Curtis with Barclays. Please go ahead.

Christopher Hemmelgarn – Barclays Capital, Inc.

Congrats for great quarter. This is Chris Hemmelgarn on for Blayne Curtis. One quick question for you Jen today. Could you rank I think you did this last quarter, but just talk about how you would rank all of your growth opportunities in 2014?

Jen-Hsun Huang

Yes, Chris first of all thanks. Well, it depends on whether its percentage or dollars. And if it’s dollars I’d say Tegra is up there. And if it’s percentage GRID is up there. If it’s kind of between percentage and dollars I would say Tesla is up there and because Tesla is already a large business.

Tesla and Auto both are large businesses and have large growth opportunities. That’s kind of the way I would do it. And I would say that in terms of dollars, absolute dollars yes, the GTX is up there too. Gaming is up there too. And so it depends on whether we are talking about dollars or percentages.

Christopher Hemmelgarn – Barclays Capital, Inc.

So, things are pretty good across the board that’s helpful. I guess as a quick follow-up, could you just talk a little more about your long-term expectations for both SHIELD and then products like Tegra K1 is pretty capable, it certainly seems like there are some opportunity to displays console gaming with your noble shifts, just your thoughts long-term there.

Jen-Hsun Huang

Yes, well you know that SHIELD is our strategy, its core to our strategy to cultivate to develop gaming on the Android platform we believe that Android is going to be one of the most important computing platforms in the futures, if not already now and its available on every country, it’s available on all kinds of devices and because it’s an open platform allows for open innovation in a lot of industries.

Gaming is very important to us where there are high production value in games; there are typically great demand for GPUs, great demand for visual computing expertise like ours. We could add a lot of value in gaming and so the android market has a lot of phone, but it doesn’t have a lot of gaming, genuinely good gaming platforms and that’s one of the reasons why we decided to build SHIELD.

The reception of SHIELD is really fantastic, people who have used it love it, I am really delighted by the capabilities of our company to build devices and people who have enjoyed it love the build quality. Our – but its – we are modest about the revenues from it, we are modest about its distribution, because it’s something that were still learn, but it’s important to our strategy for gaming and at this point there is more and more and more evidence that gaming is going to be very important for android and I’m delighted that SHIELD has been the spear point if you will that makes great games available on android.

Operator

Next question comes from line of Ambrish Srivastava with BMO Please go head

Ambrish Srivastava – BMO Capital Markets

Hi thank you Jen-Hsun. On GRID could you just provide us the frame of reference, so when you started on this endower versus where you are today. Where you – has it surpassed all your wild expectations in terms of the trails you are having and then more importantly on the revenue side you mentioned percentage wise its going to grow, but just help us understand when does it become a meaningful portion and then just also in terms of size and I’ll restrict my question, just though it’s a multi part question. Thanks.

Jen-Hsun Huang

Hi Ambrish, the market opportunity for GRID is several different applications, probably the single largest application is enterprise virtualization, enterprise virtualization is a major thrust and has been a major thrust in enterprise IT for the last ten years. Not only is it great for productivity, its great for cost effectiveness, so that you can every agree recourses in a data center, it’s great for manageability, it’s great for security and so but there is a one class of computing in all enterprises that has not been able to be virtualized and that’s your desktop PC and all of the application that are associated with it.

GRID makes it possible for us to now virtualized desktop PC application and literally stream it to you like we stream Netflix to you and we can stream it you from anywhere. And the wonderful think about GRID is it’s compatible with every and any PC application that we know of and so that’s one application.

Another application is cloud gaming, we are delighted that our cloud computing infrastructure is getting more capable, broadband is getting more available, those things are becoming more and more commoditized and overtime it stands to reason we should be able to enjoy even the most heavy PC applications which is games on any device and anywhere you like to enjoy it. And the third, the third has to do with GRID being used for computing in the cloud, it could be used for image processing as more and more videos and images are being uploaded into the cloud our GPUs are incredible at image processing.

So when you think about all of these different applications in aggregate, the GPU could be quite a successful processor for data centers and cloud and so in time it will be quite large, but if you look at where it is today its probably a couple of years behind Tesla. If you think about where we are with Tesla a couple of years ago and now it’s a multi $100 million business, it’s a couple of years behind, but at some point both businesses have the opportunity to be very, very large. Its okay?

Ambrish Srivastava – BMO Capital Markets

Okay. That’s helpful.

Jen-Hsun Huang

Our data center initiatives.

Chris Evenden

Thanks, Ambrish.

Operator

Our next question comes from the line of Christopher Rolland with FBR Capital. Please go ahead.

Christopher Rolland – Friedman, Billings, Ramsay, & Co., Inc.

Hey guys, congrats on the strong results and thanks so much for letting me ask a question. Can you guys talk perhaps about our cash position; you guys had a ton of cash on your balance sheet before the convert. So perhaps there is not too much of a good thing but can you talk about your minimum cash need, why they might be so high and then talk about your appetite or strategy for acquisitions.

