Earnings Call: Q3 2014

Nov 7, 2013

Good afternoon. My name is Paul 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. I will now turn the call over to Mr. Rob Chongar, Vice President of Investor Relations. Sir, you may begin your conference. Thank you. Good afternoon, everyone, and welcome to NVIDIA's conference call on Q3 of fiscal 2014 results. With me on the call today from NVIDIA are Jensen Huang, President and Chief Executive Officer and Colette Kress, 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 14, 2013, and the webcast will be available for replay until our conference call to discuss our financial results for our Q4 of fiscal 2014. 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 fiscal period ended July 28, 2013, the reports we may file from time to time on Form 8 ks filed with the Securities and Exchange Commission. All our statements are made as of today, November 7, 2013, based on information available to us as of today. And except as required by law, we assume no obligation to update any such statements. Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or John Pette 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 financial release, which is posted on our website. With that, let's begin. NVIDIA's focus on advancing the GPU and targeting specialty segments of the PC and mobile markets where visual computing matters resulted in revenue growth in line with our outlook and near record gross margins. A strong PC gaming market together with record Quadro and Tesla results and renewed TEGRA revenues from TEGRA 4 in new Android devices offset declines in mainstream PC units. While the PC market overall declined 9% year on year according to Gartner, NVIDIA's year to date overall GPU business is up 4% versus the same time period. PC gaming continues to grow led by PC MMO growth at 14% according to market research firm, Newzoo. PC gaming represents almost 40% of the worldwide gaming market, larger than console, phone, tablet or any other gaming markets. PC gaming is also becoming a huge spectator sport as more than 8,300,000 people watched last year's League of Legends Championship final online, more than the number of people who watched the 2013 Stanley Cup Hockey Final. This quarter, we launched exciting new products to feed the demand of PC gamers and spectators alike. We recently unveiled our fastest gaming GPU ever, the GeForce GTX 780 Ti, which this morning received the following assessment from Maximum PC and I quote, the 780 Ti is just in the league all by itself. We launched NVIDIA G SYNC technology, which for the first time enables near perfect synchronization between the GPU and the display, solving the decades old problem of on screen tearing, stuttering and lag. And we introduced GeForce ShadowPlay, a software platform that lets gamers record, stream and share their best gaming moments. Think of it as a DVR and video chat for gaming highlights built in to your GeForce GPU. The growth of PC gaming has bolstered our GPU gaming revenues despite changes in the PC market. NVIDIA's GPU gaming revenues are up 6% year to date compared to the same period last year, while notebook GPU gaming revenues have doubled the last 2 years. While we saw declines in our mainstream PC OEM business consistent with the overall market, the decline in mainstream units came out of our lowest gross margin products, while the stronger gross margin notebooks GTX lines grew. The result was favorable revenue and gross margin mix with financial performance better than the overall PC market. Quadro posted record revenues and record gross margins, driven by strong sales of our new K6000 product. Tesla revenue also hit a new high, driven by steadily ramping demand for Tesla product in high performance compute applications, particularly for big data analysis. Evidence of increasing industry compute momentum this quarter included an survey from the INTERSEC360 Research Group showed that accelerators are now at 44% of high performance computing sites, up from 24% 2 years ago. 85% of the HPC sites using accelerators are using NVIDIA Tesla GPUs. Our Grid platform, which virtualizes graphics by deploying GPUs in the data center to accelerate enterprise power applications continues to gain momentum with 212 grid customer trials now in progress, up from 150 last quarter. All major server OEMs, including Cisco, Dell, Fujitsu, Hitachi, HP, IBM and Lenovo are now promoting Grid for enterprise PC virtualization. This quarter, VMware announced that VMware Horizon View now supports Grid, enabling graphics acceleration for users of their virtual desktop environment. GRIT this quarter won the Best of Show Judges Choice Award at VMware's VMworld Conference. And this week, Amazon Web Services announced that they are deploying grid servers, delivering GPU acceleration to users running graphics intensive applications and games in the cloud. TEGRA revenue more than doubled this quarter. Tegra 4 shipped in over 15 different mobile devices, including Xiaomi, HP, Microsoft, ASUS, Toshiba, Acer and others. Android devices with TEGRA this quarter included ASUS's new transformer convertible tablet, 3 new HP tablets, a new Acer all in 1 PC, ViewSonic's new Android Intelligent Display and a number of Android micro game consoles. Tegra in automotive continues to ramp, delivering another record revenue quarter. Shield is ultimate portable game console and continues to garner critical acclaim and reviews. Last week, we launched GameStream technology, which allows streaming of GeForce PC games