Good afternoon. My name is George, 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 speaker's remarks, there will be a question-and-answer period. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during that conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, February 11, 2015. I will now turn the call over to Ms. Colette Kress, Executive Vice President and Chief Financial Officer with NVIDIA. Ms. Kress, you may begin your conference.
Thank you. Good afternoon, everyone, and welcome to NVIDIA's conference call for the fourth quarter of fiscal 2015. With us on the call today from NVIDIA is Jensen Huang, President and Chief Executive Officer. I'd also like to introduce Arnab Chanda, who joined us last week as the Head of Investor Relations. Arnab and Raj will closely work to support the investment community. I'd like to remind you today's call is being webcast live on NVIDIA's investor relations website. It is also being recorded. You can hear a replay by telephone until February 18th, 2015. The webcast will be available for replay up until the next quarter's conference call to discuss Q1 financial results. The content of today's call is NVIDIA's property. It cannot be reproduced or transcribed without our written prior consent.
During the course of this call, we may make forward-looking statements based on our 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 most recent Form 10-Q, and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All of our statements are based as today, February 11th, 2015, based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. During this call, we will discuss non-GAAP financial measures. You may find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website.
With that, let's start. We achieved record revenue for the fourth quarter and the full year with impressive growth in each of our market specialized platforms. NVIDIA's strategy of creating an ecosystem in gaming, enterprise graphics, accelerated computing, and automotive continues to make excellent headway. Our gaming platforms grew more than 30% year-on-year and accelerated in the fourth quarter, driven by our 10th generation Maxwell processors and the vibrant gaming market. Launched in September, our GeForce GTX 980 and 970 GPUs continue to be enthusiastically received. The Maxwell architecture provides new capabilities such as real-time dynamic global illumination, which simulates the true interaction of light with the environment and is the most energy-efficient GPU architecture ever created. We added to our lineup the GTX 960, which brings Maxwell to $199, what we see as the gaming market sweet spot.
Powered by 1,024 CUDA cores, it plays even some of the most demanding titles on 60 frames per second on full HD displays, and it leaves plenty of headroom for overclockers. The GeForce GTX 960 will let gamers enjoy the latest games at quality and performance greater than even the best gaming consoles at half the price. There are now more than 50 million PCs with GeForce Experience, our application for the gaming ecosystem that optimizes the user settings for each title and enables players to record and share their victories. In the month of November alone, GeForce Experience users downloaded our drivers over 30 million times. GeForce Experience brings the simplicity and the community benefits of a console to the PC.
NVIDIA powered the holiday season's two best-reviewed Android tablets, the Google Nexus 9 and our own SHIELD tablet, which are based on our Tegra K1 processor. More than a dozen media outlets recommended SHIELD in their holiday gift-giving guides. Over the course of the quarter, SHIELD, which has pioneered a premium gaming experience for tablets, became one of the very first devices to be upgraded to the Google's latest OS, Android 5.0 Lollipop. The NVIDIA GRID graphics virtualization platform continues to gain momentum. More than 300 companies worldwide tested the product in recent months and experienced the benefits of GPU-accelerated virtualization. They range from large institutions such as the University of Southern California, leading manufacturers such as Airbus and Lockheed Martin, and defense providers like Raytheon. Enterprise virtualization leaders continue to deploy GRID.
Just last week, VMware rolled out the latest version of its vSphere virtualization software, including full support for our GRID vGPU graphics virtualization technology. Quadro professional graphics continue to maintain market leadership. Refreshed in Q3, the lineup is now being shipped in all major OEMs. For the sixth year in a row, every film nominated for an Academy Award for special effects was made using Quadro. Our accelerated computing platform performed very strongly. Tesla's revenue growth from a year ago exceeded 50% as HPC customers and cloud service providers continue to deploy large GPU-powered systems. These provide deep learning capabilities that help enable our amazing capabilities like voice recognition and natural language processing. Using Tesla, our customers have seen dramatic benefits in application performance, radically reducing runtimes. During the quarter, we introduced the Tesla K80 dual GPU, our new flagship Tesla offering.
It provides nearly twice the performance and 2x the memory bandwidth of its predecessor, the Tesla K40. A single server with Tesla K80 delivers the same performance as eight servers with our old Fermi generation GPU accelerators for a range of applications. A powerful endorsement of Tesla came just ahead of the recent Supercomputing 2014 show. The U.S. Department of Energy announced that its next generation of supercomputers will utilize Tesla GPU accelerators in conjunction with our powerful new NVIDIA NVLink high-speed interconnect technology. These systems will be deployed at Oak Ridge and Lawrence Livermore National Laboratories, will be at least 3 x faster than today's most powerful systems. These supercomputers will serve scientists across our nation in every field of science to accelerate their research for the next 20 years.
Finally, NVIDIA's automotive platforms remain on a sharp upward trajectory, registering better than 80% growth on the year. More than 7.5 million cars with our technology are now on the road, up from 4.7 million a year ago. At CES, we announced NVIDIA DRIVE, a computing platform for next-generation advanced driver assistance systems and digital cockpits. NVIDIA DRIVE makes driving safer and more enjoyable by introducing surround vision and auto valet capabilities. Its cockpit computing platform includes 3D navigation systems, natural speech, and image processing capabilities, dramatically transforming the automotive user interface. NVIDIA DRIVE is the first car computing platform utilizing advances in deep learning. DRIVE will leverage our dramatic advances in deep learning for voice, language, and image recognition to enable surrounding and situational awareness in cars. We believe deep learning is the key enabling technology to continue advancements in autonomous driving capabilities.
