Thank you for dialing in to the NVIDIA conference call. All lines have been placed on mute. I will now hand the call over to NVIDIA Executive Vice President and Chief Financial Officer, Colette Kress. Please go ahead, Ms. Kress.
Thank you, operator. Good afternoon, everyone, and thank you for joining us on today's call on short notice. With me on the call today from NVIDIA are Jensen Huang, President and Executive Officer, and David Shannon, Executive Vice President and Chief Administrative Officer. We'll begin with a summary of our filing with the International Trade Commission and U.S. District Court of Delaware and discuss our decision to take legal action to protect our intellectual property. We will discuss the possible next steps in this process. After our statements, we will be opening up the call to answer any questions on today's actions. We ask that you limit your questions to the matters of today's filing. 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.
The replay of the webcast will be available until September 18th, 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 current financial results and business, please refer to the disclosure in our 10-Q for the quarterly period ending July 27th, 2014, and the reports we may file from time to time on Form 8-K, filed with the Securities and Exchange Commission. All of our statements are made as of today, September 4th, 2014.
Based on information available to us today and except as required by law, I assume no obligation to update any such statements. Today, we filed complaints against Samsung and Qualcomm in the International Trade Commission and U.S. District Court in Delaware for using our GPU patents without a license in Samsung Galaxy phones and tablets. This is the first time in NVIDIA's history we have initiated patent infringement claims against another company. NVIDIA is the world's leader in visual computing and has invented the GPU and technologies that are vital to mobile computing. We have the richest portfolio of computer graphics IP in the world, with 7,000 patents granted and pending, created by the world's best graphic engineers, and backed by more than $9 billion in R&D.
Our strategy is to continue to lead in visual computing technologies and to seek return on our investments by serving markets where inventions make a contribution. Our business model is selling processors to OEMs and licensing our GPU cores and patents. This powerful and rich graphic experience mobile users demand is enabled by NVIDIA's patented inventions. Our patented inventions are used in billions of mobile devices each year, including the millions of smart devices sold with our Tegra processors incorporated. Our Tegra processor sales are accelerating, with 4 consecutive quarters of revenue growth. Our newest processor, the Tegra K1, features the Xiaomi Mi Pad, the recently announced Acer Chromebook 13, and our new Shield tablet. Samsung and Qualcomm have also relied on our powerful inventions for their mobile success.
There are hundreds of millions of mobile processors, phones, and tablets manufactured by Samsung and Qualcomm with rich graphics powered by our patented GPU technologies. These patents include programmable shading, unified shaders, and multithreaded parallel processing. In terms of next steps, a decision will be issued by the ITC within 30 calendar days as to whether to open an investigation. If this proceeds, a relatively quick discovery process begins, leading to a trial that would likely occur around mid-2015, with an initial decision a few months thereafter. In regards to the complaint with the District Court of Delaware, a scheduling conference would likely occur within the next 60 to 90 days to set up trial dates. We'd expect a trial to be scheduled 2 or 3 years from now. Our IP provides significant value to mobile devices. Licensing our GPU core and patents is an important element of our strategy.
We are asking the courts to determine infringement of NVIDIA's patents by all graphic architectures used by Samsung's mobile products and to establish the value of our GPU patents. Operator, we will now open it up for questions.
Ladies and gentlemen, if you would like to register a question, please 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, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. As a reminder, ladies and gentlemen, please press the one for one moment for any questions. Our first question comes from the line of Vivek Arya with Bank of America Merrill Lynch. Please go ahead.
Thanks for taking my question. Colette, I'm curious of the decision to sue specific Samsung products. I assume that many other handset makers probably use that same Qualcomm Snapdragon chip, and probably many others use a similar Arm or Imagination GPU IP. Why single out specific Samsung products, or is the goal eventually to go and negotiate with other handset customers also?
Vivek, thanks for your question. I'll take it for you. Well, Samsung is one of the largest mobile device makers in the world, and they ship hundreds of millions of mobile devices every year. All of them, we believe, infringe on the GPU patents that we've invented. It stands to reason that they'd be the first company we would engage in discussions with. We've been in discussions with them for a couple of years. There's another reason, which is that Samsung, because of their volumes and because of their breadth of product portfolio, includes all three GPU architectures that are available to mobile devices outside of ourselves. Qualcomm, of course, is one of the major ones, but they're not the only one. They also use Arm and Imagination Technologies.
Those are the reasons why we decided to engage discussions with Samsung first.
Is the goal, Jensen, why are you going after Samsung? That's what I'm curious about because as I understand, they are large, but this allegation of infringement is really on the GPU side, it's more with Arm and Imagination rather than with Samsung. Is it Samsung just because they are the ones who are deploying that technology?
Well, Samsung, because they're including the technology in their products, and they're the ones that choose what architecture they ultimately use. We also named Qualcomm in the suit because the GPU is included in Qualcomm's chips. In the case of Arm and Imagination, they design cores. Now, neither of their GPU architectures are licensed to our patents. However, their cores are included in Samsung chips. Again, the two companies that are involved in this suit, therefore, is Samsung and Qualcomm.
Got it. Just the last question. Apple also uses Imagination's GPU IP, and they're also a large customer. Can they also be the subject of this kind of litigation in the future?
Well, today we're focused on Samsung and Qualcomm, and we continue to have productive conversations with a lot of other companies out there. I think you highlight a very important point, which is NVIDIA has been very inventive in this space. We are the world leader in visual computing. We've invested a great deal over the years in this one specialty and one specific field. We've been very inventive in it. We invented the GPU. We have the world's largest portfolio of graphics patents. With billions of mobile devices being shipped each year and tens of billions being expected to ship in the coming years, it stands to reason that this is an important area for us. I've also told you quite several times now, over the last several years, that IP licensing and core is an important part of our overall strategy.
Today's action is really just a confirmation of that strategy.
Got it. Lastly, any litigation expenses we should be aware of? Thank you. That is the last question.
We're not talking about expenses today. We'll report on that at our next earnings call. The important thing to really focus on is that we have such a large portfolio of rich graphics patents, that the mobile market is going to have billions and billions of devices, and they incorporate our technology in them today. This is an important part of our strategy, and it's a very serious part of our strategy. As I've said before, we're very serious about our IP licensing strategy. I think the size of the opportunity for us is quite important for us to go after it.
Thank you.
Our next question comes from the line of Matt Ramsay with Canaccord Genuity. Please go ahead.
Yes, good afternoon. Thank you for taking my questions. I have two. I guess, Jensen, just to build on the last question, there's an OEM here in the suit and also a chipset provider in the suit. As devices are deployed in the field, are you guys making any claims or maybe you could give your thoughts about where you think the real value extraction lies with the chipset provider itself that's deriving chipset revenue or with the ecosystem that's built on the device and I think where do you think you'll be most successful in getting a loyalty in the long term? Thanks.
Ultimately, we have to decide on a case-by-case basis. In the case of Samsung and Qualcomm, this is very clear. We have to look at it on a case-by-case basis. All three architectures that we've mentioned, Qualcomm, Arm, and Imagination's GPU architectures, we believe infringe on some very important patents and some very important inventions that we've created over the years. In each one of those cases, the way they get to market is a little bit different. There are some OEMs that are vertically integrated, and they design their own phones or devices and chips. There's some that buy chips from other people. There's some that licenses technology from other people. So there's a whole lot of different types of business models, and we'll deal with each one of them on a one-on-one basis.
All right. Thanks for that. Maybe just taking a little bit of a different angle here, because obviously there's a lot of questions that I think all of us could ask that you guys probably wouldn't be able to answer today, but more of a strategic angle. Jensen, you've spoken a lot in the past about being pretty excited about Android as a gaming platform going forward, and I think it's interesting that perhaps the largest shipper of GPUs into Android devices and also the largest OEM shipper of Android devices are the two folks that you've named here in the suit. Maybe you could talk about it from a strategic angle, broader than just extracting royalties from handsets, but also from an overall strategic angle of how you guys approach the market for Android GPUs in general. Thanks.
Yeah. Well, we're a technology company, and we're a visual computing technologies company, and visual computing is used in all kinds of markets. Android is one of the most successful operating system in the history of mankind. It is synonymous with mobile cloud, and mobile cloud is going to be the computing model of almost every computing device in the world someday. It doesn't matter whether it's initially started with phones and tablets, but it'll be in computers and it'll be in cars, and it'll be in TVs and game consoles, and all kinds. The entire world of computing will be mobile cloud someday. Our strategy is to focus on the markets whereby we can add the most value with products. Gaming is one of them. Design is another, as you've heard me talk about, in the area of enterprise. High performance computing is an important market for us.
Automotive is an important market for us. Mobile is also an important market for us. In each one of these markets, we may choose to design an entire system. We could sell a chip, which is essentially a one-time license use for an OEM, or we could license GPU cores if they would like to build their own vertically integrated or proprietary solutions. We could license patents for them to freely use in any designs of products that they would like to create. We're a visual computing technology company at the core, and we have a business model that starts from creating technology, inventing technology. We offer it to the customers, offer it to the marketplace in a whole lot of different form factors that suits their needs.
I think that this strategy allows us to stay very focused on being the world's leader in visual computing, and yet be able to address and serve markets that are very far away from our core or very specific to our core, whether it's gaming or automotive or design or otherwise.
All right. Thank you.
Yeah. Thanks a lot.
Our next question comes from the line of Doug Freedman with RBC Capital Markets. Please go ahead.
Great. Thanks for taking my question, guys. Jensen, if you could, if we were to look at your existing royalty stream, especially the deal that you've cut with Intel, that is, I believe, a broad cross-license. It gives them complete access. Should we look at that as setting some precedent to the value of the IP portfolio that you are trying to license, or is this case limited in some way? Can you sort of maybe compare and contrast for us so maybe we can get an idea of sort of the value potential here?
Well, ultimately, we're asking the courts to help us establish the value of our patents. I think that there's a lot of different ways to think about the size of the market for us with respect to IP licensing. With every major revolution of computing, where there was client server, mainframe before it, the PC after client server, now mobile computing, the size of the marketplace has become larger and larger. The reason for that, of course, is because the nature of the technology can reach more people, become valuable to more people. In every one of those cases, every one of those computing the computer graphics part of it has been important. In the last 21 years, we've generated and contributed more to modern computer graphics than just about any single company.
Mobile computing is an important opportunity and a good size market for us. Maybe put your phone on mute. In this new market of mobile computing, it goes into a lot of different verticals, some of the verticals we may choose to design chips, some of the verticals we may choose to license our patents, some of the verticals we may decide to choose our cores, and every combination of it. There's no question that the billions of devices that are used today and the billions of devices that will be shipped in the future, GPU is such a vital part of its experience, and our invention is so important to it. That this should be an important part of our strategy.
Great. Thanks for taking my question.
Yeah, thanks a lot, Doug.
Our next question comes from the line of Alex Gauna with JMP Securities. Please go ahead.
Jensen, if I heard you correctly, you said you had been in talks with Samsung for a number of years. I'm wondering, did something change recently, or why now in terms of bringing the lawsuit?
Well, we just made no progress, they've not put a real offer on the table. We've spent quite a bit of time working with them. We've shared a lot of our claims and claim charts, we've made every effort to have a negotiated outcome. Sometimes, when you've been using technology for free for a long time, I guess it's hard to sign up for a large and significant license agreement. The fact of the matter is, they're using our technology for free in their devices today, they're shipping an enormous number of devices. This is something that's really important to us, we need to resolve it. After working at it for a couple of years, we came to the conclusion that we just weren't going to make any more progress, we decided to ask the courts for their help.
Okay, to follow up on Doug's question, I'm wondering, the dispute you had with Intel, that resulted in a cross license, I'm assuming is more in the PC realm. Is there a difference in terms of the way the IP is deployed in a mobile sense, or because it's being used with Android, or would you say that the position that led you to such a favorable outcome with Intel is similar with what's going on with Samsung and Qualcomm? Thank you.
Well, Intel ships about 300 million PC chips a year, the mobile industry is quite a bit larger than that. Visual computing is arguably even more important in mobile computing than it is in computing and PCs before it. I believe that mobile devices, which really brings joy to people when they're beautiful and interactive and can serve up all kinds of rich content for consumers largely, it benefits greatly from the GPU that's inside it. I think there's one part of it, which is the size of the use of our technology is much, much larger in mobile market. In terms of the actual agreements, it could be a license of IP. It could be a license of our core. It could be a cross-license. It can come in a whole lot of different ways.
This is an important strategy of our company. Each one of the customers will have their own specific needs, we'll sit down and talk to them.
All right. Thank you.
Our next question comes from the line of Hans Mosesmann with Raymond James. Please go ahead.
Thanks. Jensen, just to follow up on the series of questions. I think Colette mentioned upfront that Samsung, or maybe in the PR, that Samsung had indicated that it wasn't their issue, it was their vendors' or suppliers' issue. By saying that, is Samsung saying that there is validity to your patents, but it's not their problem? Is that how they're positioning this?
Well, I'd really like not to repeat conversations today, and surely they'll have an opportunity to address some of these questions themselves. Samsung chooses what technology they incorporate in their phone and in their smartphones and tablets and other devices. Ultimately Samsung is culpable for infringing our patents. However, Qualcomm also infringes on our patents because they incorporate our GPUs inside their chips, our GPU patent technologies inside their chip. Their chips are used by Samsung. We decided to name both of them today. By doing so, we are focusing on two very large companies that have a large business incorporating our GPUs and using them for free. Also it allows us to engage all three architectures in a marketplace at one time.
We decided that based on those two reasons, the size of the customers and the ability to address all three architectures to name both Samsung and Qualcomm.
Thank you.
Yeah. Thanks a lot, Hans.
Our next question comes from the line of Betsy Van Hees with Wedbush Securities. Please go ahead.
Good afternoon. Thanks for taking my questions. Jensen, with over 7,000 patents, you chose just seven. I was wondering if you guys could give us a little more details behind why those seven patents were chosen, given all the patents that you guys hold.
Well, it's a balance of making sure that we choose patents that we have very high confidence reads on their products. We've spent a lot of time analyzing their products. You're right, we have 7,000 issued and pending patents in this one field, in this very important field. However, we have to find a balance between very high confidence patents that read on their products, as well as efficiency for the courts. Ultimately, we want to find the balance of high confidence of winning and the most efficient way of getting through the courts.
Fair enough. I know you didn't want to talk about expenses, but I guess we can assume that the litigation expenses, at least in the near term, have already been factored into the guidance that you guys have provided us. There isn't anything in addition that we should expect. You'll address future OpEx litigation issues as we move forward. Is that a fair way to look at things?
Well, we'll have an opportunity for Colette and I to talk about OpEx at the next earnings call. I think at the highest level, Betsy, I think that the important thing to realize is IP licensing. IP is a very important part of our strategy. We are the world leader in visual computing. We invented the GPU. We've contributed more to modern visual computing than just about any company in the world. We're singularly focused in this one important field. We're incredibly inventive over the years, and we're still very inventive. This technology is vital to the growth and to the vibrancy of large markets, including mobile computing market, smartphones, and devices.
This is an important part of our overall company strategy, IP licensing, creating, inventing technology, IP licensing, and licensing them to OEMs and other companies that are using it or would benefit from it. In this case, these two companies are using our technology freely without a license, and we would like the courts to help us establish the validity of our patents infringement and also the value of the patents we should derive.
Well, absolutely. You've been talking about this for a couple of years now, and you had that presentation that you put together last summer when you discussed in terms of the monetization of your IP, that you guys would be working very judiciously in making sure that that happened. It appears as if you guys reached an impasse with both Samsung and Qualcomm, which led you to take this action to protect your IP. You said you were in discussions with other people, so we can, I guess, look at this as for those other individuals that you guys are currently in negotiations with and talking to, is a pretty big shot over the bow, warning signal over the bow that you're not afraid to step into Because you're taking on some pretty big boys here, some pretty big players.
Well, the courts don't really care how big or small a company is. All they care is whether a patent has been infringed. The courts will have to evaluate and assess this particular case on the merits of this case. We believe that, you know we're world experts in this field, and we have a lot of competitors, but we really have no peers. This is something that we deeply care about, and technology is core to this company. It's at the foundation of this company. We've said, and I've said that we are serious about IP licensing. Today's action makes it very clear indeed that I am very serious about IP licensing. We've invested great deal in getting here. We've invested $9 billion in a singular field of computing.
We have the richest portfolio of computing patents, graphics computing patents in the world. We have to make sure that we're compensated fairly for the use of our patents.
Thank you so much for taking my questions, and good luck.
Yeah. Thanks a lot, Betsy.
Our next question comes from the line of Chris Caso with Susquehanna Financial Group. Please go ahead.
Yes, hi. Thanks for taking the question. Just if you could describe the remedies that you're seeking from the court in these cases, as I was able to just kind of eyeball the complaints quickly. It didn't look like you specified specific monetary damages in the complaint. How are you looking to get this resolved?
We're seeking the courts to help us determine the damages that have been done to our company and also for compensation for use of our technology going forward.
It'll be up to the courts to decide.
I'm sorry? It'll be up to the courts.
I'm sorry. It'll be up to the courts to decide.
Oh, yes. Yes. That's correct.
As a follow-on, oftentimes in patent litigation suits, there are countersuits filed by the other parties. Is there anything you could say, with regard to your level of confidence in your ability to defend or your exposure to a countersuit by either Samsung or Qualcomm?
Well, we can't speak on what they would do, but we have extremely high confidence in our actions.
Okay. Thank you.
Ladies and gentlemen, as a reminder, to register a question, please press the one followed by the four on your telephones. We do have a question from the line of JoAnne Feeney. Please go ahead.
Yeah, thanks. Hey, Jensen. I was wondering if you could perhaps give us a sense of if there's anything different about your IP position now versus, say, five years ago. Is there something new that's in your IP that makes it very clear that these other uses are infringing? Is there something that clearly defines use of NVIDIA's GPU technology versus, say, AMD's contributions to those areas of shader technology, et cetera? Anything that would limit the litigation to this relatively current generation of products versus having it be applicable to older generations?
Yeah, I would say three things. One, AMD should decide on the merits and the value of their patents. Two, the last five years have been quite important five years. The reason for that is mobile computing has exploded. The mobile computing world today versus five years ago is utterly different. Today, the rich displays and the importance of rich graphics applications all over the web is more important than ever, and obviously, it is also larger than ever. We've also invested in the last five years in adapting our cores so that they're mobile-friendly. Because of the efforts of Tegra, all of our GPUs today are mobile-ready. The energy efficiency is fantastic, like the TK1, Tegra K1, and yet the architecture is identical to the architecture that we use in high-performance PCs and workstations.
So we have more ability to license our GPU cores to OEMs and technology companies than ever before. It wouldn't have been possible if not for our focus in the mobile market. Lastly, I guess I would just add and reiterate that it does take some time in engaging discussions with these companies on something this significant. We're talking about a very large number of devices. We are talking about technology that we have invented. So the impact to them is, of course, not insignificant. So these conversations do take time, but these factors all played into it. Okay.
Yeah, that's helpful. Thanks, Jensen. Can I get a follow-up in there just briefly?
Sure.
I'm just wondering, you don't want to talk about OpEx, that's understandable. Just wondering, though, to prepare these two filings, did you need to go to outside counsel to do that, or are you doing it entirely internally?
We always have some outside counsel working with us, because our internal legal department is not the size of all of the various legal work that we have to do, and we have a lot of world experts that are working with us from a lot of different places. Okay. Thank you very much, JoAnne. I really appreciate it. Hey, everybody. Thank you for joining us today. Today's action was a very important new chapter for our IP license strategy. We have the world's largest and the richest collection of graphics IP in the world, and IP licensing is a very important part of our business strategy, and I look forward to reporting on our progress as we go forward. Thank you very much for joining us.
Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and ask that you please disconnect your lines.