to Shield and Gamepad Mapper, which allows hundreds of Android games to take advantage of the Shield's physical controller. More than 10 worldwide partners have announced TegraNote products to ship this year. And finally, Xiaomi, the hot smartphone maker from China, which recently surpassed Apple's share in that region, launched what the Chinese press has referred to as the fastest superphone in the world, the Mi3 Superphone powered by TEGRA 4. The first 100,000 units sold out in 86 seconds. Subsequent production builds of 200,000 also sold out within minutes. In summary, visual computing in gaming, professional graphics, compute and the data center drove solid financial results this quarter despite a changing PC market, while positioning us to capitalize on growth opportunities in the coming year. With that, I'd like to hand the call over to Jenson. Thanks, Rob. Hello, everyone. I'm very pleased to introduce Colette Kress, who took over the role of NVIDIA's CFO in September. Colette has nearly 25 years of finance experience at major technology companies. She previously served for 3 years as Senior Vice President and CFO at Cisco's Business Technology and Operations Finance Organization, where she was responsible for financial strategy, planning, reporting and business development for all business segments, engineering and operations. Prior to that, Colette spent 13 years at Microsoft, including 4 years as CFO of the Server and Tools Division and held senior roles in corporate planning and finance. She had also earlier served at Texas Instruments in a variety of finance positions. She is already making a big impact and we're thrilled to have her at NVIDIA. I want to take this opportunity to thank Karen Burns for her tremendous contributions to NVIDIA while acting as our interim CFO during our search. During her tenure as interim CFO, financial performance grew and prospered, highlighted by consistent gross margin growth and the initiation of our capital return program to shareholders. With a solid foundation provided by Karen and her team, we have the ability to search for the right candidate for this critical position. Karen will continue in her role as Vice President of Finance reporting to Colette. With that, let me turn the call over to NVIDIA's new Chief Financial Officer Colette Kress. Thank you very much, Vincent. It's a pleasure to be here. Hello, everyone. I want to highlight some key points before we open up for Q and A. Overall results for the Q1 were in line with our overall expectations for the quarter as continued demand for high end desktop GPUs, Tegra, Quadro and Tesla platforms drove our results. Revenue for the quarter was 1,054,000,000 dollars slightly below slightly above our outlook and up 8% sequentially. We delivered EPS of $0.20 and on a GAAP basis and $0.26 on a non GAAP basis. These results compare to Street consensus estimates of $0.19 per GAAP and $0.26 for non GAAP. Revenue for the quarter reflected solid results in our GPU business. The GPU business grew $18,000,000 or 2% quarter over quarter and was down 2% year over year. Desktop GeForce GPU revenue grew slightly compared to last quarter due to a stronger mix of the main stream segment in addition to price repositioning of our high end GeForce products. The year ago quarter for desktop GPU revenue was particularly strong as the increased available supply of Kepler high end GPUs drove results. Our notebook GPU revenue declined as volumes in our low end notebooks decreased. However, high end gaming notebooks had strong growth as mentioned earlier. In our gaming segment, inclusive of our GeForce gaming GPUs and high end notebook GPUs, our revenue has grown 6% year to date, driven by healthy gaming market. Quadro enterprise revenue increased 5% quarter over quarter and 24% year over year, setting another record quarter fueled by a strong demand for Kepler based Quadro products. Our Tesla revenue increased 6% quarter over quarter and 43% year to date, also setting another record quarter as accelerated computing gains momentum. Revenue for the TEGRA business more than doubled sequentially as our TEGRA4 in mobile surged. Our growth in Tegra including strong revenue from new smartphone releases by Xiaomi and growth in our tablet products across several platforms. Additionally, Microsoft Surface 2 shipments and our new NVIDIA branded shield gaming and entertainment portable. As we move to Q4, we expect our TEGRA revenue will further grow compared to Q3 and we continue to ramp these devices into market and our customers introduced new designs. GAAP gross margins in Q3 were 55.4 percent and our non GAAP gross margins were 55.7 percent influenced by our success in our Tegra processor business revenue for the quarter and by the most recent price changes in our high end GeForce desktop products. GAAP operating expenses this quarter was 443,000,000 which was $17,000,000 below our outlook as we worked on optimizing our resources and spending. On a non GAAP basis, operating expenses were $405,000,000 Moving to Q4 outlook. We expect total revenue to be approximately $1,050,000,000 about flat with Q3 with continued success in our GPU business offset by decline in mainstream GPUs. We expect strong sequential growth in Tigra. We anticipate GPU business gross margins to remain stable and to experience continued strong growth in Tigra sales. Thus, we expect our GAAP gross margins to be approximately 50 54.5 percent in the 4th quarter. On a GAAP basis, operating expenses should be about $450,000,000 in the 4th