At the heart of NVIDIA DRIVE is the recent announcement of Tegra X1, a 256-core super chip with over 1 teraflops of floating point processing power. Built on the same Maxwell architecture rolled out only months earlier for high-level gaming, Tegra X1 provides the computational horsepower, computer vision, and graphic capabilities for cars that can see and learn. Let's take a more detailed look at the financials. Fourth quarter revenue increased 9% year-over-year to a record $1.25 billion. Growth was driven by strength in gaming, data center, cloud, and auto. Fourth quarter revenue was up 2% sequentially. The GPU business grew 8%, helped by Maxwell GPUs and the seasonal increase in consumer PCs.
Overall, Tegra processor sales decreased 33% as growth in our automotive and SHIELD devices was more than offset by lower revenue from smartphone and tablets. Fiscal 2015 revenue grew 13% to a record $4.68 billion. In our GPU business, revenue grew 13% in Q4 from a year earlier. Revenue from our PC gaming platforms rose 38% due to the popularity of our high-end Maxwell-based GTX GPUs. Tesla GPUs for accelerated computing increased strongly, driven by large project wins with cloud service providers. Tegra processors declined 15% in Q4 from a year ago as smartphone and tablet designs reached the end of their product life cycle. This was partially offset by the increased revenue from auto infotainment systems, which more than doubled, and from SHIELD devices. Moving to gross margins.
GAAP gross margin was 55.9%, above our outlook for the quarter and up 70 basis points from last quarter. Non-GAAP gross margin was 56.2%, also above our outlook and was up 70 basis points sequentially. Strength in margins from gaming and accelerated computing was partially offset by those from Tegra processors and certain inventory provisions for prior Tegra architectures. For fiscal 2015, GAAP gross margin was 55.5%, and non-GAAP gross margin was 55.8%. These full-year record levels were led by the strength of our high-end GPUs for gaming and accelerated computing. GAAP operating expenses for the fourth quarter were $468 million.
Non-GAAP operating expenses were $420 million, in line with our outlook and inclusive of legal fees associated with our litigation against Samsung and Qualcomm. For fiscal 2015, GAAP operating expenses were $1.84 billion, and non-GAAP operating expenses were $1.66 billion. The low single-digit growth from the previous year represents discipline from our continued management of our investments in both R&D and capital expenditures to enhance return on invested capital. The U.S. Federal R&D tax credit was reinstated for calendar 2014. For the full year, the GAAP effective tax rate was 16.5%. Non-GAAP was 16.9%, incorporating the U.S. Federal R&D tax credit. For the fourth quarter, GAAP net income was $193 million, up 31%, driven by increased operating profit from strong revenue and margins.
GAAP earnings per diluted share of $0.35 increased 40% from a year-ago quarter, reflecting net income growth and share repurchases. For the full year, GAAP net income was $631 million, up 43%, and GAAP earnings per diluted share were up 51% from a year earlier. Turning to some key balance sheet items. During the full fiscal year 2015, we paid $186 million in cash dividends and repurchased 44.4 million shares for $814 million. As a result, we returned to shareholders $1 billion during fiscal 2015. Since restarting our capital return program in the fourth quarter of fiscal 2013, we have returned approximately $2.22 billion to shareholders.
This represents 111% of our cumulative free cash flow for fiscal year 2013-2015, reflecting the acceleration of our capital return program from cash generated in prior years. In November 2014, we announced our ongoing commitment to deliver shareholder value through capital return with the intention to return approximately $600 million to shareholders through ongoing quarterly cash dividends and share repurchases in fiscal 2016. Accounts receivable at the end of the quarter were $474 million, down from $563 million in the prior quarter. Inventory at the end of the quarter was $483 million, up from $408 million in the prior quarter. The sequential increase included the ramping of our new Maxwell-based GPUs and Tegra-based SoCs and SHIELD devices.
Cash flow from operating activities was $443 million, up from the $216 million in the prior quarter, reflecting higher net income and the annual payment from Intel. Free cash flow was $412 million in the fourth quarter. Depreciation and amortization expense amounted to $54 million. Capital expenditures were $31 million. Turning to the outlook for the first quarter of fiscal 2016. We expect revenue for the first quarter of 2016 to be $1.16 billion, ±2%. Growth year-over-year is expected from our key platforms, gaming, data center and cloud, and automotive. Our GAAP and non-GAAP gross margins are expected to be 56.2% and 56.5% respectively, ±50 basis points.
The gross margin outlook is slightly higher than our Q4 performance, driven by our gaming and accelerated computing platforms. GAAP operating expenses are expected to be approximately $478 million, with non-GAAP operating expenses of approximately $425 million, inclusive of legal fees associated with our litigation against Samsung and Qualcomm. Excluding these legal fees, we expect to maintain our operating expense levels near Q4 levels. GAAP and non-GAAP tax rates for the first quarter of fiscal 2016 are expected to be 20% ±1%, excluding the benefit of the U.S. Federal R&D tax credit, which expired December of 2014. In summary, we are pleased with our record revenue for the quarter and the full year, which reflects strength across our platforms and businesses.