Colette Kress

So cash position was influenced a little bit about where that cash was, so our cash position is about the same if you look at it as a net position, after looking at the convertible that we executed in Q4. the convertible was really to take care of the ability to be able to use that cash in the U.S., so we are sitting on the cash in the U.S. with a full plan to return that to shareholders in fiscal year 2015 and beyond both through our share repurchases program as well as also our cash dividends that we have from a quarterly basis. We don’t necessarily comment on our overall cash needs, we don’t really talk about our overall acquisition or if there was an acquisition at this time. So steady as we go, we feel that the $1 billion return to shareholders in fiscal year 2015 is a very, very solid matching number to our fiscal year 2014 and we’ll talk further after we get through the fiscal year.

Christopher Rolland – Friedman, Billings, Ramsay, & Co., Inc.

Okay, great just a follow-up there. It kind of seems like maybe you are hinting it maybe something more than $1 billion for 2015, maybe some sort of an acceleration there given the cash and then my actual question is it seems like the sequential revenue drop in 1Q was a little more than many of us has expected. So what is driving the delta there, is it just a function of maybe a weaker than expected PC market and perhaps even sub-seasonal or is there something else going on there?

Jen-Hsun Huang

Chris, I’ll let Colette back on and talk about the cash question again. But let me first comment about Q1. First of all, our GPU position is stronger than anytime in our history, whether it’s GeForce for gaming and all of the innovations we have there and all the groundbreaking work that we’re doing there, whether it’s GRID where we invented virtual GPUs and is now strike right in the middle of enterprise virtualization initiatives all over the world to Tesla, which where we invented GPGPU and using our processors for massively parallel computing.

Our position and our contributions in visual computing is stronger than ever before. And now, with Tegra K1, we brought that exact same state of the art GPU architecture to mobile. And so our position in GPU is just stronger than ever before. We guided what we guided. In Q1, we’re growing relative to last year, 10% and then we’ll come back and see how it turns out.

You have asked a question about acquisition. If you take a look at our company, we were comfortable acquiring, we’re also extremely comfortable innovating. This is one of the most inventive companies I’m sure that you see in technology and we invented some very important and fundamental technologies that influences industries margin wide today. And so we think about R&D and M&A in very similar ways, except unlike many companies we have fundamental ability to be very inventive.

And that’s one of the reasons why our R&D budget is a little higher, but in total aggregate, when you think about the investments that we’ve made in aggregate between R&D and M&A, we’re right there with many companies that our ratio for R&D internal, internal R&D of course, is higher, that’s just because we have some of the world’s best in visual computing. We are the best visual computing company ever and the people how love doing this work want to do their lives work here on this platform and so we’re very flexible with that. And then I’ll hand it back to Colette.

Colette Kress

Yes. Regarding the cash of whether or not, we change our plans, given its really early in the fiscal year, I think we’re comfortable with where we stand at $1 billion but Chris we’ll address it again, as the year goes by. Okay?

Christopher Rolland – Friedman, Billings, Ramsay, & Co., Inc.

Okay. Thanks, guys and congrats again.

Colette Kress

Thank you.

Operator

The last question comes from the line of Betsy Van Hees with Wedbush Securities. Please go ahead.

Betsy Van Hees – Wedbush Securities, Inc.

Hi, thanks very much for taking my question and congratulations on a great quarter and really strong guidance in what is always a seasonally down quarter and there has been a lot of questions about the guidance, so as I’m looking at it, you’ve guided you are going to be down 10%, 6% and given this is always a seasonally weak quarter for entire industry. Is it fair to say as we look at your GPU business, it’s kind of -- going to kind of be down not much more in the lower end of your range of 6%, but given the seasonality of Tegra and the fact that its so tied to the mobile devices anywhere in this as well as new products going to be announced that is going to be greater than the 10%. Is that kind of a fair way for us to look at it? That’s my first question.

Colette Kress

Yes. Hi, Betsy. Thanks for the question, as we look at Q1, again, the changes between those businesses could definitely occur. You are correct to say that seasonally on the GPU business it usually does come down in Q1 associated with the general desktop and or notebooks. So that’s incorporated in there. We still have some high growth businesses. So those have been not necessarily following the seasonal trends, but we do expect that in terms of the GPU business. And then Tegra as we see right now steady as we go. We are not at this time providing very specific guidance on each of those as we have a couple of ranges for each of those businesses as we look at our guidance.

Betsy Van Hees – Wedbush Securities, Inc.

Okay. Thanks Colette and then my next question Colette is for you on the balance sheet. So you have doing a great job there and especially with the digital inventory continue to go down. So I was wondering if you could remind us what is the healthy levels of days of inventory for you guys. You are at 67 days and is that where you want to run or you want to be lower than that?

Colette Kress

You are correct Betsy that we are at some continued improvement in terms of our overall inventory levels. We watch it quite closely. It really just is a factor of a lot of times in terms of when the availability of our chips are, so we do have to watch that carefully that it may not just always go lower and lower and just based on when we come out with new products, but we are very pleased at least just where this right now and yes we do as the overall finance team watch that quite carefully.

Betsy Van Hees – Wedbush Securities, Inc.

Right. Thanks again for letting me ask questions and once again congratulations on a great quarter and guidance.

Jen-Hsun Huang

Thanks Betsy.

Colette Kress

Thank you.

Rob Csongor

Thanks everyone. We look forward to talking to you next time on our Q1 earnings call.

Operator

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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