quarter. Our non GAAP operating expenses in Q4 should be about $410,000,000 The slight increase from Q3 reflecting growth in head count related expenses. The full year should come in slightly over $1,600,000,000 non GAAP. Moving to our capital return strategies. Our $750,000,000 accelerated stock repurchase was complete on October 22 with a return of an additional 14,600,000 shares. In total, we have repurchased 59,500,000 shares year to date. For the quarter, our dividend was $43,000,000 Year to date, we have returned a total of $983,000,000 through capital return allocation to shareholders, consisting of $133,000,000 in quarterly dividend payments and $850,000,000 through share repurchases, Reflecting continued confidence in the company's outlook and the focus on providing a strong consistent return to shareholders, we are pleased to announce a 13% increase in our quarterly dividend from $0.0715 per share to $0.08 and one half per share. This dividend increase will be effective in the current Q4 of fiscal year 2014. Our Board has also authorized an additional $1,000,000,000 of common stock repurchases for a total authorization of 1.286 $1,000,000,000 available through the end of fiscal year 2016. We plan to continue our capital return to shareholders and with the increase in regular dividend and stock repurchase authorization, we are pleased to announce that we intend to return up to $1,000,000,000 of capital to shareholders within fiscal year 2015. Turning to other balance sheet items. Our overall financial position remains very strong. For the quarter, we generated $162,000,000 in cash from operations and $124,000,000 in cash from free cash flows. Year to date, we have generated $434,000,000 in cash from operations and $246,000,000 in free cash flow. Cash inclusive of marketable securities at the end of the quarter was $3,000,000,000 With that, let me turn the call back over to Bob. Thanks, Colette. That concludes our prepared remarks. At this time, we'd like to open up the call to take questions. Again, please limit yourself to one question and one follow-up, so we can accommodate as many questions as possible. Thank you. Thank you. Our first question comes from the line of roman shaw with Nomura. Please proceed. Thanks and congrats on a good quarter. Jensen license revenue was $66,000,000 in the quarter. It's still a meaningful portion of operating profit. I know the agreement with Intel is set to expire in 2017, but I was wondering if that's still the right way to look at it. Should we assume that the revenue stream goes away in 2017? Or is there potential for Intel to re up that agreement? Well, you know that technology licensing is an important part of our company's strategy. We licensed our technology to Sony for the PlayStation. We licensed our technology to Intel for their integrated graphics products. In the time that we've done these agreements, we have increased our activities around technology licensing. In July, as you probably remembered, we announced that we would license our GPU core, which is at the heart of the Logan Project Logan, which is next generation type of processor. And this architecture is based on the world's best GPU called Kepler. Our intentions are to continue to invest in technology licensing and make this an important part of our business going forward. So whether it's Intel or others, this is an opportunity that's very important to us. As one of the most important innovators around the GPU and as you know the GPU is more important than ever. The GPU when we started the industry was available only on PCs and workstations. And now it's available on mobile devices and tablets and cars and cloud and servers. And so this is an area that we're going to continue to invest in and this is an area that we're going to try to monetize a lot of different ways, because business models change and business models are different in all these different segments. Sometimes it makes sense for us to sell chips. Sometimes it makes sense for us to offer systems. And And so I think the way you should think about our technology licensing is that Intel is one of the opportunities for us. But this is a much larger opportunity for us than ever before. And this is an area that we have a lot of activity around. All right. Thanks for the color on that. As a follow-up, you mentioned that automotive generated record amount of revenue for that segment. Could you give us a sense of how big automotive is now as a percentage of TEGRA? I would say that it's probably about 25% of TEGRA and accelerating. But the way to think about automotive is the automotive, the modern car is a connected car. And so, visual computing matters more than ever. And instead of using traditional mechanical instrumentation, digital clusters provide them the opportunity to modernize the driving experience. The GPU because of the GPGPU, the programmable GPU inside our processors make possible all kinds of new driver assistance capability because of computer vision, because of driver artificial intelligence type of capabilities, we make cars safer and we make cars funner to drive. And so from digital clusters to infotainment systems to in the future driver assistance, the car is going to be an opportunity for more than just one GPU. And as we see the success of the Tesla electric car, I think you're going to see more and more car companies follow suit and be much more aggressive in adding mobile computing into the car. This is an area that we've invested quite a lot of effort over the years and our