Earnings Call: Q4 2014

Feb 12, 2014

Afternoon. My name is Albert, and I'll be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA Financial Results 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. I will now turn the call over to Mr. Chris Evans. Sir, you may begin your conference. Thanks, Albert. Good afternoon, everyone, and welcome to NVIDIA's conference call for the Q4 of fiscal 2014. With me on the call today from NVIDIA are Jensen Huang, President and Chief Executive Officer and Colette Kress, our CFO. After our prepared remarks, we'll open up the call for 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 Feb 19, 2014 and the webcast will be available for replay until our conference call to discuss our financial results for our Q1 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, 25th March in San Jose. Email me or check our website 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 October 27, 2013, and the reports we may file from time to time on Form 8 ks with the Securities and Exchange Commission. All our statements are made as of today, February 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 reference to market research and market share numbers throughout the call come from Mercury Research or John 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 4: Black Flag and Batman: Arkham Origins. In Asia, Blade and Soul has proved hugely popular. It's been a it has very high system relative to the vast majority of games played in China, which is a very promising development that has driven GeForce GTX sales there. The PC gaming market is now larger than console gaming or mobile gaming according to DRC Intelligence. The same firm estimates revenue from graphics intensive PC games will approach $20,000,000,000 this year. We recently added a feature called ShadowPlay to enable gamers to save and share to a global audience and leverages ShadowPlay, was actually the 4th largest generator of Internet traffic in the U. S. For the week ending February 3. That puts it behind Netflix, but ahead of Hulu and Amazon. On the professional side of the business, Tesla has established its position at the center of the high performance computing market. This quarter, we inked a Tesla partnership with IBM, possibly the biggest name in supercomputing. According to IDC, 32% of all HPC computing systems are built by IBM. Having IBM's world spanning sales force pitching Tesla is a natural consequence of the agreement. But perhaps it's more interesting that IBM is looking to apply GPU acceleration across its entire portfolio of enterprise applications, potentially opening up very significant new markets for us. The top 10 greenest supercomputers are now powered by Tesla GPU accelerators, as is the fastest supercomputer in Europe. And only this week, ANSYS announced that its Fluid Dynamics application is widely used commercial HPC application. More than 40,000 companies worldwide depend on Ansys in industries from consumer products to civil engineering. We launched the Tesla K40 this quarter. It has doubled the memory of past products and we're seeing a lot of interest from consumer Internet Grid is our GPU 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're looking forward to sharing 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 1st mobile processor to incorporate the Kepler GPU architecture and is the 1st 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, Epic's Unreal Engine 4 now runs on Tegra K1. PC and console game developers can now 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're 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 3 or 4 lit years. Tegra K1 is quite literally game changing. During our CES event, we showed Android running on a 64 bit Tegra The CPU was our own custom Denver core and this is the first time anyone had publicly shown Android running on a 64 bit ARM chip. We expect devices based on the 32 bit version of Tegra K1 to ship in the first half of twenty fourteen and 64 bit devices in the second half. Along with PC graphics features, Tegra also brings CUDA to mobile with 192 fully programmable processor cores. So it could be used to greatly accelerate applications like image recognition or computational photography. For tablets and phones, we can then imagine a future with devices that see your face and adapt to your mood or open a browser in response to a gesture. For cards, 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 of the advanced driver assistance systems that manufacturers will include in future cars. At Audi's CES keynote, Wei Jensen spoke, one of their vehicles drove itself onto the stage and Audi announced that Tegra K1 will power its piloted driving and self parking initiatives. Strategy analytics expects the market for advanced driver assistance systems to be worth around $15,000,000,000 by 2016 with a CAGR of 23%. Audi also announced that its next generation in vehicle systems will be powered by TEGRA. These include a revolutionary high resolution digital cockpit with 3 gs graphical displays will start shipping later this year and an automotive grade smart display running Android for integrated passenger entertainment. Increasingly, the driver of a car is surrounded by pixels and the quality of those pixels communicates as much about the car as once did inlaid walnut and hand stitched leather. Graphics matters. Ricky Hootie, Audi's Chief Engineer, Electrolux Electronics, noted that 90% of the innovation in automobiles today involves his field of electrics 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 IDC and Intersect 360, respectively. Tegra 4 has shipped in phones in China and our modem has been certified by both AT and T and Vodafone. Our automotive business has a $2,000,000,000 pipeline and we've laid the foundation for the next generation of in car electronics and advanced driver assistance. Grid, our first product targeting the enterprise desktop is being evaluated at hundreds of sites worldwide. And with that, I'd like to turn over to the gentleman. Well, before we turn it over to Colette, let me first make a comment about an organization change. Many of you know that Rob Chongar has been recently assigned by me to head up our automotive business. Rob Chunger was previously your contact along with Chris in IR. I decided to put Rob Chunger in charge