AGM 2015

May 20, 2015

Slides

I'd also like to introduce certain outside members of our Board of Directors Technology is much more complicated than I expected. Jim Gaither, Harvey Jones, Mike McCaffrey, Bill Miller, Mark Perry and Mark Stevens. Thank you all for being here. I also like to introduce Wayne Hedden from PricewaterhouseCoopers LLP, our independent registered public accounting firm. Right there, Wayne. Welcome. The meeting will now officially come to order. I will serve as Chairman and will ask David to serve as Secretary and conduct a procedural portion of the meeting. David? Thanks, Jensen. In addition to the live audience that we have here today, we have stockholders attending online. If you are attending the meeting in person, you can vote your shares at the back of the room until the polls close. If you are attending online, you can vote your shares until the online until the polls close. In addition, when we get to the question and answer session, after Jensen's presentation, we will be taking questions from those stockholders attending online well as those attending here in Santa Clara. However, we will not provide any updates to our financial outlook. During the course of this meeting, we may make forward looking statements based on current expectations. These forward looking statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the reports we may file from time to time with the Securities and Exchange Commission, including our Form 10 ks and 10 Q. All our statements are made as of May 20, 2015, based on information available to us as of today and as required and is except as required by law, we assume no obligation to update any such statements. During this meeting, 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. I have a complete list of stockholders of record of NVIDIA's common stock on March 24, 2015, the record date for this meeting. I also have an affidavit from Broadridge certifying that they commence the mailing of the relevant proxy materials on April 9, 2015 to each stockholder of record at the close of business on the record date. At this time, I am pointing Eric Jensen of Cooley LLP, our outside legal counsel to act as the Inspector of Elections at this meeting. Eric, please raise your hand. Gentleman in the tie the only one in the tie in the room, easy to find. As the Inspector of Elections, Eric will decide on the qualifications of voters, accept their votes and tally the final votes when balloting on all matters is completed. Eric has taken this and subscribed the customary oath of office and we will file this oath with the records of the meeting. As to a quorum, our bylaws provide that the presence in person or by proxy of a majority of the shares entitled to vote at the meeting will constitute a quorum. We have a quorum for today's meeting. Eric has informed me that proxies have been received for approximately 83% of the total outstanding shares on that date, which represents approximately $461,000,000 of the 553,000,000 shares outstanding, which is a quorum for today's meeting. There are 3 items of business for this meeting. The first item of business today is to reelect Rob Burgess, Tim Schox, Persis Drell, James Gaither, Jensen Huang, Don Hudson, Harvey Jones, Mike McCaffrey, William Miller, Mark Perry, Brook Sewell and Mark Stevens to serve as Directors until our 2016 Annual Meeting. The second item of business is to approve the compensation of our executive officers as disclosed in our 2015 proxy statement. The 3rd item of business is to ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2016. It is 10:41 a. M. And the polls are currently open for voting. Voting is by proxy, written ballot or online, if you are a stockholder attending virtually. You do not need to vote if you have already sent in your assigned proxy or voted online or by telephone. Each share of common stock is entitled to one vote. If you want to vote in person at the meeting, please go see Eric at the back of the room or do so online. As the company has not received notice from any of its stockholders of any other matter to be considered at today's meeting, No other proposals will be addressed at this meeting. It appears we have no voting in the room. The time is 10:42 a. M. And the polls are now closed. The preliminary report of the Inspector of Elections covering the proposals presented at this meeting is as follows: the proposal to elect the 12 nominees on the ballot as Directors of NVIDIA is carried The proposal to approve the compensation of NVIDIA's executive officers is carried. The proposal to ratify the selection of PricewaterhouseCoopers LLP as NVIDIA's independent registered public accounting firm for the fiscal year ending January 31, 2016 is carried. A full tally of the votes will be published in a Form 8 ks, which will be filed with the SEC within 4 business days. That concludes the formal portion of today's Annual Meeting, and I declare the business portion of the 2015 Annual Meeting of Stockholders adjourned. Thank you very much. With that, I'll turn it back over to Jim. Thank you, David. Let me give you a brief update of our company. NVIDIA is a company made of people who are at the absolute top of their craft in a field called visual computing. We are the best in the world at what we do. The people who work here do their life's work here and believe that by doing pioneering work in this field, we could do good for the world. There are several markets by which we bring our craft, by which we bring our work. 1 of the largest markets for visual computing is video games. We've taken video games from Pong to what appears to be virtual reality today. It turns out that video games, a recognition we made some 20 some odd years ago was going to be an important technology driver was absolutely right. And the reason for that is of course in order to suspend you in disbelief and create all kinds of wonderful entertainment for you, we have to simulate effectively the world. We have to simulate the surroundings. We have to simulate the cars. We have to simulate the dynamics of the environments around you. Creating video game effects is computationally, mathematically, algorithmically incredibly challenging. It has proven to be one of the greatest challenges in computer science. That was a great observation for us that has helped propelled, driven our technology for some 2 decades. From what I can tell right now, it will drive our technology for a few more decades. Not only is it technologically challenging, it is one of the few technologically challenging fields that is also incredibly high volume. And as a result, bins off enormous amounts of R and D that allows us to fund our continued advancement in this field. Our work has extreme opportunities in this new area called cars. We've been driving cars for a long time. The most important element of a car for a very long time is the engine. The future cars are actually going to be computers on wheels. These computers on wheels will be very, very smart. The computers these cars will have a great deal of software and this is an area where we can add a great deal of value. As you know, the cars of today are dying to be reinvented. All kinds of interesting technologies for visual computing technologies so that the displays in your cars are more beautiful to using this technology, using our craft and our skills to help your car see around the environments that it's in, so that we can make the cars safer to drive, easier to drive, more entertaining to drive and maybe even drive a little bit by itself. Enterprise. Almost every enterprise company in the world at some level make something, large industries, whether it's a car that they make or a phone that they make or a toaster that they make, a perfume bottle or a plastic bottle, a large building, a brand new bridge, at some level those designs needs to be simulated. They need to be visualized in the computer, designed in the computer, simulated in the computer. That work is largely done with NVIDIA's technology today. It is a very large industry. This is an industry that will be here for a very long time. For as long as we can see, my guess is that we'll be making things. The simulation of pixels so that it could be used for computer graphics turned out to have been a wonderful, wonderful catalyst and a platform by which we could create parallel computers. The reason for that is actually relatively simple. What we see as pixels and colors, the computer sees as numbers. Inside the computer is just a whole bunch of numbers and in fact they're floating point numbers, very complicated numbers. Our technology, our craft is about processing those numbers so fast that you could see the world around you in real time. We have mastered the art and the skills of processing numbers in parallel for nearly 2 decades to the point where we are the masters of this field. We applied the mathematical calculations of pixels to all kinds of general purpose numbers. General purpose numbers could be molecules to simulate a virus. It could be positions and mass of astronomical features that we could discover the origins of mankind. It could be molecules and floating fluids so that we could discover whether a particular drug would be cure for cancer. All of those simulations are now done mathematically in parallel and you can never get the mathematical simulations done fast enough. We've applied our technology for a general purpose area for high performance computing and it's discovered some wonderful opportunities for us as I'll describe in a second. And then lastly, our technology could be used by computer companies and others to build their products and we license our technology for them to do that. We had a good year last year with notable achievements. We achieved record revenues of $4,600,000,000 and gross margins of 55.5 percent. Those are records for our company, despite the computer industry largely in decline. We had growth in each one of our core markets that I'll describe in just a second. One of the things that we did was we reshaped our mobile strategy and focused less on building technology for cell phones, but rethought about how we could apply this technology for other markets. 2 of the very important markets of course is gaming and car computing for us, as I've mentioned just now. We were selected by the U. S. DOE to build the next two largest supercomputers for our nation. There's a couple of very important factors implications to this. First of all, we already power our nation's fastest supercomputer at Oak Ridge National Labs, it's called the Titan Supercomputer. There's a reason for the importance of this. Our nation selects the computer architecture for these supercomputers not lightly and the reason for that is because scientists and researchers would use these computers for decades to come. As a result of that, the programming model has to be something that they believe in and that they believe will last a very long time. Secondarily, the research that's done and the simulations that are run on those supercomputers are fed in and connected with research labs all over the world. And as a result, their choice of computer architecture, their choice of the processors associated with it will have implications to national labs around the world, universities all over the country. The choice that they make, the implications are quite significant and last a very long time. After a great deal of deliberation, they came to the conclusion that the work that we did in parallel computing, our Tesla accelerated supercomputing architecture would be the architecture they would bet on for the next several decades. Programmers, researchers all over the world now recognize the importance of our work and they understand that this computer architecture that we invented for parallel programming is going to be around for a very long time. The implications are very, very significant here. Not to mention that there will be 1,000, tens of thousands of GPUs in each one of these sites And inside these GPUs will be thousands of processors. Altogether, millions and tens of millions of processors will be running together to process and to accelerate the discovery of new drugs or new materials or predictive weather, so that we can keep people out of harm's way. We also developed some pretty exciting new things last year that put us in the position for new growth. Virtual reality, as many of you probably have been hearing about, putting basically a head mounted display right up to your eyes. You're surrounded by graphics and its reaction to your motions are so fast that you believe that you're inside it. So now you're suspended in this computer graphics world, what creates otherwise known as virtual reality experiences, self driving cars and deep learning as I'll explain in just a second. Each one of our core markets had growth last year. Our gaming market grew 30 6% year over year. There's a reason for that. More and more children are growing up and there are no young people that I know who grows up today and thinks of video games as a strange thing to do. It is just a form of entertainment for them and it's a very popular form of entertainment. It has also become a social platform because it has the ability to be networked with other gamers. You can be networked together in one large world and play games together in the social world. So, it's become quite a social way for children to and people to enjoy. Gaming is growing very fast. We are the largest gaming platform in the world. Here in the United States, of course, we have the benefit of living rooms and family rooms and the game console market is quite large, but the rest of the world don't have the benefit of that. However, almost everybody has a PC. And because we are the world's largest PC gaming platform, we have become the world's largest gaming platform period. We're the largest gaming platform in China, which is the fastest growing market in the world. Outside the United States, we are unambiguously the largest gaming platform. My sense is that this is going to be continued growth market for us for quite some time. The automotive market has doubled almost nearly year to year. Inside the car, you're going to discover more and more computers and those computers are going to be visual computers, so that you could see instrumentation better, you could see the world around you better. This is a wonderful growth business for us. Enterprise relatively flat and the reason for that is our penetration in enterprise is very high already. We're in the process of reinventing the way that people work and we hope to see the growth reinvigorated. HPC and Cloud, this is basically our parallel computing business, data centers using supercomputers powered by our GPUs, cloud data centers using our GPUs to power their artificial intelligence work and I'll mention that in just a second. Our OEM business is down year over year, but the reason for that is because we're starting to move away from building cell phone technologies. We're going to focus our areas on areas where our visual computing expertise is a great differentiator and where we can make a great value. All in all, we're addressing large markets and our positions in each one of these markets are very unique. Let me talk to you about some of the new growth areas that are, if you will, kickers on top of already the growth that we're seeing. VR is going to come to market this year. We've been talking about the technology for quite a few years. As a result of the convergence of several things simultaneously, we're about to see VR come to the mainstream. Displays are cheaper than ever because of cell phones. Head tracking technology is cheaper than ever because of accelerometer technology. We can now track your head very, very precisely. And if we could couple that up with incredibly powerful graphics technology, we could refresh your computer displays inside your head mount so quickly that you feel like you're suspended within it. Unfortunately, it's not extremely easy for all of us to enjoy it together. And so you had to put on head mounts yourself. But next time that when you come back next year, I think we'll be able to put everybody in a virtual environment and maybe I'm actually somewhere else talking to you. And yet we'll feel like we're in one room at the same time. This is going to be a very important growth opportunity for us. Most people now realize based on the progress of the technology, this will likely be the future of gaming. It won't be the future of gaming in every different type of genres, but for some genres, it is going to change everything about gaming. The experience is utterly, utterly breathtaking. Another kicker for our automotive business, I already mentioned that cars are going to become more and more computer on wheels. Software is going to become a greater part of the work that we do there. But because of some advances that we're starting to see, the combination of it is going to make it possible for us to create self driving cars. It is going to be possible for us to simply pull out our cell phone, say retrieve the car and the car will automatically pull out of the parking space and come right into the front of the building and be your valet. When you get home, you'll simply step out of the car, it'll open up the garage and nicely pull itself into the garage. In the future, your garages will be completely dark in the company. All our employees will simply step out, walk into their office and the cars will meander through the parking lot, meanders through these dark underground places and park nice and close to each other so that we could pack a lot more cars next to each other. The implications to the way urban areas will be designed is actually quite interesting. Maybe in the future, we won't have as many taxis and we just have self driving cars that come and pick you up and take you from one restaurant to a store or something like that. The implications to society is going to be quite interesting. The capability of building a self driving car is still several years away, but along the way, along the way, we're going to create new capabilities that are going to delight people. For example, a self valeting car or self parking car, I think it will be a wonderful capability. Our enterprise business is robust. Our position within it is very, very clear. We're in the process of reinventing the enterprise to a technology called virtualization that I talk endlessly about. And so today, I won't talk about it. But there's one thing that I would like to share with you that I think is pretty exciting. It's called Physically Based Rendering and basically it works like this. If you take a look at most computer graphics today, we're trying to generate imagery that is beautiful, but they don't have to be accurate. A video game is beautiful, but it's not accurate. The images that we generate for a film is beautiful, but it's not accurate. Accuracy is not the important factor. The fact that it looks realistic is important. However, there's whole new areas where industrial design and how something actually looks in accuracy is vitally important to their work. So for example, if I were to be designing a phone or in this case, a designer designing a drill or designing a building or even designing a car, How it looks on screen, if it's beautiful, is not sufficient for you. You want to actually know whether it looks exactly the way it's going to be when you build it. What desktop publishing called WYSIWYG, what you see is what you get, we are about to finally bring to 3 d graphics. The technology requires a very accurate way of simulating the way that light interacts with materials and the technology requires us to actually measure the materials and its physical properties when interacting with light And then using supercomputers essentially that are inside these workstations, we can simulate how something will actually look. How something will actually look. And as a result, the number of steps of prototyping will be dramatically reduced. You can now prototype inside your computer And that object that you've created, whether it's a bottle or a phone or a car or in this case a drill, will literally look exactly the same as you would expect. Hopefully, the improvement in productivity will be quite dramatic. And then lastly, And then lastly, one of the most exciting areas of development just about anywhere in computing today, some people call it artificial intelligence, Some people call it deep learning. But basically, this is where three things have come together to enable a giant leap in computers. First of all, of course, we now have access to more data than ever. 2nd, if you could use the data to train a computer and use the data to write the program of a computer and you can teach the computer fast enough, you might be able to teach the computer to recognize patterns, which is what most people do. When we learn to read, when we learn to write, when we learn to understand somebody talking to us, we're recognizing patterns. We're not doing calculations. We're just recognizing patterns. What we were taught before, what we learned before to be right or wrong, we can apply to future circumstances to predict the future. Artificial intelligence is about predicting the future, seeing patterns. And so some of the things that you could imagine doing with a computer that somehow learned by itself how to see patterns, how to predict the future, Those two simple tasks that we do as humans when applied to a computer, the implication is quite significant. Predicting the future could be something associated with looking at a whole bunch of images and as a result deciding what the next image is likely to be. Listening to somebody listening to natural language processing words that you asked to search for a search, except you said it in words, somehow the computer figured out what you meant. Understanding languages, understanding what an image is, image recognition, those kind of applications, the implications are quite profound. Now it turns out that the training of a neural net, the training of a computer to understand these things is computationally intensive beyond you could actually imagine. It takes weeks weeks weeks weeks to train these computers how to recognize simple things. But finally, because of the technology that we've invented called the GPU, researchers can now train their data sets in much, much shorter time. And as a result, Google, Facebook, Baidu, Microsoft, all the Internet service providers, researchers all over the world, car companies who are trying to figure out how to cause a car to drive by itself are now using our platform, using our technology to create artificial networks, artificially intelligent networks to predict the future. So predicting future, let me give you one example. When we drive, we are hardly calculating. We're simply predicting what's the next thing to do based on what we see. And so recognizing all the images around us and then predicting what to do next is something that is very applicable to self driving cars. We use that same technology in both fields. These four applications are rather new. We're right in the middle of all 4 of them and I think they could be really kickers in our growth trajectory. We continue to be active in returning cash to our shareholders. We're generating a lot of cash. The company has generated a lot of cash over the years. In the last 3 years, we've returned on average about $700 plus 1,000,000 a year to the shareholders either through share repurchase or dividends. This year, we're expecting and the Board has approved the return of about $800,000,000 to the shareholders. And so we'll continue to be active in this area and use this as a way to improve shareholder value. Okay. And then lastly, I just want to thank all of you for being wonderful shareholders. The important thing is for our company that we are the world's best at what we do in this field. This field is becoming more important than ever. The application of it we take into markets that we serve that are incredibly large. I want to thank all of you for your wonderful support over the years. With that, maybe we can all open it up for questions either for myself or Colette or David Shannon in the room. I want to commend you for having a diverse Board. I noticed you have at least 2 women on the Board, which was a bit unusual in 4th on versus And as well as exactly. So first of all, thank you. How do we get more people like Don and also more people of color on the Board? I noticed I think your Board is still about 100% white except for yourself. Well, I think diversity is obviously very important, Mary. One of the things that we care very much about and this is for the employees that are in the room. We have a very intense and very dedicated focus on diversity inside our company. We architected our company so that we could bring diversity in almost all discussions and all innovations that we do. And the reasons for that is because through diversity we get better answers. And those that same sensibility I think absolutely appears on the Board. We are delighted that Persis and Don are on our Board. And as you know, it is not easy to attract world class Board members. They are being sought after by great companies far and wide. And it's really a privilege that Don and Persis are on the board. And we just have to continue to push on that boundary. And now that I think that our company also is much more attractive today to Board members who have diverse interests. When we started the company, the company was a graphics technology company, building technology for games. And that has a natural way to attract certain types of people who'd be interested in that company. But if you look at the work that we're doing today, whether it's in scientific computing, whether it's in self driving cars, the implication to large markets and large industries far and wide is quite significant. And I think that we can, as a result of that, attract much, much more diverse interests to our Board. But it's something that we have to make a concerted effort for just always continuing to push that envelope. I appreciate you bring it up. Did anybody want to persist, would you like to add something to that? Don, as board members, would you guys like to add something to that? The only thing I'd add is to reinforce what you said, which is it's not so much diversity to check boxes, it's diversity of thinking. And it's as important that the diversity be racial and gender as it is people from coming from different walks of life that look at problems differently. And it's through the combination of people with different experiences that you tend to get better, faster solutions. So I really applaud the direction that Jensen and the team are taking, thinking about diversity. Good question. Any other questions? Yes, go ahead. Why would you give somebody who is starting out in Silicon Valley and who would say looks up to you, admires you as one of the most successful founders in the Valley, what advice would you give that person today starting out? Well, I would advise them not to go into computer graphics. I would advise them to I would say, 1st of all, there are so many, clever people around the world and I see a lot of really, really clever startups. The question I think there's 2 questions embedded in your question. One of them which is advice to somebody who is starting up a company. Another is advice for somebody who started a company and continued to be the CEO for a long time. I don't think I think the first one, the answer for I could imagine lots of advice for them. I don't know that there's one singular advice, including all startup companies and all successful people in startups require a little bit of serendipity. I mean, there's there are a lot of smart people in the world and if you chip away at it, maybe you'll get more lucky. But luck matters a lot. But probably more important than that is the people that you're surrounded with matters enormously. I didn't start the company by myself. I started the company with other founders and other engineers who are the world's best at what they do. And that skill of surrounding yourself with great people is probably one of my gifts and is the gift that they've provided But with respect to being the CEO after all these years, I would say that the singular idea would be to not be complacent and just keep reinventing yourself. We ask ourselves all the time from first principles whether the approach that we took before is the right approach for the future and that the markets that we that were successful before whether it's the right markets for the future. We ask ourselves those questions literally continuously. So we're never complacent about our past success. If you look at our company, we started out as a company that built graphics technology that is sold to PC OEMs. And we discovered over the years that the opportunity for our company is much, much larger than PCs. But the problems that as you can see up on the board, it's related to PCs, it's related to PCs, but we're on PC platforms today, We're on cloud platforms today and we're on mobile platforms today. We're the only computer graphics company in history that has somehow invented its way into all the major platforms of computing. And now irrespective of whether a customer would like to work with us on a PC platform or a cloud platform or a mobile platform, we have the ability to engage them and solve their problems irrespective. The opposite way of seeing that same thing is that we can now deliver our value to the market irrespective of the platforms by which we reach you. And so these three platforms, the PC platform, the mobile platform is likely to be the primary ways of delivering computing for the next 50 years. And my guess is that, so long as the need for seeing imagery is important, so long as the processing of information into image form or understanding imagery or understanding parallel information, so long as those things are important, we're going to play a very large role. That's one of the reasons why I think the reinvention, the ability to think about things on first principles and having the courage to change how you do something that brought you success, and do things differently, which oftentimes is uncertain and risky and largely unknown to you, having a company that has the courage to do that over and over again, I think is pretty important. And it's played a huge role in us being vibrant today after 23 years. There's some shareholders in this room that was here in the 1st shareholder meeting 23 years ago. And the way we looked at the market, the way we looked at our what we did for a living, the way we looked at the technology was radically different then as it is now. And yet the core of the company, the philosophy of the company, which is to be the world's best at what we do and applying the skill into challenging problems, solving the world's toughest problems. That philosophy has never changed. But everything else we've found a way to adapt it along the way. Appreciate that question. Okay. Well, these are really easy shareholders. Yes, sir. What happened to all the nice displays that you used to have back here? Well, what happened to all the nice displays we used to have back there? That's a good question. You finally asked me a question that stopped me. The effort 1st of all, shareholders meetings as you know has become more and more virtual and more shareholders than ever don't make the effort to come to a physical place. And so they enjoy our company virtually. And over the years, we've put more and more of our work on the web so that people can enjoy it. And so we've taken so much of that effort to the point where we don't have hardly anything physical anymore. And so that's probably one of the reasons. But I appreciate the comment. I think the thing that's really cool about our company is, our work is very visual. It's very real. Unlike networking companies or software companies, oftentimes their work is not viewable. In our case, we're at the intersection between technology, art and science. And so the work that we do is simultaneously inspiring, amazing and beautiful. And so it's worthwhile to make the effort to show that to you. I was talking to everybody around me maybe next year you're going to see some amazing demos. At the very minimum next year I think because VR has to require some amount of physical head mount display still, maybe next year we'll do that. Okay. Show you something amazing next year. Okay. Well, I appreciate all of you coming today. The work that we're doing is better than ever. I can tell you without exception that we are absolutely at the top of our field and the work that we do is better than ever. Measured in so many different ways, whether it's groundbreaking new inventions, the wealth of our patent portfolio, the breakthroughs in industries after another or the growth rate of our company, I think there's very little question that we're doing some of the best work that we have ever done. I want to thank you all for coming today.