Profitability, as measured by earnings per diluted share, increased 51% in fiscal 2015 as our revenue and gross margin growth continue to outpace our investment. This concludes our remarks, and we will now turn it back to the operator for questions. Please be sure to limit your questions to one with one follow-up. Operator?
Certainly. Ladies and gentlemen, if you would like to register a question, press the one followed by the four on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, press one, three . Once again, for a question, it's one, four . Our first question comes from the line of Ross Seymore. He's with Deutsche Bank.
On the strong results and guidance. I guess the first question, Jensen, one for you on the Tegra side of the business. I know that can be inherently lumpy in how it operates, but can you talk about what you envision the biggest drivers in fiscal 2016 will be to get that business on a growth trajectory versus the year-over-year drop that it's currently running at?
Yeah, Ross, first of all, thanks. Our strategy for Tegra is to focus on automotive, gaming, and wherever opportunities arise in OEMs, we surely will entertain it. Our fundamental focus is automotive and gaming. You already heard Colette say that our automotive business nearly doubled year-over-year. Our gaming business is really strong, and we have some exciting things that we'd love to share with you at in the near future. Those are our two focuses for Tegra. If you look at the opportunities that we're pursuing in the area of automotive, obviously more and more cars are becoming computerized cars. At CES, we announced a brand-new platform called DRIVE.
DRIVE is basically a mobile super chip, a mobile supercomputer with a ton of software on top, and it provides for three basic functionalities. The first is a very advanced digital cockpit. You know that we're incredibly good at computer graphics, and the things that we can do in the car with more and more displays showing up in the car is pretty wonderful. The second is a technology called Surround-Vision. Beyond Surround-View, which is basically cameras connected around the car, Surround-Vision not only allows you to see the images from the videos around the car, but also create a virtual environment around it, and using computer vision technology, keep your car alert of the surroundings.
The third is using a technology called deep learning that has been revolutionized recently, and it's something that we're very much at the center of. Using deep learning, we can do voice processing, natural language processing, and understanding of imagery so that the car can be more situational and environmentally aware. All of those technologies I described, we believe will help pave the path to the self-driving car. In the area of mobile gaming, the gaming market, as you know, is huge, and it's growing quite rapidly internationally. It's about a $70 billion business now.
We know that mobile cloud is probably one of the most important disruptions in the history of computing, and yet there's really no computer gaming architecture that serves mobile cloud very well, and that's what SHIELD is all about, to create the platform that allows mobile cloud to bring gaming to a lot more people. We think that by doing so, we'll be able to engage a much, much larger part of the overall gaming market than just PC gaming. Okay? Our Tegra business model is about focusing on automotive and gaming.
Great. Thank you. I guess as my follow-up, a bigger picture question for the GPU side of the equation. You talked about the GeForce business being up 38% year-over-year, and GPUs as an entirety were up 13. Is there any color you can provide just into the size of the buckets within your GPU segment so we can get a little more granular in how we model those very disparate growth rates, whether it's the four segments you break out in your segment definition in the CFO commentary or any other color you give that would be helpful? Thank you.
We serve four markets: Gaming, Automotive, Enterprise Graphics, and High-Performance Computing and Cloud Computing. Those are the four major markets that we serve. GPUs serve Gaming, Enterprise Graphics, and Cloud. Gaming, as we've said earlier, has grown, as you mentioned, 38% year-over-year. Our Enterprise Graphics business, the workstation business, is relatively flattish. However, our enterprise virtualization, virtualized graphics platform called GRID, about doubled year-over-year. Our Tesla business, which is our accelerated computing business, about doubled year-over-year. The PC OEM business declined. The PC OEM business represents, I would say low teens, maybe approximately part of our overall business. We've been talking about its decline for some time now, and this year, again, it declined.
Obviously, the PC OEM business, representing umpteenth percent of our overall GPU business represents a substantially lower part of its profits because the gross margins at OEMs tends to be much lower. Nonetheless, it declined year-over-year. Okay. If they're looking at those segments then, gaming grew, enterprise grew, cloud computing and high-performance computing grew. OEM business, PC OEM business declined from a low umpteenth percent level. Okay?
Great. Thank you very much.
Yep. You're welcome.
Our next question comes from the line of Vivek Arya with Bank of America Merrill Lynch. Please go ahead.
Hi. This is Shankar on behalf of Vivek. Just a follow-up on that GPU breakdown. Could you give a color on what's the, based on the guidance you're giving for Q1, how do those individual segments kind of play out?
Sure. We guided seasonally down, and of course, as usual, we'll see how it turns out. If you look at the position of each one of our platforms, our position in gaming is very strong. The gaming market globally is quite robust. We're still seeing gaming growth all around the world, and the production value of games is increasing all the time. Whenever the production value of a game increases, it requires more GPU performance. For the very first time in history, a game console has come out that uses essentially a PC architecture, and its performance is substantially higher than the average PC performance. As a result, we see a lot of adoption to our higher-end GPUs, and that's good. We also expect that the Tesla platform continues to be quite robust.
We know now that GPUs are wonderful processors for massively parallel applications like deep learning. Deep learning could be used for voice recognition, natural language processing, image recognition, video tagging, all kinds of interesting applications that are made possible because of cloud computing, and because there are so many sensors and images and voice being uploaded into the cloud. That's one of the drivers for Tesla, and Tesla business has doubled year-over-year from a fairly large base now. My expectation is that this coming year, Tesla will remain on that trajectory, and I hope that Tesla will grow very nicely this coming year. GRID, another part of our GPU business, is all about enterprise virtualization. Because of GRID, companies are able to now virtualize beyond the data center all the way to the end user computing device.
For the very first time, it is now possible to virtualize graphics-intensive applications and make it possible for people to enjoy their applications wherever they are. Now you can be virtualized, it can be more secure, you can be more mobile, enjoy graphics on any device. That platform is growing nicely. A year ago, we had about 400 trials. Today, we have well over 1,000. Recently, the most, the largest enterprise virtualization company in the world, VMware, has integrated GRID into vSphere, and it has gone to production. We're seeing quite a bit of momentum from that from that production release. These platforms are all growing nicely, and I expect it this year to help drive our growth.
Great. I just have a follow-up on the autos business. I know you talked about the different products and features that you have been working on, and those seem to be kind of the, you know, maybe a high-end side of auto. Can you talk about, you know, the products that you have for the mid and low end? Looks like that might be the area where the scale is. Also talk about how you are, you know, you plan to increase the gross margin for autos business, because it looks like it's in the low -30s, if I just back out all the numbers, based on your reported numbers.
Well, the answer to the second question I know better than the answer to the first, so I'll just answer that one first. The way to increase our gross margins is to continue to innovate and increase the amount of value added that we bring. If you recall, a long time ago, meaning about 10 years ago, NVIDIA's gross margins was about 30 some odd percent. Over time, we made the platform more and more software rich. Today, our gross margins are surely much, much higher than 35%. My expectation is to do the same on the NVIDIA DRIVE platform. It's intensely software rich.
I think somebody said that today a car is about 10% software, but soon the car will be about 80% software, and I think that's right. I think that's right. I mean, in the future with electric cars, you have obviously still a very sophisticated drivetrain and such, but the car is gonna be largely a computer with software. That's where we can add an enormous amount of value, and that's what DRIVE is all about, adding value through a very powerful processor, of course. Most of the capabilities I described from the digital cockpit to surround vision to deep learning is all about software. It's all the software that runs on top of TX1. That's number one.
Your question about high-end versus mid-range, I believe that more and more of the car's value will be delivered through software. If you have to deliver it through software, then the processor underneath it is obviously more and more important. My expectation is that great computing platforms will extend well into mid-range and into the low-end part of the marketplace. That's a belief, and just as I believed a long time ago that the car is gonna be one of our most sophisticated computers, which is, which is obviously, at this point, coming true. My sense is that it's gonna continue to go down that path, and we're gonna see a lot more computation capability inside a car, to the point where I actually believe that every car will have a good processor.
The high-end cars will have many good processors.
Okay. Thank you.
You're welcome.
Our next question comes from the line of Matt Ramsay. He's with Canaccord Genuity. Please go ahead.
Yes, thank you for taking my question. I think the first one, Jensen, you made some interesting comments earlier about the need for a, I guess, a fully virtualized mobile gaming experience, I assume you're meaning across desktop, tablet, smartphone, cloud, et cetera. One of the things that strikes me is obviously there's the suit going on between yourselves and Qualcomm, Samsung, et cetera. Your market share within the mobile graphics business when you think about smartphones is fairly small from a hardware perspective. Do you see that changing dramatically going forward? If not, do you see the gaming mobile device market bifurcating from, like, the traditional smartphone market going forward?
Matt, thanks a lot for that question. First of all, mobile is much more than phones. Mobile is a fundamentally new way of designing computers. I believe that mobile will impact almost every segment of computing as we know it. It'll impact refrigerators. That's not a phone. It'll impact drones. That's not a phone. It'll impact earrings. That's not a phone. It'll impact watches. That's not a phone. It'll impact game consoles. That is not a phone. It'll impact cars, and that's not a phone. I think mobile is going to be important in all kinds of computing devices. When I say mobile, that's what I mean. I don't mean mobile as in the mobile phone. Mobile technology is really important. I also believe that mobile cloud in combination is one of the most powerful computing forces that the computer industry has ever known.
Because of mobile cloud, we've been able to extend the capabilities and the benefits of computing to billions of people, whereas in the PC era, we were able to benefit hundreds of millions of people. Yet, no one has yet created a game platform around mobile cloud, the technology of mobile cloud, the power of mobile cloud, the architecture of mobile cloud, so that we can extend gaming not to tens of millions of game console users, but billions of users. I think that that's the great opportunity. I don't have anything to announce today, but that's what, you know, that's what we're trying to endeavor. I appreciate you asking that question. I think it's gonna be a really big opportunity for us.
No, thank you for that perspective. As a follow-up, this one's for Colette. Obviously, you guys have done a great job in returning cash to shareholders and announced a new plan for the next fiscal year. Maybe as the last fiscal year ends, maybe you could update us on your onshore and offshore cash balances, if you could, and any perspectives on the difference in cash flow onshore and offshore. Thanks.
Thanks, Matt, for the question. Again, we are looking at a cash balance lower than where we ended at fiscal year 2014 due to our $1 billion return through shareholders, also the increase in cash flow. Nothing has materially changed in terms of our cash flow from international and our cash flow in the U.S. Again, the majority of our cash flow tends to arrive from international overall operations. We have about the same mix of overall U.S. cash versus international cash, a little lower than where we ended at the end of fiscal year 2014. We feel very confident with our overall capital return program for fiscal year 2016 and the overall cash flow prospects. I think we're well aligned there.
All right. Thank you very much.
Thank you.
Our next question comes from the line of David Wong. He's with Wells Fargo. Please go ahead.
Thanks so much. Can you give us some idea what percentage of Tegra is now automotive? Just a clarification, when you say that automotive infotainment more than doubled year-over-year, do you mean all automotive? Is there some other segment than infotainment or... Yeah.
Most of our automotive today is infotainment. More and more people are starting to do what Audi has done with their really amazing virtual cockpit, where infotainment and digital clusters merged into one. Digital clusters is much harder than infotainment. With Tegra, with our automotive platform, we're able to easily merge the two. You'll see some more examples of that in the future, but initially, it's largely infotainment, some amount of digital clusters, if that's your question. Between automotive and SHIELD, our gaming platform, that represents the vast majority of Tegra now.
Okay, great. You also mentioned Tesla more than doubled from an already substantial base. Can you give us some idea of the size of Tesla today?
I'm sorry. Tesla?
Tesla.
Tesla, yes.
Tesla. Tesla is several hundred million dollars, multiple hundred million dollars now.
On a quarterly basis?
On an annual basis.
Right. Okay, great. Thank you.
It grew nearly double year-over-year.
Great.
Our next question comes from the line of Christopher Rolland. He's with FBR Capital Markets. Please go ahead.
Hey guys, thanks for the question. Can you guys talk a little bit about your eventual move to 20 nanometers? Seems like you guys are staying on 28 for perhaps a bit longer than you have prior nodes. If you are staying here for longer, is it as safe to assume that you can get some gross margin uplift year-over-year?
Well, let's see. We're always moving to the next node. Tegra X1, the mobile super chip that we announced at CES is 20 nanometer. So we're always moving forward. But, you know, the equation is much more complicated than that. The reason for that is because we have the ability because of the fact that we architect and innovate from architecture all the way to software. We have the ability to improve our performance and efficiency and features on all of those dimensions. We can improve at the architectural level using the same process. We can innovate at the design level using the same process and same architecture. We can innovate at the process level. We can innovate at the software level. We can innovate at the algorithm level.
Because we control all of that, we have the ability to move the needle forward, you know, in multiple dimensions. If you look at Maxwell is an unbelievable energy efficient processor. Because of the energy efficiency of Maxwell, not only did we make all of GeForce higher performance, lower power, quieter, we were also able to take that GPU just a few months later and put it into a Tegra X1, and the performance is really quite shocking. We could innovate on multiple levels as a company, that's one of the benefits. Overall, we're moving forward all the time in process technology.
Okay, great. Then also at CES, loved the automated driving stuff, but I was a little confused on the way that you're positioning yourself in that market, particularly sort of you against or either with Mobileye. I mean, I talked to one person, they say you're going head to head. I talked to another person, they say you're partnering. I talked to another person at the booth who said that you guys are really enabling third parties to go after Mobileye. How do we think about yourself positioning yourself in that market? Are you really going after them there?
Oh, wow, I appreciate that question. I think it's a great question, and the answer is actually really simple. I mean, we're in two different things. We make two different things, and so we're very complementary. Mobileye, think of it as a computer vision signal processor, ISP, if you will. It's connected to the camera. They do wonderful work in computer vision in that area. The DRIVE platform is a computing platform. Just as a phone has a ISP as well as the application processor, in this case, we're the application processor, if you will. This application processor has been designed to be incredible in the three areas that I talked about. Digital cockpit, surround vision, and deep learning-based computer vision.
Many of the customers, in fact, most of the customers that I know, where there's ADAS work being done, we're both involved, and we're connected to many Mobileye devices, and we're delighted by that. Even if you're able to detect images and objects, you still need to do something to process that information. We could do it. We could reconstruct the surround environment. We still have to drive the infotainment in the digital cluster. Of course, we could apply higher level deep learning algorithms to figure out what to do with the objects that you detect. I see ourselves very, very complementary.
Of course, because we're a general purpose processor it's 1 teraflops of computing, we can do a lot of things for computer vision. That's probably where people are questioning the overlap. From where I see it, we're very complementary.
Great. Thanks, Jen.
Our next question comes from the line of Blayne Curtis. He's with Barclays. Please go ahead.
Yeah, thanks for taking my question. Jensen, I just want to follow up on in terms of the auto opportunity, just your dollar, how you see your dollar content progressing. You're talking about selling modules, multiple processors, and then more importantly, monetizing the software. If you could talk about some of the timing here. I think the auto OEMs have become a little quicker. You know, where are you today in terms of the generation of products you're selling, you know, Tegra 3 or K1, and when could you see some of these more advanced systems actually hitting revenue?
Yeah, I really appreciate the question. You're exactly right. The dynamics are that more and more of the value of a car is gonna have to go into its computing, the hearts and soul of its computing platform. Our expectations about a computer car and the software capabilities we can bring to bear over mechanical, electronic, type of widgety things is going to grow substantially. Second, the fact of the matter is you can't spend five years designing a car anymore. Consumer electronics moves way too fast. People's expectations are set by what they have in their phones. You've gotta move faster, and the most progressive car companies are moving at the speed of light now.
They've taken their design cycle from five to three , and I think I'm seeing them moving down to two, potentially one. This is going to be a brand-new automotive industry. The third thing that you mentioned is the content. Well, if you think about cars as a chip opportunity, and it's an application or application processor opportunity like an infotainment, like a smartphone, then of course it's in tens of dollars. I actually see the car as a multi-thousand dollar computer opportunity. Some are one computer, some are many computers. We're a computer company. We're a visual computing company. We are software rich. All of the applications that I've mentioned, the capabilities I mentioned are all software. We provide the entire BSP.
We're one of the few companies in the automotive industry that can provide literally end-to-end solutions, and that's what DRIVE is about. DRIVE is a computer platform, software and all, and we provide capabilities across the board. Okay. I see the car long term as quite a large opportunity for us, not a chip opportunity because we're not a chip company anymore.
Thanks. Just for Colette quickly on gross margin, I think you mentioned gaming as the tailwind for gross margin. Is that more a function of just Maxwell and pricing, or are you actually seeing gaming not down as much seasonally? As you look out the rest of the year, how should we think of that tailwind?
Yeah, thanks for the question. Our gross margin guidance is just for Q1. We do see seasonal effects as we usually go from Q4 to Q1. We believe gaming is still a driver just due to the mix of the type that we're selling into the market. We've also talked about accelerated computing and cloud also as a driver of our guidance in Q1.
Okay. Thank you.
Thank you.
Our next question comes from the line of Harlan Sur with JPMorgan. Please go ahead.
Hi, good afternoon, and great job on the quarterly execution. Maxwell is driving a solid SAM expansion into the notebook market. I think you guys started to see that in Q3 with that segment up 2x year-over-year. Customer gaming notebook platforms were pretty visible during the holiday season. I apologize if I missed this, but how much did the notebook gaming business grow for you guys in Q4? Maybe, Jensen, if you can just help us quantify where the attach rates could go and how much this expands your GPU gaming opportunity.
Yeah, I really appreciate the question. Maxwell made it possible. First of all, the background. Maxwell made it possible for the very first time, the ability to put a high-end GPU in a laptop and deliver a desktop quality experience. You can now get a laptop with a GeForce in it and have and run AAA titles at 1080p and at quality levels and frame rates higher than the state-of-the-art game consoles. That's pretty amazing. You can now just have a nice and thin laptop, and it's better than a game console. It's better than a game console. People are quite excited about that. Maxwell made that possible. We see the business growing well over 100% per year at the moment simply because it's off of a small base. This has been an underserved part of the market for some time.
We've really welcomed just about every company in the world, laptop company in the world into this opportunity, from ASUS to MSI to GIGABYTE. Recently, even HP came into this. I say even because, of course, HP is largely focused on enterprises and yet this opportunity is so significant that their notebook business decided to jump into the GeForce platform. Of course, Dell, of course Alienware, of course Razer, we're just seeing a lot of support from every notebook maker in the world because this is an unserved, underserved market, if you will. With the Maxwell energy efficiency, for the first time, we're able to deliver an experience that, quite frankly, is pretty amazing. What do I see the attach?
I guess I don't think about attach anymore. The reason for that is because PC OEM business is not really our focus, in the sense that it's already umpteenth, a low umpteenth part of our business. The way we think about that business is that's really a gaming business. How big can it be really is a function of how many gamers are there in the world. I think the numbers are actually quite substantial, are really quite substantial. I see this as a growth opportunity for some time.
Thanks for that, Jensen. Colette, nice job on your part and on the team's part on the OpEx discipline in Q4 and here in Q1. How should we think about the OpEx trajectory for the remainder of the year?
Yeah. We really just are here to focus on our Q1 guidance and what we can see at this time. When we get further into the year, we'll talk about the full year. Again, we do just want to balance our Q1 with the investments that we need to make with again, looking at the efficiencies across the org and what we can do.
I think that's a consistent theme. You've seen us play that out in fiscal year 2015, and our guidance for Q1 is about that same.
Great. Thank you.
Our next question comes from the line of Sanjay Chaurasia with Nomura. Please go ahead.
Hey, Jensen. One question on your GRID GPUs. You know, my impression was that you were very excited about the upcoming VMware release, it has GA'd obviously. I was just wondering does it give you better visibility in terms of upcoming deployments, do you see that all the challenges that remain for the customers that were trialing GRID, they're ready to deploy that or you see there are some missing pieces still? I just wanted to get some color on that. Thanks.
Well, with VMware's integration, we're now able to engage probably some 80% of the world's enterprises. You know, just about anybody who has virtualized their enterprise has done so with VMware's technology. I think that this is a really big deal, and if you look at our trials, we went from about 400 last year this time to well over 1,000 this year at this time. Our revenues doubled. My sense is that there's no reason for that pace to slow. You know, we'll see how it turns out, but I would think that my intuition would be kinda like yours, that if anything, it ought to accelerate.
There's really You know, the most important thing about enterprise virtualization all the way to the client is to have deep integration with VMware, and we've done that, and they've done a great job. They've been a great partner.
As a follow-up, Jensen, you guys indicated some large project wins with cloud service provider on Tesla side. Could you give us some color on what exactly is the use case? You did talk about deep learning and image processing. Just wanted to understand a little bit, if you could give us more color. Where exactly are you on that ramp? Is that kind of a lumpy deployment that you saw or is that something very early in the ramp and we could continue to see that grow?
A lot of these projects are quite confidential, but I'll highlight two that have been public. Baidu announced that they built a supercomputer based on Tesla for deep learning, and it's used for natural language processing, translations in real time from language to language, image recognition. Another one that was public, I just saw yesterday, this is actually quite a monumental event. The event is, for the very first time in history, a computer is able to understand images better than humans. This is a milestone event in the development of neural nets, the development of computer vision, and it was announced by Microsoft yesterday.
The best human has the ability to detect and make errors on about 5.1% of the time or recognize 95% of the images that they're presented. For the very first time in history, a computer is now able to recognize over 95%, better than a human. That, I think, is really quite a record. We will remember this day for a long time and look back on it. They also said that their deep neural nets were trained using NVIDIA GPUs. You could see that these are a couple of the examples, and they were public about it. In the coming event, there's a GTC coming up. It's on March 15th?
17th.
17th. I'm sorry. March 17th, our annual GPU Technology Conference. This year, we're going to highlight deep learning and computer vision. I really encourage people who love computer technology to come and see some of the largest computer companies and most influential computer designers in the world talk about using GPUs in these areas. It's just a huge event, and this is going to be the largest GTC we've ever held. It's right here in San Jose, and this could be the mecca for deep learning.
Our next question comes from Rajvindra Gill with Needham. Please go ahead.
Yes, thanks, congrats on great results as well. Could you just talk a little bit about your transition to a platform company? You definitely over the last few years have transformed from a component supplier to more of a platform-based business where you're getting higher margins. I'm just wondering, kinda where we are in that development cycle and how do you look at the overall business model over the next three to five years for the company?
I really appreciate the question. First of all, you know, if you look at our company 10 years ago, 10 years ago we were 100% PC OEMs largely. Maybe it wasn't 100%, but it was close. Now we're only umpteenth percent , substantially less than 20%. The company has been transitioning to this new model with our own platforms, largely software. They serve four vertical markets. These four vertical markets have a characteristic that really benefits from great visual computing technology. Those four vertical markets, as I've mentioned, is gaming, it's automotive, it's enterprise graphics, and it's high-performance computing, cloud computing.
Our PC OEM business is continue to decline because, you know, PCs have largely become good enough, and it's fragmented. You know, most people use their PCs for information access, for working, and some people use it for gaming. For those gaming markets, we serve those. For most of the generic and mainstream PCs, we've largely been out of those for some time. If you look at our business, it's now really focused on serving these four markets with our market specialty platforms. I really appreciate that. The gross margins are obviously higher because it's very software-rich.
If you extracted out the PC OEM business and just looked at those four segments, our gaming business, I think somebody mentioned, was growing at over 30%. Our automotive business has doubled. Our Tesla cloud computing business has doubled. In enterprise computing, our GRID business has doubled year-over-year. Those value-added, highly differentiated platforms are really growing nicely, and it's more than making up for the decline of our PC OEM business, which, as a result, our margins also increase. Now you're starting to see the dynamics of the business, and it basically works like that.
Very good. And last question from me, with respect to GRID. I was wondering if you could maybe update us on the design engagements with GRID in 2014 relative to, say, 2013. As you continue on this trajectory, can you talk a little bit about how the enterprises are beginning to realize, you know, the leverage that a cloud-based visual computing architecture enables? Because the install base is very large, as you, as you mentioned, do you think this year will be the inflection point, or we're already past the inflection point, and you think, you know, we're gonna start to see more acceleration of the this cloud-based visual system?
Yeah. Well, there's Let me break that question down into a couple pieces. One, the number of OEM platforms that we were designed into was about 50 last year, and it's almost 100 this year. About 50 this time last year, about 100 this time, at this time. The number of trials we have last year was about 400. The number of trials we have here is about 1,000 plus.
The difference, and I think the difference going forward for this coming year, when we stand here and look at this coming year backwards, I believe that what we're gonna see is because of our now completed integration with both VMware and Citrix, and the fact that every single enterprise OEM has now adopted GRID, and that GRID is making its way through just about every enterprise, every company in the world as they get to be familiarized with them, I believe that this year could be a very important year for GRID . The second question that you asked is what are some of the things that people found are benefits of GRID ? I would say that there are several. The very first one is, of course, mobility.
Mobility as in the sense that you can now access your PC applications from anywhere you happen to be on any device you happen to be on. Whatever device you have, all you have to do is have a browser or an application, a receiver, if you will, receiver application from VMware or Citrix, and you remote back into your PC. Every graphics application is perfectly compatible, the performance is wonderful, and it's where you left off. Okay, one is mobility. Second, for the benefit of the IT department, is security. No more digital downloads. The computer has now moved to the data center. The computer has moved to the data center where the data is, so that you don't have to move the data to the client.
I think that that's going to be a utter transformational event for security. The third is collaboration. More and more of us are working on the same data set, and the data has become quite large, the ability to move the computer, if you will, to the data prevents all of us from having to download large data to our own client and become out of sync. Now we can collaborate on the same data set because our computers are all right there in the data center. There are many other benefits, but these are the three. I mean, I've also heard great stories.
In Japan, one particular car company wanted to move all the workstations into the data center because it's dangerous to have so many heavy things in such tight environments. During earthquakes, it's harder for them to manage all those different computers. They just have a mandate, push it all out into the data center. Another one, because of flexible workforces, this is now in Europe, large car companies do a lot of outsourcing. Because they work with different tier 1s from a lot of different industries, it's hard for them to collaborate with them without having all their engineers of the tier 1s, of the subcontractors move on-site.
Now with GRID, they could actually have the computer be remotely accessed off-site in a secure way without digital download of the data. And the engineers, their subcontractors could literally be everywhere. There are all kinds of anecdotal stuff. IT departments of colleges. College is a perfect example, another example. They have large number of computers, but the computer per sq m is very, very low because, you know, as you know, that colleges are very large in campus. And then also, the people come and go. They only stay for a couple, two, three years by definition. In that particular case, putting all of the workstations in the data center has tremendous benefits to the IT department. I hope that answers your question.
No, it did. Thank you. Exciting stuff. Thanks.
Our next question comes from the line of Stephen Chin with UBS. Please go ahead.
Hi. Yeah, thanks for taking my questions. Jensen, if I could first ask about the gaming business in terms of PCs. In fiscal Q4, can you talk a little bit more about geographically how demand was across the developed markets as well as the emerging markets?
Yes, Stephen. Our largest market is China. As you know, well, as you probably are or could guess, GeForce is the largest game platform in China. The reason for that is because it's a market that historically hasn't had access to game consoles. It's still extremely important, even though extremely expensive consoles are. Of course, most of the titles are from the West, and most of the titles that people enjoy in China tends to be multiplayer. It tends to be role-playing games. It tends to be Internet-based games. China still remains our largest market. The fastest-growing market is probably Southeast Asia.
These developing countries, developing markets, excuse me, developing markets, when they get to a certain point in their computer history and internet history, all of a sudden, the gaming market booms. In that area, Southeast Asia, we know now the economies have become sufficiently vibrant because of the outpouring of opportunities from China. Those local regional economies have now become quite large and quite vibrant, and we're seeing the same thing now, as we saw five years ago in China. We're seeing the same developments in Southeast Asia. I would say that Southeast Asia is still up. It's probably the fourth largest region, but it's the fastest-growing region by far. Of course, the U.S. and Europe are both quite vibrant.
Our next question comes from the line of Alex Gauna with JMP Securities. Please go ahead.
Hey, thanks very much. Congratulations on the great quarter and year. I was wondering, Jensen, if you could update us on what's going on on the licensing front, perhaps comment on if it's getting to the point where it might provide a tailwind to gross margins this year, or if not this year, when? Thanks.
Well, our licensing discussions are ongoing and quite rigorous. The thing that is of course very important to know is that we are unquestionably the world leader in visual computing, and we have created so much of modern computer graphics, it's almost hard to even make a list of it anymore. Fundamentally, from the invention of the GPU to modern general purpose computing GPUs like CUDA and others, the type of work that we're doing is obviously pioneering, and it's very important to many markets. We're open to licensing technology to companies who would like to exercise their own design and build their differentiated products, but protecting our IP is extremely important to our company. We're in discussions.
Of course, the most public discussion is the one with Samsung and Qualcomm, and we're looking forward to some of the developments that will be happening in just a few more months. I look forward to reporting on the developments in that area in the next several quarters.
Okay. Operator, we're gonna take one more question.
Okay. Our last question comes from the line of Ian Ing with MKM Partners. Please go ahead.
Yes, thanks. Could you talk about your foundry strategy a little bit? I mean, TSMC, you know, good supplier, but not considered the best FinFET out there. Would you consider diversification being something you'd evaluate?
First of all, TSMC is a fabulous supplier. Number two, their FinFET technology is excellent, and we've been evaluating it. We, of course, we do test chips, and our test chip technology is incredibly rigorous, and we take it very, very seriously. This comes from the years of learning that in working with advanced process nodes and fast process ramps, we take it incredibly seriously. We've been working with TSMC on FinFET now for a couple of years, and so we have quite a bit of confidence in their ability to deliver amazing FinFET transistors.
I guess, with respect to that, we always look to look at all foundries and TSMC remains our most strategic, of course, and they're gonna continue to be a very, very important partner for us for the foreseeable future.
Okay, operator, I think this is the end of our call. To all that joined us, I thank you, and we'll see you next quarter.
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line.