expectation is to see continued success here. Now design wins Thank you. On a good quarter. My first question, Jensen, can you give us an update on the TEGRA 4i and roadmap as it relates to certification and what you may see in terms of sales in the next several quarters? And I have a follow-up. Thanks Hans. I appreciate that. Let's see. We had said earlier previously that TEGRA 4i projects are in development and that we expect them likely to be announced in Q1 and ship no later than Q2. I appreciate you asking and we didn't announce it, but TEGRA 4i has now been certified through AT and T and we're really excited about that. And so we're going to continue to wait to announce the prices, but has been certified for voice and data. Okay. That's great to hear. And then as a follow-up, because the TEGRA 4i is implementing a software defined approach in terms of the modem, what do you suppose would be the implications of this type of an approach compared to some of your potential rivals that are struggling with using just traditional hardware approaches? Thanks. Well, the benefit of software defined radios is to be able to reuse that processor for many different protocols. And if the processor is designed with enough headroom, we'll be able to support higher bit rates and an ever changing landscape of protocols. And so if you see if you look at our progress, our progress with respect to getting TEGRA 4i certified and the i500 has also by the way been certified for voice and data. Our speed of getting our ICERA modem certified certainly is an indication of the flexibility of SDR. Now one of the historical challenges of SDR is thought to be power consumption. Technology architecture and a lot of great care, we've been able to make Tegra 4i and the I500 modems fit within very aggressive and competitive power envelopes. And so we're in pretty great shape there and I'm looking forward to launching devices with them. Great. Thank you. Thanks Hans. Our next question comes from the line of Ross Seymore with Deutsche Bank Securities. Please proceed. Hi. Thanks for letting me ask a question. I was just wondering for a little bit more color for the Q4. Colette you mentioned a little bit about Tekra being up strongly. On the GPU side, can you say again what you expect that to do? And any more color underneath the surface there on the professional side versus desktop notebook etcetera would be appreciated. Thank you. So we are indicating in our guidance Q4 that we will be essentially flat in Q4 versus Q3. We did articulate that our TEGRA business would be up sequentially. So therefore, our overall GPU business will be slightly down from Q3 in total. We still believe strong growth in terms of the overall gaming side of that will continue as we go into Q4. But overall, the PC market and our low end PC GPUs are probably expected to continue what we've been seeing in Q3. And can you give any color on within the GPU segment, what percent you talk about is gaming? I think you said that overall is up about 6% year to date year over year, which is impressive growth. But just to give us an idea of how much of your GPU segment that represents? It represents about 400,000,000 give or take on the individual quarter, our overall gaming segment. Great. And then just my last question very quickly. What sort of seasonality should we expect in your Tegra business? I know you have a multitude of things ramping and even with the Tegra 4i coming, how should we think about the launches of new products offsetting seasonality and whatever that seasonality may be? Any color on that would be great and then I'll go away. Thank you. No, I'm not sure there is a seasonality on the TEGRA business that we could point to at this stage. I think it's going to take a little while to better understand that and even all the way through fiscal year 2015. So I'm not sure we can add any color at this time in terms of when those volumes on each of the designs would come through. Thank you. Our next question comes from the line of Joanne Feeney with ABR Investment Strategies. Please proceed. Yes. Thanks, folks. Nice quarter. Just a question about the graphic situation on the Quadro side. So you had nice growth last quarter. I'm wondering what you see for an outlook for that product line sort of longer term and what you think the positive drivers have been to date? Thanks, Joanne. Let's see. The Quadro Growth drivers are fundamentally related to the fact that more and more companies are using digital design approaches for every aspect of their product design. There are so many companies who still use mechanical prototyping, actual prototyping. And but today, unless if you really want to be able to state of the art, create devices that are as exquisite as what we see in the marketplace today or it is that you like to do more 3 d virtual prototyping, all of that's going to require you to invest in designing in 3 d. And so we're just seeing greater and greater adoption of 3 d design in all aspects of product design. The second growth factor has to do with the fact that we're able to now because of our rendering techniques able to be we're able to add value to a larger part of the workflow. Whereas before we were used for design, we're now used largely we're also used largely for styling, because our visualization, our rendering is photorealistic now. We can capture real materials. So as a result, you can actually render using computers the ability to prototype devices that are photorealistic. We're also increasingly being used in product lifetime management and so PLM. And that's just an increase in the number of people inside companies that would need to use 3 d assets, whether it's in training or documentation or managing their supply chain, managing their subcontractors, inventory management, parts repairs. So more and more of the entire product lifetime includes 3 d where Quadra could be useful. And then lastly, more and more countries are continuing to adopt manufacturing not just for not just at the supply chain level, but at the design level. And so Quadro continues to surprise us with the size of the overall market. And I think when we innovate and we discover that the market is larger than people had ever expected. Okay. And so right all good drivers and in the past you've been talking about Quadro as sort of growing at the rate of GDP and then we saw that very sharp pickup. So I'm wondering if you think the increase in sequential growth that we've seen in the last few quarters is sustainable or if we've perhaps just seen a new adoption wave that's likely to settle down? How do you view the future in this? Well, I guess, I don't know that I could be particularly precise about it. The thing that I do know is our market share in Quadra was very high. I really don't know of any car company or movie studio or digital broadcast station or oil or gas company that doesn't use Quadro in a large part of their entire workflow. And so I think the real opportunity for us is, of course, continue to expand globally and work with OEMs around the world to see their workstations be adopted by the various industries. That's a deliberate effort on our part and we have OEM partnerships in every geography to expand their reach and their understanding of workstations in the local industries. And then secondarily, to continue to create new ways for workstations to be useful to more people, to more professionals inside a company, expanding our reach of their workflow. In those two dimensions that we continue to innovate and we continue to drive hard, I think we're going to we have every opportunity to outgrow the GEP. GDP. And so we'll see how it turns out, but that's our deliberate strategy. Okay, great. That's helpful. And then if I could ask a question on the gross margin. So this quarter, it looks like a fairly notable decline in the gross margin. And I'm wondering about the drivers, especially since what you're seeing in the notebook graphics, as you said is a decline in your lowest margin business, would suggest that the gross margin ought to be moving higher. So is it the price cuts recently that's driving those gross margins down this quarter? Or is it more broadly a shift in mix? Well, there's 3 components that were known about this quarter. We made pricing changes that were planned at the end of the quarter, but it affected our pricing for the entire quarter. That's one which is GTX. Jensen, this is I'm talking about the out quarter actually for the January quarter, the decline that we're anticipating. I'm wondering what's driving that. Well, I guess it would number 1 be TEGRA. It would we are expecting to be more successful with TEGRA. And TEGRA's gross margins are below the corporate average. And the success there is good. The success there is good and is welcomed. And so it will have an impact on our gross margins. Okay. That makes a lot of sense. And then on the pricing front, those price cuts that you sent through just recently, is there any need that you'll have at some point to offer rebates to your card partners for them to sell those products that they bought GPUs from the U. S. At the older prices. I'm wondering if there's any concern that there might be an inventory problem or a rebate that you'll need to give the card partners at some point? We planned for this move for quite some time. And we've been thoughtful about this move for quite some time. And everything that we've announced and everything that is out the marketplace have been planned and with our partners. And so I think we're in pretty good shape. Okay, great. Thanks so much. Our next question comes from the line of Alex Gouna with JMP Securities. Please proceed. Thanks very much for taking my question. Jensen, if I heard you correctly earlier, you said that automotive is about 25% of TEGRA. Can you give us an idea of percentage exposure perhaps to Windows, to Android, to also Chrome? And then maybe could you give us an idea of how you see your Android and even Windows ecosystem expanding beyond tablets here in the new HP 21 inches all in one, a pretty amazing machine at a pretty amazing price. What's the outlook there in getting beyond phones, beyond tablets with Tegra? Thank you. Thanks a lot, Alex. Almost vastly everything else is Android. We have some for WinRT or Surface. But our focus is that going forward the vast majority of Windows on ARM will be surface. And so we're not we're the vast majority of everything else in Tega is Android. Now with respect to Android, you're absolutely right that Android is not just about phones. Android is the most disruptive operating system that we've seen in a few decades, in a couple of decades. And this time because of the open source nature of Android, it could be adapted to all kinds of devices. You see that all of a sudden not only is Android in smartphones, it was in tablets, it's now in all in one PCs. I think 3 all in one PCs based on Integra was announced this last quarter. You're going to see more of them. It's quite delightful to be able to buy a monitor, bring it home and plug