of automotive because it is becoming a very large business and a 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 now that and he ran it for several years. And now that it is becoming a quite a sizable business with great importance to us and customers all over the world. I've asked Rob to take reins 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 long before he was in IR, he was in 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's setting up our IR team now. Okay. So with that, I'll hand it over to Colette. Thanks, Chris and Jensen. Hello, everyone. Let me provide some details on the quarter and full year results. Revenue for the Q4 of fiscal 2014 was $1,140,000,000 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 $947,000,000 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 cloud technology grid continued to grow at a fast pace. The Tegra processor business grew 18% from Q3 to $131,000,000 led by increased Tegra infotainment systems for auto increased more than 60% from the year ago quarter. Revenue for fiscal 20 14 was $4,130,000,000 down 3.5 percent. Strength in 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 margin was 54.1%. Non GAAP gross margin was 53.8%. The gross margin percent was slightly below our outlook for the quarter as the 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, thus the mix can fluctuate of gross margin quarter to quarter. For the full year, GAAP and non GAAP gross margin reached record highs at 54.9% 55 0.1%, respectively. GAAP operating expenses for the 4th quarter were 452,000,000 Non GAAP operating expenses were $408,000,000 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 4th quarter included an incremental $7,000,000 related to the convertible debt offering, dollars 2,000,000 for the coupon interest and $5,000,000 for the debt discount amortization. We expect ongoing quarterly interest expense related to the convertible debt to be about $11,000,000 per quarter, $4,000,000 of coupon interest and $7,000,000 of debt discount amortization. GAAP net income and EPS for the quarter were $147,000,000 $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 Q4 of fiscal 2014 for $1,500,000,000 with the net proceeds to be used primarily for the repurchase of common stock and quarterly dividend payments. We repurchased 2,300,000 shares for $37,000,000 in the 4th quarter and a total of 62,000,000 shares for $887,000,000 for the full fiscal year 2014. More than 10% of our shares outstanding have been repurchased since the beginning of fiscal 2014. Cash dividends paid during the fiscal year totaled 100 and $81,000,000 Total capital return to shareholders in fiscal 2014 was $1,068,000,000 Cash flow from operating activities was $401,000,000 in the Q4 of the full year and was $835,000,000 for the full year. Depreciation and amortization expense for the Q4 amounted to $55,000,000 dollars Capital expenditures were $66,000,000 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 needs 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 Q1 of fiscal 2015. As you will recall, we provide guidance for just the next quarter out, which we believe is helpful to articulate where our future business growth opportunities are. Following the strong revenue results in Q4, our outlook for the Q1 of fiscal 2015 is expected to be $1,050,000,000 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 454,000,000 dollars Non GAAP operating expenses are expected to be approximately $413,000,000 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 Q1 and annual fiscal 2015 are both expected to be 20%, plus or minus 1%. If the U. S. R and 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 $1,000,000,000 to shareholders through stock repurchases and cash dividends. Thus in the Q1, we intend to continue the repurchase of our outstanding shares. With that, let me turn it back to Chris. That concludes our prepared remarks. We'll now take questions. Our first question comes from the line of Ian Ng with MKM Partners. Please go ahead. 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 backward compatible. It seems like some of the game titles, if you listen to GameStop, might have disappointed. Yes. Ian, 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 it. The open platform allows you to do things to support genres that are massively online, that are free to play, that have micro transactions for in game commerce. And because it's an open platform, it's supported in every country. It's supported in China. It's supported in Russia. And we know that there are people who love playing games globally. And also because of the global ability to now develop games of different genres and different cultures, we're just seeing we're seeing that games is a global phenomenon now. And so there's a fair number of fundamental dynamics that's driving PC gaming growth. And then the one that you mentioned recently is important as well. It's 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, it's more open, it's more flexible, the game console titles that are developed, these AAA titles with such enormous production value, The developers can take them to the modern the state of the art or next generation game consoles at the same time that they take it to PCs. And it's great for them because there are only a couple of 2,000,000, 3000000 next generation consoles, but there's already a couple of 100,000,000 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, it's much better for PCs as well. Great. And as my follow-up, it's in mobile. So as we look past Chinese New Year, can you talk about TEGRA 4 seasonality and diversification and when we can expect some TEGRA 4i wins? Well, the next catalyst for TEGRA driver growth driver comes from 2 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 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're building, I guess. And at this point based on what I know about the market and what's 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're still on track on that. There's nothing new to report today. We had mentioned earlier that late Q1 or early Q2 was when we expect devices to be announced and I'm looking forward to that and it is still on track. And the 3rd 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 are becoming are getting revolutionized by computing technology. And we're seeing our applications 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 a mission critical supercomputing technology and the CUDA GPGPU that we invented for auto pilot and self driving cars. And so those are the near term growth catalysts for the TEGRA business and I'm looking forward to that. Thanks, Ian. Our next question comes from the line of Patrick Whang with Evercore Partners. Please go ahead. Great. Thanks. Hey, Jensen, I'm just curious when you look at the TEGRA integrated SoC side of things, what's 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? Hi, Patrick. First of all, mobile is more than phones. That's just really important to remember and we're starting to see it now. Mobile is both a device, a short for phones. It's also a technology. People kind of gave it the name of application processor that's an SoC built for low power applications and people call that mobile, mobile technology. And so mobile is more than phones. Tegra is designed for 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'll 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. Got it. That makes sense. The 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 some milestones that we should look forward to over the next couple of quarters here? Clearly, there's a lot of demand for virtualizing graphics and VDI, but if you could just kind of maybe point out a couple of things we should look for. Thanks. Yes. Appreciate that, Patrick. It's one of my favorites too. And this is an invention that has taken about 7 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 GRIT has really achieved some really great milestones. And in fact, you're seeing it all the time now. Now internally, we're tracking trials. We have several 100 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 of 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 being able to virtualize desktop computing, you could put applications of any kind in the cloud and make it available to anybody anywhere. And so turning an enterprise PC, a 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're seeing milestones being announced all the time. And so this is of course a new area for us. It's taken us several years to get here. But this is really NVIDIA's first enterprise computing product. And it's the first product 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. The next question comes from the line Mike Connell with Pacific Crest Securities. Please go ahead. Thanks. Colette, I'd like to ask about OpEx. I think most of us are expecting in our models for fiscal 2015 a double digit increase in OpEx. It looks like you've 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 to trend for this fiscal year coming? So, as indicated at this time, we're really looking 1 quarter out and steady as we go. 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 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. Okay. And then just one more maybe for Jensen. Jensen, looking at growth in the your desktop business, it looks like you guys put up the strongest year over year growth since fiscal 2008. And I know you've 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 you think that benefited growth in fiscal Q4? Or do you think it was mostly market driven? Thanks. 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 the market. Maybe that's the easiest way to think about it. And I think for all intents and purposes, the anecdotal evidence is that we are growing the market. Every market whether it's China, the gaming market is growing. And it's growing in 2 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 and 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, 3 very important games show up 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 any time in history for the PC. And so we're quite excited about the high end segment. Our next question comes from the line of Suji Desilva with Toveka Capital. Please go ahead. Thanks guys. Nice job on the quarter. Just a couple of clarification questions on the Type 4i. Do you think the super phones will go with thin modem applications or more integrated? And I know they'll be ramping up 64 bit. So I'm curious if kind of the app processor alone is good there in that market? And is the 4i applicable to the other target TEGRA markets you described here beyond Superphones? Thanks. Well, the super phone market is really moving fast. And so integration is sometimes a good thing and integration sometimes hurts you. It's just higher risk to integrate 4 things that are that needs to be state of the art at the same time. And so some companies use things like TikTok to articulate the benefit of strategies and methodologies to reduce your risk. Some companies like us we call them ping pong and we try to reduce our risk by moving 1 piece at a time, so that you can innovate on a rhythmic and a continued 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 even more value because we're a performance oriented company, gaming, consoles, set top boxes and of course automotive where performance and functionality is so important. And so those are really our target markets. Some of them can benefit from Tegra 4i. Most of them 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 the 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 ever before. And so we use architecture now, one unified software stack. Everything is identical. And so it's a very powerful lever for us to expand our GPU market. Okay. And then for a quick follow-up, the gross margin, I know you guys don't want to guide beyond 1 quarter, but you've done a great job getting gross margin up here. Can you talk about 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. Yes. So 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 seeing how those play out as they be influenced by very large deals. As you can see, just finishing the Q4 and our overall GeForce GTX business and its tremendous success did have a change in terms of our overall gross margin. As I spoke, the overall Tiger business has slightly lower gross margins. So again, depending on the volumes of what percentage of that business is of our total, we'll 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 'fourteen and where it's leaving. And then heading into Q1, I think it looks very solid as well. Thanks Suji. Our next question comes from the line of James Schneider with Goldman Sachs. Please go ahead. Good afternoon and congratulations on strong results. I was wondering if you could maybe address the Ategra business for a moment. Can you talk about whether from here you'd expect it to decline more or less seasonally than the rest of the business into Q1? And then do you think it's going to be likely the October quarter that we'd see a meaningful pickup by the new generation design wins? Or do you think it's possible it could happen in the July quarter? Yes, Jim. First of all, thanks a lot. The growth drivers, the next catalyst for growth for us are the 3 that I mentioned, Tegra K1 and T4i devices coming to market and our automotive business. Those are the 3 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. That's helpful. Thank you. I was wondering if you could maybe 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 level of visibility on the Tesla piece of business as you head throughout the year? Well, these are there's partly supercomputing business and they tend to be lumpy. The second part of it is enterprise business and they 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. 1 of the most important commercial large scale simulation software packages in the world is ANSYS 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 import Fluent onto CUDA. This is a multi year effort for us. This was a very, very significant announcement. We're super, super excited about it. And so this opens up a new field of use. There are applications like that that are cropping out of the woodworks all over the place. And the reason for that is because I think that accelerated computing with CUDA has really reached a tipping point that it's no longer whether this computing model is viable. It's no longer whether this computing model is going to be around. Those are foregone conclusions. It is now how quickly can I port my application, so that I can accelerate it and have a competitive advantage? Our next question comes from the line of Chris Caso with Susquehanna Financial Group. Please go ahead. Thank you. Just following on from the last question, given the comments about some of the TEGRA drivers starting here in late Q1. Or would you take 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 and the TEGRA business kind of down in about equal percentages as we look into the April quarter? Well, Chris, we guide 1 quarter at a time and we're quite happy with the guidance that we provided. And when Q2 comes along, we'll guide that. No, I'm sorry. I was referring to the Q1. Well, the Q1 is what Colette just guided. What was the question? Maybe Colette can handle it. Yes. So as we look into Q1, the overall revenue guidance is about a 10% growth over the prior year. We will we'll see we're seeing a definite strength year over year, particularly in our enterprise business, which we will definitely see all continue. Our GPU in terms of what we've 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'll see how the quarter goes in terms of TEGNA. We feel pretty solid about the levels that we ended in Q4 and what we see in heading into Q1. But that's all taken into account into that guidance of $10.50 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've completed the convert? We the additional net aspect of the convert as we added 1.5 and we're sitting at about the same amount of U. S. Cash as we were before. So we're now probably well over the 2,000,000,000 dollars level in the U. S. Right now as we are entering into Q1. Thanks, Chris. Our next question comes from the line of Kevin Cassidy with Stifel Nicolaus. Please go ahead. Hi. Thanks for taking my question. 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 Q3 was such a strong quarter? I think it's a little I think it can be a little bit of both. As you know in the Q3, we did at that time Kevin announced a new product launch at that point, extremely well received, also 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 it as well. But thanks, Kevin. Okay, great. Thanks. And just as a follow-up, you've had the 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? Yes, Kevin. Thanks for that question. You know that NVIDIA is a core technology company. And we invented the GPU. We invented GPGPU. And now we invented 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's strategy and it's a part of our strategy that we've implemented for some time. These discussions take long time and it's always unpredictable and we're patient. This is 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 in 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're making our latest generation GPUs available to them. And discussions are happening and they'll take time. This is not something that happens very quickly because it includes people's methodologies and designing it into their workflow. 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. Okay. Thank you. Yes. Thanks a lot, Kevin. Our next question comes from the line of Blayne Curtis with Barclays. This is Chris Hemmelgarn on for Blayne Curtis. One quick question for you, gents. Could you rank I think you did this last quarter, but just talk about how you would rank order your growth opportunities in 20 14? Yes. Chris, first of all, thanks. Well, it depends on whether it's percentage or dollars. And if it's dollars, I would say TEGRA is up there. 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 so that's kind of the way I would do it. And I would say that in terms of dollars, absolute dollars, yes, GTX is up there too. Gaming is up there too. And so it depends on whether we're talking about dollars or percentages. So things look 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 OYA? Tegra K1 is pretty capable. It certainly seems like there's some opportunity to displace console gaming with your mobile chips. I just wanted your thoughts long term there. Yes. Well, you know that Shield was is our strategy is 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 future, if not already now. And it's available in 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. Is very important to us where there are high production value 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 phones, 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'm really delighted by the capabilities of our company to build devices and people who have enjoyed it love to build quality. Our but it's we're modest about the revenues from it. We're modest about its distribution, because it's something that we're still learning. 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. Next question comes from the line of Ambrish Srivastava with BMO. Please go ahead. Hi. Thank you, Jason. On grid, could you just provide us with a frame of reference? So when you started on the Sendover versus where you are today, were you has it surpassed all your wild expectations in terms of the trials you're having? And then more importantly on the revenue side, you mentioned percentage wise it's 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 to those multipart question. Thanks. 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 10 years. Not only is it great for productivity, it's great for cost effectiveness, so that you can aggregate resources in the data center. It's great for manageability. It's great for security. And so but there's one class of computing in all enterprises that's not been able to be virtualized and that's your desktop PC and all of the applications that are associated with it. Grid makes it possible for us to now virtualize desktop PC applications and literally stream it to you like we stream Netflix to you. And we can stream it to you from anywhere. And the wonderful thing 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're delighted that cloud computing infrastructure is getting more capable, broadband is getting more available. Those things are becoming more and more commoditized. And over time, it stands to reason we should be able to enjoy even the most heavy of PC applications, which is games, on any device and anywhere you like to enjoy it. And 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 these 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, it's 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 $100,000,000 business, it's a couple of years behind. But at some point, both businesses have the opportunity to be very, very large. Okay. That's helpful. It's our data center initiatives. Thanks, Ambrish. Our next question comes from the line of Christopher Rolland with FBR Capital. Please go ahead. Hey, guys. Congrats on the strong results and thanks so much for letting me ask a question. Can you guys talk perhaps about your cash position? You guys had a ton of cash on your balance sheet before the convert. So perhaps there's not too much of a good thing. But can you talk about your minimum cash needs? Why they might be so high? And then talk about your appetite or strategy for acquisitions. So our 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're 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. An acquisition at this time. So, study as we go. We feel that the $1,000,000,000 return to shareholders in fiscal year 2015 is a very, very solid matching number to fiscal year 2014 and we'll talk further after we get through the fiscal year. Okay, great. Just a follow-up there. It kind of seems like maybe you're hinting at maybe something more than $1,000,000,000 for $15,000,000 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 had expected. So what's 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? Chris, I'll let Colette get 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 any time 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 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're 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 large and wide today. And so we think about R and D and M and 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 and D budget is a little higher. But in total aggregate, when you think about the investments that we've made in aggregate between R and D and M and A, we're right there with many companies. Our ratio for R and D internal, internal R and D of course is higher. But 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 who love doing this work, want to do their life's work here on this platform. And so we're very flexible with that. And then lastly, I'll hand it back to Colette. Yes. Regarding the cash of whether or not we would change our plans, given it's really early in the fiscal year, I think we're comfortable with where we stand at $1,000,000,000 But Chris, we'll address it again as the year goes by, okay? Okay. Thanks guys and congrats again. Thank you. The last question comes from the line of Betsy Van Hees with Wedbush Securities. Please go ahead. Thanks so much for taking my question and congratulations on a great quarter and really strong guidance of what is always a seasonally down quarter. And there's been a lot of questions about the guidance. And so as I'm looking at it, you guided revenue down 10% to 6%. And given this is always a seasonally the 6 the 6%. But given the seasonality of Tegra and the fact that it's so tight to the mobile devices and we're in this lull as new product is going to be announced that it's 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. 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 it usually does come down in Q1 associated with the general desktops 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. So we do expect that in terms of on the GPU business. And then Tegra, as we see right now, steady as we go. But we're 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. Okay. Thanks, Colette. And then my next question, Colette, is for you on the balance sheet. So you've been doing a great job there and especially with the days of inventory continue to go So I was wondering if you could remind us what is a healthy level of days of inventory for you guys? You're at 67 days and is that where you want to run or you want to be lower than that? You're 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 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're very pleased at least as where it is right now. And yes, we do, as the overall finance team watch that quite quietly. All right. Thanks again for letting me ask the questions. And once again congratulations on a great quarter and guidance. Thanks, Betsy. Thank you. Thanks, everyone. We look forward to talking to you next time on our Q1 earnings call. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation.