NVIDIA Corporation (NVDA) Q3 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Christine, and I will be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA financial results conference call. [Operator Instructions] At this time, I'd like to turn the call over to our host, Mr. Rob Csongor. Please go ahead.

Thank you. Good afternoon and welcome to NVIDIA's Conference Call for the Third Quarter of Fiscal 2012. With me on the call today from NVIDIA are Jen-Hsun Huang, President and Chief Executive Officer; and Karen Burns, Interim Chief Financial Officer. After our prepared remarks, we'll open up the call to a 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 November 18, 2011, and the webcast will be available for replay until our conference call to discuss our financial results for our fourth quarter of fiscal 2012. The content of today's conference call is NVIDIA's property and cannot be reproduced or transcribed without our prior written consent. 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 quarterly period ended July 31, 2011, and the reports we may file from time to time on Form 8-K filed with the Securities and Exchange Commission. All our statements are made as of today, November 10, 2011. 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…

Thanks, Rob. Revenue for the third quarter was $1.07 billion, up 4.9% sequentially. Non-GAAP gross margin of 52.5% was a record for the fifth consecutive quarter. Gross margin exceeded our expectations for the quarter, primarily as a result of strong demand and the high-end segments of our desktop GPU products and record sales in our Quadro professional graphics products. Non-GAAP OpEx was $317.6 million, slightly below our estimate. Combined, these results generated a non-GAAP net income of $217 million, or $0.35 per diluted share, up 12.1% over the prior quarter. Revenue by business segment was as follows. Our GPU business was up 1% compared with the prior quarter. Desktop GPU revenue was up strongly by 23% in the quarter. This gain was despite a $47.3 million decline in our chipset revenue, as we end-of-life these products and exit the chipset business. Notebook GPU revenue decreased as compared with the prior quarter for the reasons Rob has mentioned. Our professional business had record revenue in the third quarter, up 9.5%, at $230.3 million. This was largely driven by our record sales in our Quadro professional graphics products. Our Consumer business was up 14% over the prior quarter, primarily through growth in Tegra sales, together with seasonal strength in game console revenue. Turning to the balance sheet. Cash, cash equivalents and marketable securities at the end of the quarter were at $2.75 billion, up 11%, or $273.9 million sequentially. Cash flow from operating activities was $244.4 million. Both accounts receivables and inventories were down at the end of the quarter, with DSO improving by 6 days, down to 32 days, and DSI by 10 days, down to 57. Our strong balance sheet position at the end of the quarter reflects the overall strength in our businesses, strong demand and shipment linearity, strong collections and management of inventory. Our outlook for the fourth quarter of fiscal 2012 is as follows. Closing on a strong third quarter, we expect revenue to be relatively flat, plus or minus 2%. We expect gross margins to be flat to up 0.5 percentage points from our record levels achieved in Q3 on both a GAAP and non-GAAP basis. For operating expenses, we expect GAAP to be approximately $372 million and non-GAAP at approximately $330 million. The increase is primarily related to planned hiring in our strategic investment areas, as well as engineering costs related to new products as we bring them into production. We expect the tax rate to be between 14% and 16% on a GAAP and non-GAAP basis, excluding any discrete tax events that may occur during the quarter. That concludes our prepared remarks. We will now take questions.

[Operator Instructions] And your first question is from the line of Ross Seymore with Deutsche Bank.

Looking forward, could you give any color about your main segments as to any area that's going to be better or worse than the flat plus or minus guidance you provided overall?

Let's see. We're expecting GeForce desktop to be up, and we're expecting that to be up nicely, driven by the hit games that Rob talked about. This is likely a multiyear cycle of growth for PC gaming. This happens every major game console cycle towards the second half of its product life, because PC technology advances on a regular basis instead of once every 7 to 10 years. And so you could imagine how PC technology is dramatically better than a game console today, and you're starting to see that now with a new generation of games that are coming out, such as Battlefield 3. We're expecting Notebook to be flat to slightly down. We're expecting Quadro to be up. We already had a record quarter this quarter. Quadro is benefiting from the Fermi adoption. It's also benefiting from the fact that China and India and the other developing countries are increasingly moving to a design economy rather than just a manufacturing or a second sourcing economy. And so when China and India, particularly, move to design economies, the single most important tool of modern design is a workstation. And our market share in workstations is very good. So we're going to benefit from that for quite some time. Tesla is expected to be flat, and mobile is expected to be flat. And we'll see how the devices that have gone into production this quarter do in the marketplace. I think we had something along the lines of about 17, or 16, or 17 new devices that went into production, many new tablets, as Rob mentioned, and new phones.

Great. And then a combined question. Channel inventory, and then what's your view on any impact included or otherwise in your guidance on the Thailand floods?

Channel inventory is in good shape. In fact, for most of our high-end products, the ones that PC gamers buy are particularly low at the moment. And so it reflects the demand that we're seeing. With respect to Thailand, the projection that we gave reflects how we view the marketplace as of now. If you look at the dynamics of the shortage, for some of our markets, it's really a nonfactor, for example, mobile, obviously, because we don't use hard disk drive in mobile, and you could argue that the money isn't spent in mobile is -- in PCs, could be spent in mobile. You could also see that in some of our other segments, where workstations, Tesla, and the high-end PCs, because the value in the margins are so good for our PC OEMs. In times of shortage, those particular platforms and segments are prioritized. And so there's puts and gets, and we'll see how it works out. But there's many favorable dynamics, as well as negative.

And your next question is from the line of Raj Seth with Cowen And Company.

Jen-Hsun, can you talk a minute about your long-term ambitions in the handset space, vis-a-vis, sort of market segments? You obviously comment at the high end of the market with Tegra. I'm curious as you look out sort of 18 months, maybe even a little bit more, how do you think about the other tiers, the mid-tier of the market, is that something we should expect in the target as you eventually start integrating Icera, and Tegra, and some of these things together?

Our first entry into the market is where performance and visual experience is very important. And this is an area where we could add a lot of value. And so Tegra 2 came in to the segment that now people recognize to be quite an exciting segment, and we called it the super phone segment. The super phone segment is not insignificant. And as the segment -- as mobile devices become increasingly important to people's lives, and they recognize in the second and the third smartphone that they bought, that how wonderful they are, they tend to buy up. The characteristic is very consistent with that of people who buy cars, to people who buy PCs. That the first PC they buy, because they're not exactly sure how they would use it, they tend to buy in the mainstream segment. And over time, they buy a better and better one because realize how much their lives has been involved in it. We see the same thing in the superphones segment. And this is likely to be quite a good growth segment for us. We have more design wins in Tegra 3 today than we had at Tegra 2. We have more design wins, more devices, more OEMs. We didn't win them all. There are some that we lost. Motorola was one that I'm personally disappointed in not winning this cycle around. But the net, we have more designs and more OEMs going into next year. As a result related to the long-term plan, our goal is to continue to do a variety in the superphones segment, with amazing features for this segment. But in addition to that, with the Icera acquisition, we're now able to integrate the application processor and LT component into a single processor. This is a very large focus for a company at the moment. Part of our increase in OpEx is related to our efforts in this area. We think we can have a lot of value in bringing this capability into the mainstream segment. And hopefully, we'll be able to see the early examples of that towards the end of next year.

And our next question is from the line of James Schneider with Goldman Sachs.

I was wondering if you could give us a little more color on the prior question. I think we've seen Texas Instruments be quite aggressive in some of the lower end tablets and some of the lower end smartphones, I think you just alluded to that in your answer to the previous question. Can you talk about your plans for Tegra 2 versus Tegra 3? Do you intend to continue with Tegra 2 production at a lower price to kind of capture that low end of the market with Tegra 3 attacking in the high end? Or do you just continue to want to attack the superphone market with Tegra 3 only?

Let's see. There were a couple of tablets this year, if I look at overall the year, obviously, our tablet design wins are numerous and beyond count at the moment. There are many segments of the marketplace that we serve now, all the way from very high design content tablets in 10-inch to now increasingly many 7-inch tablets that are coming out to the marketplace. There were a couple of design wins that I wish we had this year that we didn't have. I already mentioned Motorola. We were surprised by the Amazon Fire. But frankly, we're not going to be surprised again. And so we're obviously very excited about Amazon and want to do our best to be a partner of theirs someday. And so I think those were the 2 main ones that I can really, really highlight. With respect to Tegra 2 versus Tegra 3, Tegra 2 will continue to ship into the marketplace. 3 new phones were introduced just this week -- or just this last quarter, and we're expecting to see those phones continue to ship. Tegra 3 is going to come into the marketplace in tablets ranging from 7-inch all the way to 10-inch. And the reason why Tegra 3 is such a both very high-performance as well as super affordable, it's because the battery life that was made possible by the technologies that are inside Tegra 3 that we talked about -- Rob talked about variable SMP as fifth core, which is essentially like an electric hybrid engine for Tegra 3. It consumes so little energy that the battery life could be much, much longer for Tegra 3 tablets. As a result, you could -- when battery life is long and the power is, and the processor is very energy-efficient, you can save enormous amount of cost around the system. There's a second great technology in the Tegra 3, it's called DIAdem, and it's the ability to per pixel, per frame, per scene to modulate the backlight so quickly that we over a long period of time, reduce the amount of backlight intensity and backlight energy by nearly half. We save as much power in the backlight without changing the visual fidelity at all to save, essentially, the entire power used by our chip. And so saving power, energy efficiency translates to reduced system bill of material. And as a result of the things, people are finding that they could take a Tegra 3 tablets both into very high segments because of its performance, as well as into very affordable devices, like 7-inch and such. And then, of course, Tegra 3 is going to revolutionize the smartphone market again by bringing quad core and a new level of capability this year. And it's going to be pretty exciting year for us on superphones.

That's helpful. And then as a follow-up, on the OpEx trajectory, you're guiding that up partly on the strategic new programs and partly, I assume, just on 28-nanometer new products and the sort of normal course of things on GPUs. Can you talk about how much is coming from each of those areas? And whether we should expect OpEx to continue to go up the similar rate in future quarters?

The vast majority of the increase is coming from the very significant increase in design wins that we have in several areas. We have more notebook design wins for the Ivy Bridge cyle than we ever had in notebooks. And this is likely the most successful notebook cycle we've ever experienced. And so we've got a lot of engineers dedicated to getting those notebooks into production. The reason for our success, I believe, is because our Kepler generation of GPU was designed for intense energy efficiency. And with energy efficiency, we were able to translate that to simultaneously higher performance, as well as longer battery life. And so that's the first part. The second thing is we have more smartphones in design as a result of Tegra 3. We have more tablets in design as a result of Tegra 3. And on top of that, we have Windows 8 tablets and devices that we're building all over the world. And so those, all of those design wins translate to quite a bit of customer engineering, customer-facing engineering, to build these exquisite devices. And then there's a portion of it that is related to 28-nanometer tape out of new processors that will go into production shortly.

And your next question is from Romit Shah with Nomura.

Jen-Hsun, I was wondering if you could just elaborate on why you think you lost Motorola? Was it a function of price or something else?

Well, it's a couple of things, I think. Partly, you're going to have to ask Motorola. I think that, one, our rhythm is once every year. And Tegra 2 came into production a year ago, Tegra 3 is in production now. And for Motorola, they had their own internal rhythm and OMAP 4 was right in between Tegra 2 and Tegra 3. And they felt that OMAP 4 was a better processor than Tegra 2. Obviously, I feel different. And but Motorola made their choice. Second thing is, Tegra 3 is obviously more -- surely more value than OMAP 4 by a lot. At this point, I think it's very, very clear that OMAP -- or Tegra 3 is in a completely different class than OMAP 4. And so it was difficult for us to be price competitive relative to OMAP 4. And so I think that those 2 things play a role. We all have different perspectives on when new technology could be adopted in the marketplace. And we felt that last year was the year of the dual core processor. And dual core processors are dual core processors. It's been done. And now Tegra 3 is really bringing a new level of capability with variable S&P, 5 processors on a chip, as well as energy efficiency that's really never been seen before in the mobile world. And the combination of a much higher capability in performance, as well as much, much higher efficiency, and therefore battery life, we felt that we could bring a new capability to the mobile area. And so that was our perspective. And I think it's becoming increasingly clear that by the early part of next year, that superphones will have quad core. And I think we'll see how it plays out from here. But we'll work super hard to get back into Motorola. And obviously, very important partner, and they build amazing phones. And it would be a privilege and a pleasure to be part of them again.

It's our understanding that TI's OMAP sells for about $12 to $14, where I believe NVIDIA said that Tegra ranges from $15 to $25, depending on the platform. So I guess, given OMAP's success on the ICS platform, would you expect any downward pressures to ASPs for mobile?

I don't know which Tegra is $15. But there are no -- if we're still talking about Tegra 3, there is no Tegra 3 that's $15. It's higher than that. And -- but Tegra 3 and OMAP 4 aren't targeting the same generation of devices and we're not targeting the same market. And so Tegra 3 is really designed for superphones. Tegra 3 is really designed for next-generation tablets. The thing that is -- so when you compare on a device per device level, processor to processor level, it's really hard to make that comparison. However, when you compare it at the system level, Tegra 3 is about cost equivalent. It's sometimes cost advantaged relative to last generation devices, including Tegra 2. And the reason for that is because Tegra 3 is so energy efficient, that it actually reduces your bomb cost, the system bomb cost, and by a fair amount. And so variable SMP and DIAdem, our image processing technology, makes it possible for us to reduce quite a -- some $10 worth of system reduction relative to last generation, and still be higher performance, and still be longer battery life. And so I think those things, when taken into consideration, is explaining why now that people understand what Tegra 3 can do and they realize it's really the right platform to invest in going forward. The advantage of investing in Tegra 3 now is even more important when you consider the processor we have beyond it, which is the integration of Tegra and an LTE modem. All of the software effort that is invested into Tegra 3 translates directly into the mainstream products and entry-level products towards the end of next year.

Lastly, could you give us an update on the CFO search?

We're actively doing the CFO search. We're working on it very hard. However, because we have such a great team on board, and they're doing such a great job, it gives me the luxury of looking for someone who is very seasoned, who understands the technology industry and someone who -- somebody completely world-class, And so they advise me that luxury which very few companies have. But we have such a wonderful team in place that we can find the opportunity to go look for somebody really, really, truly great.

Your next question is from Alex Gauna with JMP Securities.

I was wondering if you could give some color on the Tegra 3 superphone wins that you're expecting? It sounds like in Q1, we might start seeing these? And you mentioned a higher volume opportunity. I was wondering if you could give some color on that, and if that's inclusive of anticipating Windows 8 in 2012?

I understand your first question. I'm not sure I understand the second question. What is the higher volume opportunity?

Well, where are you getting to your expectations for it to be higher volume than what you did in superphones with Tegra 2? And is that simply because you're including the Windows 8 opportunity in that?

Okay. We are working very, very hard right now on all of these devices, and I'll answer it backwards. The reason why we expect Tegra 3 to be more successful than Tegra 2 is, one, we have much, much more experience in building these mobile devices than we did before. And there's not a single mobile -- there's not a single cell phone company that I know who looks at us and say, do you know anything about building phones? Everybody is well past that. They think not only are we -- do we know how to build phones, we're fabulous at building phones with them. And so I think that the velocity of engagement is much greater than it used to be, both on our side, as well as on their side. We have more phones in development now than we did in Tegra 2. We have more tablets in development. And we have more OEMs than we had in Tegra 2. And then not to mention on top of that, Windows 8. But even in the absence of Windows 8, we have far more OEMs and devices in development today than we did with Tegra 2.

And did I understand you correctly, you expect to see those phones emerging in Q1. And then also, with regard to your comments earlier around OMAP, how do you get the industry taking advantage of all quad cores, the quad core architecture, especially when the mainstream is going to be dual core? And I get the power savings, but beyond that application to really take advantage of those capabilities?

Well, we're working on these devices as hard as we can, but we're not the device makers. And so my expectation is that Q1 is an appropriate time for most of these -- for many of these devices to come to market. But we'll get there as quickly as we can. Quad core is already utilized by a lot of applications. And whether it's imaging applications, which, as you know, is a very large reason why you would like to have snappiness and processing capability on a mobile device, whether it's computational photography or augmented reality, or many of these type of new capabilities really need to have a lot more processing. The way that you load a website, it's multi-threaded. When you play a game, most of these games are ported from, most of these high-end games, are ported from engines that are developed already for game consoles and PCs, and both of those platforms are already heavily multi-threaded. I think there's 6 processors inside the Xbox, 6 threads. And I think inside the PlayStation 3, there's, well, geez, countless threads. I think something like 8 or 16 threads. And so 4 threads is very usable by many of these, that will be consumed by many of these applications.

And your next question is from the line of Patrick Wang with Evercore Partners.

I just wanted to switch gears here for a quick sec. You did quite well last quarter in Quadro. I was hoping you could talk a little bit more about that opportunity? I guess, in terms of the near-term, as well as where you're seeing growth in the emerging markets?

Yes, well, the emerging markets are just going into the design economy. When you think about China and India, I think that most people would say that these are economies that have been driven by outsourcing from the United States and also manufacturing revenues from opportunities from the West. But increasingly, as the economy develops and their local consumption increases, the local economy will move and will transition to design economies as well. And so whereas you need factories to outsource, and you need PCs to outsource our IT jobs in order to move into the design economy, whether it's Tata or just recently, one of the most ambitious digital projects in the history of India, Ra.One, was done with NVIDIA's technology. And as you know, Bollywood is many times larger than Hollywood in terms of the number of movies and the number of fans that support that industry. And that industry is moving completely to digital, as we have done here in the United States and in the West. Tata, the car company. In China, the focus of their economy has moved towards much more indigenous IP design and indigenous industrial design, and that requires workstations. Over time, I would expect that the size of the Quadro business will reflect the size of the economy. If China becomes as large as the United States in terms of the size of their economy, I would expect the Quadro opportunity in China would be as large as it is here in the United States. And the same goes for India.

I see, got it. That was helpful. And then I guess, I actually had 2 quick questions. One was on, I think Ivy Bridge, you said that you expect to have much higher share on Ivy Bridge. I was hoping you could talk a little bit about that? And then also, Project Denver, something that a lot of us are curious about, hoping you could give us a little update there.

This cycle, our market share on the Intel platform was north of 50% overall. But we recognize that -- and the reason for that success was a technology called Optimus that invisibly and automatically makes it so that GPU can be in high-performance state or in extremely low power state without intervention from the user, that it just figures it out by itself. And as a result, you have very high performance when you need it, and you have extremely long battery life when you need it. The thing that kept us from being even more successful is that our processor could've been more energy-efficient in itself. And so one of the things that we dedicated ourselves to do with Kepler was to focus an enormous amount of our energy on creating an architecture that was energy efficient. And the result is just really, really fabulous. And so our customers see that, they understand the benefit of it. And in combination, between Kepler and Optimus, we just have a great solution. And we just have a great, great, great solution. And this is probably as competitive as we've ever been in the Notebook segment. Project Denver, our focus there is to supplement, add to arms capabilities by extending the arms architecture to segments in a marketplace that they're not, themselves, focused on. And there are some segments in the marketplace where single-threaded performance is still very important and 64 bit is vital. And so we dedicated ourselves to create a new architecture that extends the ARM instruction set, which is inherently very energy-efficient already, and extend it to high-performance segments that we need for our company to grow our market. And we're busily working on Denver. It is on track. And our expectation is that we'll talk about it more, hopefully, towards the end of next year. And until then, until then I'm excited, as you are.

And your next question is from the line of Vivek Arya with Bank of America.

Jen-Hsun, a few days ago, a major touchscreen controller vendor indicated that it saw some excess channel inventory in Android tablets. I'm curious, what checks do you have in place to gauge sell-through in your tablet and smartphone products to make sure that product is not piling up in inventory somewhere?

I guess our channel checks are no more magical than others. I think the -- Tegra 2 is the only device, it's a sole source device in the devices that we're in. And so we have a relatively close relationship with our OEMs. And it really is not second source. I think that with respect to other components in the system, oftentimes, they're second sourced, and oftentimes, they're cost reduced in the middle of the cycle. And we put a lot of our energy working with our OEMs, improving the overall bill material cost of the system even throughout the entire product cycle. And so I can't really speak for what other people see. But so far, what we see is relatively normal.

Got it. And as a follow-up, can you give us a sense of what the unit or sales mix have been between smart phones and tablets this year? And what do you think it's sort of shaping up to be for next year? Because my sense is a lot of people are still somewhat skeptical about the android tablet opportunity, maybe even more so after the launch of Amazon Kindle Fire. So any sense of how much of your growth prospects depend more on tablets rather than smartphones, I think are a useful indication for us.

Okay. I think the overall mix is higher units in phones, but about equal mix, relatively equal mix in terms of overall revenues. In terms of tablets, Android tablets, I think that the early response was premature. It is the case that there are many things that we could've done better. But it is also the case that the OEMs, ourselves, Google, really rolled up our sleeves and addressed many of the challenges that kept it from being more successful right out the gate. You see now that these tablets are much more affordable. They're available in multiple sizes, from 5-inch, to 7-inch, to 8-inch, to 9-inch, to 10-inch. Some of them are foldable. Some of them are transformable. And so there's all kinds of different types of manifestations and realizations of the Android tablet. My understanding is that the Android tablet has now grown from approximately 0% in the March timeframe to now about 1/3 of the overall tablet market. And we represent about 2/3 of that. And my sense is that, that's going to continue to grow. One of the things that I really love about Honeycomb 3.2 and then even more so with Ice Cream Sandwich, is that the applications that are -- that you have on your smartphone will work wonderfully on your tablet and vice versa. That the marketplace can now take advantage of the incredibly large install base of Android phones to support applications that would benefit the tablet. So I think that, that strategy is ingenious. And I think that the Android team has done a fabulous job implementing that strategy. So I think that starting with Honeycomb 3.2, and surely all these various form factors and price points and device sizes, and then also Ice Cream Sandwich, will surely accelerate that. So I have a lot of -- I'm very enthusiastic about the Android tablets. But having said that, the Android phone, the market is just enormous and growing quickly. It is, I think in the United States, it's already the highest market share. I think the last month or last quarter, it reached something like 64% market share, in United States. Pretty extraordinary growth. And in China, Android, or the base of Android, surely is growing very, very quickly as well. So I think that the smartphone market is going to continue to be very vibrant on Android. And that will only fuel, and that will only feed the Android tablet market, as well, over time. And I think we're seeing all of those dynamics now. So I'm much more enthusiastic about the tablet today than I was when it first launched. And I think the results would suggest that, that's right.

All right. And just one last one, if I may. Over -- you have quite a bit of cash, almost 30% or more of your market gap, you're also generating good levels of cash. What will it take to start buying stock more actively at these levels?

It's something we consider all the time. We just don't have anything to report today.

And your next question is from Uche Orji with UBS.

Jen-Hsun, let me just start by asking you to help me understand how the economics of Tegra 3 works? You talked about taking out $10 of bomb. But obviously, in a market where we're seen more and more low cost tablets being launched at ASP above $15. I just wanted to understand, what are you taking out when you're talking about $10 worth of bomb? I'm just trying to understand how with $15 ASP and above, Tegra 3 can be economical within the lower cost tablets market?

Well, without being too specific, because I don't think it really matters, I think the key is that, all right, the higher your power, the more you have to spend electronically to support it. And the lower your power and the more energy-efficient you are, the more you could reduce some system costs, and/or use external devices that are much more affordable, but consumes a little bit more energy because the core processor, which is where most of the energy is consumed, is so efficient. And so when you're looking at a tablet and then you think about an application processor that's about $20, it doesn't represent a very large percentage of the overall cost actually. And so the application processor is often not the issue. The issue is everything else. And what we've done is we've taken a holistic system approach, and we thought about the energy consumed by the backlight. We thought about the energy consumed by the memory and the rest of the system. And we were able to dramatically reduce that through architecture, and that's implemented in Tegra 3. And so that's kind of the highest level on what we've done, and I think our customers are really, really excited by the system cost reduction we were able to bring them.

Okay. Just another question, please, to follow up from that. In terms of the handsets design wins you're getting, I mean, Tegra 2 started off with quite a few handsets and, obviously, the revenue kind of started out strong and flatlined for a while. As we look at the design wins for Tegra 3, I have 2 questions. One is, how much more confident are you that one of these design wins will suddenly translate to big revenue? Obviously, this is not something within your control. But I'm just trying to gauge your level of confidence. And then 2, with more design wins, do you have to spend more OpEx to support it? And if the revenue doesn't come through, is there any flexibility as to being able to make your model a little bit less saddled with higher fixed costs while the design wins are not necessarily shipping as aggressively? I don't know if you understand what I'm trying to say. But I'm just trying to understand that, if I look at the experience of Tegra 2 into Tegra 3, how shall I believe the revenue will come through?

Well, I'm more confident in Tegra 3 at this point than I was in Tegra 2 at this point a year ago. We have more design wins. We're better at it. We surely are much, much better at it today than we were a year ago. We have a lot more engineers. We are engaging with a lot more customers, working on a lot more devices that will enter into the marketplace earlier than we entered into this year. By the time that we started shipping, it was really dribbles and drabs in April. And I think we're going to go into this coming year with a pretty good running start. And so if you're asking me about my confidence, I'm surely more confident now with a year of building mobile devices behind me and the level of expertise that we've been able to develop over the years. And I think the reputation of our company, the trust that our OEMs now have in us, and the leadership position we have with our processor, Tegra 3, is pretty unambiguous. And so I think I surely feel more confident today than I did on the Tegra 2 cycle. With respect to investment, we're investing in both our Notebook PC growth, we're investing in our PC growth, as well as our mobile devices growth. And we believe that we're addressing very large TAMs, and irrespective of whatever experience, albeit I'm more confident right now in your scenario, even if in that scenario that you hypothesized about, I'm fully committed to this marketplace. I believe that the future is visual. I believe that the future is mobile. And we're going to invest into it. We're looking at a $25 billion TAM in some 4, 5 years, and we're going to after it. And so I think that irrespective of any unexpected hiccup in the short term, we're going to stay determined and focused on building a great company.

Your next question is from Glen Yeung with Citi.

This is [indiscernible] with Glen Yeung. My question is [indiscernible] the conference back in September, you gave fiscal '13 guidance [indiscernible] that's going on in Europe and [indiscernible] impacting hard disk drives. Can you please discuss if there are any changes to your view, the guidance?

I have no change in my guidance, nor in my projection, nor do I believe the short-term information that we have necessarily warrants it. As we talked about earlier, it is really unfortunate what happened in Thailand. And in some areas it would affect our business, in some areas it would benefit our business, in some areas it would have no impact on our business. And a large -- a big part of our business, as you know, is in aftermarket, retail, purchase of graphics cards that people buy to enhance their PCs, so that they can play the latest is. It's a very large market because the game market is so large. And I don't think that, that will be affected by the situation in Thailand. I don't think our mobile industry, mobile business will be affected by it. If anything, it will be effected in a positive way. I think that our workstation business, which is very large, and drives a larger part of our profit dollars, will not be affected. And if anything, it will be affected in a positive way. And so I think that there are many areas where it's unaffected, some of them will be affected, and some of it is positively affected. And so I think at the moment, I won't change anything.

And your next question is from Craig Berger with FBR Capital Markets. Craig Berger - FBR Capital Markets & Co., Research Division: Can you just give us a brief update on Icera? When you might expect to get into a handset with that product? And also share with us your view of integrated architecture versus discrete architecture, and how Tegra fits into the future there?

I'll work backwards. Number one, I don't believe that it makes sense to integrate for tablets. It doesn't make sense to integrate for clamshells. And mostly, it doesn't make sense for superphones. However, for the mainstream and entry-level smartphones, I think it makes a lot of sense to integrate. And our plan -- we're are actively working on an integrated product. We're actively working on many nonintegrated products as well, for all of the segments that I described. For the integrated product, I hope that we'll have something to sample next year. And then with respect to the first question, Icera phones, we have several Icera phones with Tegra processors actively in development and racing to market, as we speak. In the meantime, and I think going forward as well, for our standalone application processors, the Tegra processors, we're delighted to, and we continue to work with the standalone modem companies. Because there are many accounts and many customers where they have deep partnerships and a lot of experience with, and there are many where we have a lot of experience with. And I think that partnering with them is helpful to our combined partners and our combined customers. And the market is growing so rapidly that our collaboration is surely better.

And you're final question is from Ambrish Srivastava with BMO.

And Jen-Hsun, you're absolutely right. You should actually go see Ra.One, it's a great movie. I was surprised to see, your marketing guys did a great job with the product placement, it was right front and center. My question, a little bit longer-term. What does -- you talked about it a little bit, what does V8 give you? You talked about high-performance computing. Are you also hoping to take that into low-power servers? And then just around that, how did the dynamics change? Because there's a lot of ARM licensees, but you guys are the lead licensees for ARM V8?

Let's see. I guess -- let's see, where do I start? I think the Denver -- I wanted to make sure that I don't repeat myself. But the Denver architecture is intended to extend the ARM instruction set into segments where ARM is not naturally likely to go themselves. And it's designed to be -- to bring a new level of performance and efficiency to the ARM instruction set beyond where they currently are. And it's not because ARM is not able to design these things. It's because our market focus is perfectly aligned with ARM in some areas, like mobile, and tablets, and clamshells. But in some areas that are very important to us, they're rather non-markets for them today. And we, in partnering with them, could add value by bringing the ARM instruction set into segments of the marketplace that are very important to us. There are also segments in the marketplace, and you mentioned high-performance computing, there are segments in the marketplace that desperately would like to see an energy-efficient instruction set architecture, like massively parallel processing in supercomputing. Or in a very energy-efficient high throughput servers. And so these are opportunities that are very interesting to us as well. And as we get closer to the release of Denver, we'll reveal more and more of the strategies that are related to Denver. And I think you're going to be as blown away and as excited as I am.

And at this time, do you have any closing remarks?

No. Thank you, everyone. We look forward to talking to you about our Q4 results, and we'll see you next time. Thank you.

Thank you. This does conclude today's conference call. You may now disconnect.