it in and it's already a computer. And if you like, you could still connect it to HDMI to a PC and use it as a PC. You're going to see Android and all kinds of other computing devices including set top box and others. And so Android is probably the most versatile operating system that we've ever known and has the benefit of also being connected to the cloud. And so the data you turn it on, it's incredibly useful with all kinds of applications already on it. And so that's Android. Chrome, we have no exposure to Chrome today, but it's proven to be quite an important operating system. We've known all along that technologically it's incredibly robust, resilient and high quality. And now we're seeing quite strong adoptions all over the world. And so this is an area that warrants focus on our part and we'll put some energy around it to go see if we can make a contribution in this space as well. Two part follow-up if I could, Jensen. Hey, I'm sorry, Alex. I'm sorry. Let's keep it at 2 if we can, all right? Let's keep it at 2 per person. We're starting to spread out beyond that. Can we take let's move on to our next caller. Sorry, Alex. We'll take it up next time. We'll follow-up with you. Our next question comes from the line of Harlan Sur with JPMorgan. Please proceed. Hi, good afternoon. Thanks for taking my question. And nice traction on GRID212 trials. I think that's about a 40% increase from the prior quarter. Of that incremental growth, what types of customers and applications did you bring on? And when do you guys expect these trials to start to materialize into significant revenues? Yes, Harlan. Thank you. Let's see. We announced GRID. I mean that is it is pretty it is probably one of the most successful product launches for enterprise that we've ever had. And you could argue that this is really NVIDIA's 1st enterprise product, because workstations isn't in the sweet spot of enterprise computing. It's a specialized part of enterprise computing. And Tesla is for high performance computing, which is not in the sweet spot of enterprise computing. This is the first time that we've been in the sweet spot of enterprise computing and had the benefit of the sales force of every major OEM in the world supporting its launch from Cisco to Dell to HP to IBM Fujitsu to Hitachi. I don't know of any global enterprise IT company who isn't supporting Grid and taking it to market. The type of applications that and we have the support of Citrix and VMware. Citrix we announced in Q2, I think it was and VMware announced this last quarter. And so we have sales force. We have the largest extended sales force of any product that we've ever had. The type of applications that people are using it for are really essentially taking their PC and virtualizing and putting it in the data center. And the power of doing that is you can now access your PC from anywhere on any device. With a Citrix receiver client or the VMware receiver client, you can now have your PC literally anywhere. Now there's several powerful benefits to that. For the people who are designing and working on large data sets, the benefit is that you've moved your computer closer to the data. So instead of moving the data to the computer, you're moving the computer to the data. And so for big data problems, large data sets, data or projects where you're collaborating with a whole lot of other people, you now have you now don't have a whole lot of different copies of data. You also have the benefit of mobility. People are using more and more mobile devices and people working from customer sites and working from home or giving demos. The benefit of having mobility is really incredible. And so there's a lot of different benefits associated with it. And then now with the cost of storage continuing to reduce and the cost of networking continue to reduce, you can now make these virtualized PC environments much more cost effectively. So I think our timing is good. Your question about adoption about trial to ramp, these are enterprise trials. And my sense is that somewhere between 6 months to 9 months is what we're experiencing. And so we'll see how it turns out. But the trials that we have going around the world are large important customers who have significant deployment to do. And the early response is really fantastic. Thanks for that, Jensen. And then just a quick housekeeping question. So historically, the team has seen about a $25,000,000 $30,000,000 increase in OpEx in fiscal Q1 due to kind of the fringe benefits step up. Is that how we should be thinking about it for Q1 of next year? We're not necessarily here to talk about our Q1. In Q1, primarily it's regarding our payroll taxes that can drive an increase. But at this time, we're not giving a full look in terms of fiscal year 2015. Okay. Thank you. Yes. Thanks a lot, Harmel. Our next question comes from the line of Daniel Amir with Lazard Capital Markets. Please proceed. Yes. Thanks a lot. Thank you for taking my call. A couple of questions here. So on the Tigris stuff, what what's the of questions here. So on the Tigris stuff, what type of milestones should we be looking at here in the next few quarters in terms of really seeing how successful the 4 and 4i is going to be compared to the 3 when that launched and the traction that you had initially with that product? I would look at several things. I think that this time the strategy that I've laid out for you guys before basically says several things. 1, we believe that TEGRA IV we delayed TEGRA IV so that we could pull in our Logan project and also our modems. I am delighted with that decision. It put a trough in this year. However, we've bounced back from that. I think that what you will see is several things. One, there will be more devices ramped with TEGRA 4. TEGRA 4 should continue to contribute to our momentum recovery in Tegra. You should see that Tegra is adopted in you should see that Tegra is adopted in more than just phones, that there'll be phones and tablets and other devices, automotive and other devices. And then 3rd, and you should see our modems come to market with important devices that I think people would love using. And then lastly, the gap between Tegra 4 and our next generation processor Project Logan should be a lot shorter than 1 year. And so I think all of that is on track and we'll keep an eye on it. But those will be the major differences between TEGR IVI and Logan versus TEGR III. Great. And just one follow-up on the OpEx. I know that you're not giving full look guidance on to next year. But just to understand in terms of the Tigris spending, I mean, how should we be looking at that on a year over year basis? Because I guess that does have an impact in terms of how we should look at next year's R and D expense to some extent. Thanks. Well, we in the beginning of the year, we said that we are targeting 1 point $6,000,000,000 for our total OpEx for the year. And based on what Colette just described, we are right on target on 1 $600,000,000 If you looked at the growth quarter to quarter, by and large, I think we are and we've said before that I want to tick up an investment to support our modem projects. And our modem projects has 2 different pieces. One piece is data modem, which I don't think anyone disputes is important in many of our market segments nor does anybody nor is anybody particularly concerned that SDR is a great platform for data modem. There was a question about our voice model. And we have invested we have ticked up our investment to support those two things. I think we're we are at those levels. And so when the time comes for Q1 guidance, we'll tell you surely more. But we are invested into the markets that we believe we want to be invested in. Thanks. Our next question comes from the line of Doug Friedman with RBC Capital Markets. Please proceed. Great. Thanks guys for taking my question and welcome, Collin. Can you talk a little bit about what you're seeing in terms of TEGRA? You've got a few different go to market strategies there with your shield and the note project. Can you give us an update on how both of those are doing and maybe what percentage of TEGRA revs are coming from each? First of all, thanks a lot Doug. I appreciate the question. TegraNote is a reference platform. TegraNote is a reference platform albeit very complete. It has the additional qualities that the software is very polished and that it includes features like Stylus, the world's first high performance passive stylus that is unique. It has the world's first always on HDR that is unique. So it has capabilities that no other tablets have, no other devices have. And it has the benefit of having software that's completely polished and refined. But otherwise, it's a reference platform and we direct our partners, particularly local brand owners around the world, who don't have the ability to invest in building such a great device at the ODMs that we partner with to have these devices built. But in the end, our business model there is Toselochuk and we partner with local brand holders around the world to take these devices to market. With respect to Shield, it is our initiative to cultivate the gaming marketplace for Android. We believe that Android is going to be a very important platform for gaming in the future. And to do so, we have to create devices that enable great gaming to happen on Android. Our investment there is modest. Modest. We built these devices. They're all they're in the hands of every developer in the world, Daniel. And the reviews have been fantastic. And we're going to let the market tell us how they like it and then we'll take it from there. And so for Tigray Note, the business model ultimately is to sell chips, partner with partners like we do with GeForce. In the case of Shield, it is an NVIDIA branded product, but we're approaching it modestly and carefully. Great. If you could maybe offer us a little bit of insight into the progress you're having with 4i, it's great to hear that it's been certified. What type of launch and how big a breadth of launch do you expect 4i to have on the business for TEGLAR? Well, it's our first voice modem product. And so my expectations are that the devices will be quite terrific. And I think people will be delighted by the OEM that it comes from. It will likely be global, but not U. S. It really you really need to have CDMA in the U. S. To be successful. And so we're not targeting U. S. With respect to phones. We're targeting outside U. S. And so let's go ahead and wait and see until Q2 timeframe when or Q1 timeframe when it gets launched and Q2 timeframe when it gets shipped. But my expectation is that it should be really wonderful. Okay. Great. Thank you. Thanks a lot, Doug. Our next question comes from the line of a rajvindra Gill with Needham and Company. Please proceed. Yes. Thanks for taking my question. Jensen, just on the competitive landscape in the handset market and to a lesser extent the tablet market for Tegra going forward. As you know, the competition has intensified from players like MediaTek and Spreadtrum on the low end, but also other players. And you've kind of seen Broadcom face a lot of challenges trying to break into this market. So was just wondering if you could speak to that a little bit. And how do you think about the competitive landscape going forward? Thank you. I appreciate the question, Raji. First of all, Tegra is not just about phones. Although we have found success with Xiaomi and we found success with others And we participated in building some of the most exciting super phones in the marketplace and we'll continue to do that. Tegra is not just about phones. Unlike the companies that you've named, NVIDIA's application processors can be successful and very successful without modems. However, there are many segments of our market going forward where important to have. And, Icerra gives us a platform to build the data modems, which we are very successful at already. I think the risk of our data modem success is not at all a concern. And in fact, we're incredibly proud of the performance of our data modem. It's a piece of technology and a companion part of our technology offering that's really important for us to have. If you look at Tegra therefore, whether it's in phones or tablets or cars, set top boxes, gaming devices, all in one PCs, Chrome PCs, they all require the same application processor. And so Tegra is more than just phones. And in many of those segments, a data modem is very important to have. And in one segment, a voice modem is very important to have. And so the way to think about our position, the way to think about our position, you have to think about the whole Android, the whole mobile technology market. You can't just think about phones, which is very unlike the 2 companies that you mentioned earlier. They tend to be very phone centric. We're just simply not. Now, I understand that last couple of years that the only conversation has been around phones. But we all know that the conversation around Android is going to expand far beyond phones. And this is an area that we can add a lot to the conversation. From the line of Glenn Young with Citi. Please proceed. Hi. This is Samuel Meehan on behalf of Glenn Young. Another question about automotive, perhaps longer term in nature. Are you still on track to reach your stated goal of $450,000,000 in sales contribution by fiscal 2016? We are still on track doubling that business every year. And so the answer to your question is yes. We continue to capture design wins and computing and automotive is increasing in performance increasing in importance every year. And can you speak on the design wins at automotive OEMs that's needed to get that current business from $30,000,000 a quarter currently to that $450,000,000 target? We already have it. Design wins are shipping as many years as you're now in a car. And so it's multi years. You have to work on a project for a couple of 2, 3 years before you ship it. And so we already have it. Okay, great. Thank you. Yes. Thanks, Silwan. Our next question comes from the line of Vivek Arya with Bank of America. Please proceed. Thank you for taking my question. Gentlemen, how should we conceptually think about NVIDIA's growth drivers in 2014 if the PC market stays somewhat weak, the smartphone market remains competitive? And I think you mentioned grid could take some time to ramp. So how would you rank order your growth drivers for next year? Yes. Thank you. Appreciate that, Vivek. I would say in terms of absolute dollars, number 1 would be TEGRA. In terms of so that's number 1. Number 2 would be Tesla. Number 3 would be PC gaming, which is GeForce GTX. Number 4, although the buildup of potential is likely the greatest with grid, You're right that it's off of a small base today. And so I would say number 4 is grid. But the following year grid could very well be the largest growth driver. Got it. And then maybe as a follow-up for Colette. Your onshore cash is about $600,000,000 It used to be about $1,500,000,000 before. I'm wondering what is the minimum that you need to maintain to run the business? And of the quarterly free cash flow that you generate, how much is domestic, so we can think about what is the coverage of dividends and then whatever is left in terms of the buybacks that you have announced? Yes, you're correct in terms of the amount of cash that we have in the overall U. S. Basis, which is generally about what we need for our overall dividend. So with our intent going forward to return a bit more to shareholders $1,000,000,000 in fiscal year 2015 that we'll emphasize that we'll come back with the options in terms of how we'll do that going forward. But at this time, we're not here to really kind of break down the cash flow between U. S.-based and international based, are those pieces. But we'll come back to you in about quarter and give you a little bit more detail on those plans. But of the quarterly cash flow that you generate Colette just looking at the last four quarters, how much was onshore just as a percentage? Is it 25%, 30%? Any number would be helpful. Thank you. Yeah. Not something we talk about. I think it's something that's not necessarily always consistent in terms of every single quarter. So just looking at the last quarter is not necessarily a clear indicator given where our capital Okay? Okay. Thank you. Hey, everyone, I think we're out of time. I'd like to thank everyone for participating in the call today. We look forward to talking to you next time on our Q4 earnings call. Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation.