Q2 2021 NVIDIA Corp Earnings Call
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I would like to welcome everyone to them the bidding <unk> financial results conference call.
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Simona Jankowski you may begin your conference.
Thank you good afternoon, everyone and welcome to Invidious conference call for the second quarter of physical 2021.
With me on the call today's from Nvidia, Our Jones from long, President and Chief Executive Officer, Dan Trang, Executive Vice President and Chief Financial Officer.
I'd like to remind you that our call is being webcast live on videos Investor Relations website. The webcast will be available for replay until the conference call to discuss our financial results for the third quarter fiscal 2021.
The content of today's call is insidious property it caviar attribute for transcribed without prior written consent.
During this call we may make forward looking statement based on current expectations. These are subject to a number of significant risks and uncertainties that our actual results may differ materially for a discussion of factors that could affect or future financial results and business. Please refer to the disclosure in today's earnings release, our most recent forms 10-K and 10-Q.
And the reports that we may file on form 8-K, with the Securities and Exchange Commission.
All our statements are made as of today August 19, 2020 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 can find a reconciliation of these non-GAAP financial measures the GAAP financial measures in our CFO commentary, which is posted on our website with that let me turn the call over to collect.
Thanks, Sheila Q2, like another extraordinary quarter the world continue to the all in all the coldest 19 pandemic and most of our orders continue to work from home.
We're trying to change agility and dedication we successfully combined mellanox into India, while also delivering very strong quarter.
Revenue was 3.87 billion up 50% year on year.
26% sequentially and well ahead of our outlook.
Starting with gaming revenue was 1.65 billion was up 26% year on year and up 24% sequentially.
We are ahead of our expectations.
Net charge is broad based across geographic regions products and channels gaming's growth MST pandemic highlights the emergence of beauty for entertainment worldwide. For example, the number of daily gamers on screen, a leading PC game online distributor.
This up 25% for pre pandemic levels and NPD reported that us consumer spending on video games grew 30% in the second calendar quarter to record a London volumes.
Yes, Pcs and laptops are ideal for the millions of people, who are now working learning and gaming at home.
At the outcome of the pandemic, many retail outlets for closed and demand shift to online channels as the quarter progressed in the stores opening retail demand picked up by cafes, largely reopened and online sales continue to thrive.
Gaming laptop demand is very strong students and professionals turn to do for space systems to improve how things work learn and gain from home.
We ramped over 100, new models with our OEM partners focused on both premium and mainstream price points.
In the premium laptop segment, we delivered unparalleled performance, which gets you force Archie Ash 28, and the 2070 Super Twoq huge incentive might form factors. We also brought retracing to gaming laptops for the first time at price points as long as 990 to one dollar.
With the GE forged Archie us 2016.
In the mainstream segment, we brought that you force Gtx two laptop Chris points as long as 699.
Momentum continues for turning architecture, which enables stunning new visual effects in games and just driving powerful upgrade cycle. Among gamers, it's our TX technology retracing and two programmable shifting and as quickly redefine the new standard for computer.
Capex BLS, how much use the AI capabilities of turns to boost frame rate by almost too.
While generating Chris image quality, RPX support and blockbuster games continues to grow including Mega hedge dust strategy. The high anticipated cyber punks 2077, and the upcoming release of large dogs.
These games join Minecraft and other major titles that support Nvidia RPX Retracing Ngls us.
We're in the mix of a 21 date countdown campaign promoting a G. force special event in September 1st with each day, highlighting a year in the history of GE Force, we don't want to spoil the surprise, but we encourage you to tune in.
We're very pleased with the traction of our to force now cloud gaming service now in its second quarter of commercially availability.
Fan offers to purchase content to any gain streaming service through partnerships with leading digital game storms, including Feldstein every gains and maybe softness plan.
Key personnel enables users with underpowered PC match or Android devices to access powerful Gpus to play their advisors, a PC games in the cloud expanding universe of gamers that we can reach which in force jokes yesterday, we announced that GFN is now supported on chromebooks.
Further extending our reach into tens of millions of users. In addition to an videos on service defendants available or coming soon to a number of telkom partners around the world, including Softbank and KBR in Japan, where cost home and the line in Russia Ltd.
You plush in South Korea, and Taiwan mobile.
Moving to protests in Q2 was 203 million in revenue down 30% year on year end down 34% sequentially with declines in both mobile and desktop workstations sales will hurt by lower enterprise demand and with the closure of many offices.
As around the World industries negatively impact during the quarter include automotive architectural engineering, and construction manufacturing media and entertainment and oil and gas.
Initiatives by enterprises to enable remote workers drove demand for virtual and cloud based profit solutions. Accordingly, our Q2, the GPU bookings accelerated increasing 60% year on year.
Despite near term challenges, we are winning new business in areas, such as healthcare, including Siemens fell to general electric and the public sector.
We continue to expand our market opportunity with over 50, leading design and creative applications that are in video RPX enabled including the latest release from foundry payoffs group and maximum.
These applications provides faster waitressing, an accelerated performance improving craters design workflows.
Pandemic will have a lasting impact on how we work our revenue mix going forward will likely reflect this evolution in enterprise workforce trends with a greater focus on technologies such as in video laptops and virtual workstations that in April remote work and virtual collaboration.
Moving to automotive.
Noted revenue was 111 million down 47% year on year end down 28% sequentially.
This was slightly better than our outlook of a 40% sequential decline as the impact of the come down with less pronounced than expected.
Auto production volumes starting to recover after bottoming in April.
The decline was also due to the roll off with legacy infotainment revenue, which remained a headwind in future quarters.
In June we announced a landmark partnership with Mercedes Benz Restarting and 2024 will launch software defined intelligent vehicles across an entire fleet and using end to end in video technology.
Mercedes with utilizing videos, all technology stack, including the drive HX computer drive autonomous driving chocolate and in videos AI infrastructure spanning from the core to the cloud.
Centralizing and unified computing in the card will make it easier to integrate and upgrade it down software features as they are developed with over the year updates vehicles can receive the latest autonomous driving an intelligent caustic features increasing value and extend the majority of ownership with each software ups.
Great.
This is a transformative announcement for the automotive industry, making the turning point of traditional vehicles, becoming high performance Updatable data centers on wheels. This offshore trust for meters announcement from video to evolving business model as software content of our platforms grows and.
This evening.
To build a recurring revenue stream.
Moving to data center.
David Center is our diverse consists of cloud service providers public cloud providers supercomputing centers enterprises telecom and industrial.
Page.
Q2 revenue was a record 1.75 billion.
167% year on year end up 54% sequentially in Q2, we incorporated a full quarter of contribution from the Mellanox acquisition, which closed on April 27, first day of our quarter.
Non ops contributed approximately 14% of company revenue and just over 30% datacenter revenue.
Both compute and networking within datacenter set a record with accelerating year on year growth.
The biggest news in data center. This quarter was the launch of our AMPU architecture, we're very proud of the team's execution in launching in wrapping this technology more Marvel, especially Amis pandemic.
The a 100 is the largest chip ever made with 54 billion transistors. It runs our full software stack for accelerating the most compute intensive workloads are shopper leases include queued up 11, the new versions of over 50, who the ex libraries and a new application framework.
For major workloads, such as joggers for conversational AI and Merlin for deep recommend Davor systems.
The 100 delivers and videos greatest generational these ever brushing outperformance by 20 X. over its predecessor. It is also arc stars Universal accelerator, unifying AI training and infringe and powering workloads, such as data analytics scientific computing.
Nomex edge video analytics services and graphics.
The first and peer GPU, a 100 has been widely adopted by all major server vendors and cloud service providers.
We'll cross platform was the first cloud customer to bring it to market, making it the fastest gpus to come to the cloud in our history.
And just this morning, Microsoft is your announced the availability of passively scalable AI coasters, which are based on a 100 and interconnected with 200 gigabyte per second Mellanox infiniband networking.
A 100 is also getting incorporated into offerings from a ws, our revolver cloud baidu cloud and 10% crowd.
And we announced that the a 100 going to market with more than 15 servers for leading vendors around the world, including Cisco Dell Hewlett Packard Enterprise and Lenovo.
Adoption of the a 100 into beating server.
Makers offerings is faster than any prior launch we're 30 systems expected this summer and over 20 more by the end of the year.
The 100 is already winning industry recognition in the latest a 100 training benchmark and Melters 0.7 in video set 16 records sweeping all categories for commercially available solutions in both per chip and upscale performance.
Based on the a 100 emulators offers the industry's first and only objective AI benchmark.
Since the benchmark was introduced two years ago and video has consistently delivered leading result and record performance for both training and infants.
And many are also topped the charts in Las Vegas top 500, both the fastest supercomputer the ranking relation to show that eight of the world's top 10 supercomputers using video views and bid is not working for both they include the most powerful systems in the U.S.
And to Europe, and video now combined with Mellanox powers to close of the top 500 systems, a little less compared with just less than a half towards the two companies in total two years ago.
In energy efficiencies systems, using and video acute news are pulling away from the path on average their nearly 2.8 act more powerful efficient then systems without Nvidia GPU is measured by Gigaflops football.
The incredible performance efficiency of the 100 GPU is fast amplified by in video phone, new Sylvain supercomputer, which state beauty that number shovel in the top 500 list and is the only top 100 system to craft the 20 cents.
Per block there are engineers were able to assemble something less than four week teasing and videos open bars, you heard DGX Super Paul reference architecture, instead of the to typical bill time of Munch or even years. This is the system that we will use to win CMO per benchmark.
And as a reference design is available for our customers to quickly build a world class supercomputer.
We also brought GPU acceleration to data analytics wonderful largest and fastest growing enterprise workloads. We enabled end to end acceleration of the entire data analytics workload pipeline for the first home with Invidious Gpus and software stack in the latest version of Apache Spark.
In the Eastern June spark is the world's leading data analytics platform used by more than 500000 data scientists and 16000 enterprises worldwide.
And we have two major milestone to share we have now shipped a cumulative total of 1 billion Cuda GPU and the total number of developers and be in video ecosystem. Just reached 2 million. It took over a decade to reach the from first menu and less than.
Two years to reach the second bullion.
No not has fantastic results across the board its first quarter as part of the video Mellanox revenue growth accelerated with strength across Ethernet and Infiniband products for Ethernet shipments reached a new record major hyperscale built drove the upside in the quarter as growth in cloud computing.
It is fueling increased demand for high performance networking.
No not networking was a critical part of several of our major new product introductions. This quarter. These include the Gtx AI system, the detect supercar clusters for saline supercomputer and the each gx edge AI platform. We also launched the melanoma Connex Xx.
Internet mix, the 11 generation product of the Connectx family and it's designed to meet the needs of modern cloud and Hyperscale data centers, where 25 5100 gigabyte per second is becoming the standard.
We expanded our switch networking capabilities with the addition of Cumulus networks, a privately held network software company that we purchased in June tumors augment our Mellanox acquisition and building out opened modern data center.
The combination of Nvidia accelerated computing mellanox networking accumulate shocker enables data centers that are accelerating disaggregated and software defined to meet the exponential growth in AI cloud as high performance computing.
Moving to the rest of the piano.
Q2, GAAP gross margin was 58.8% and non-GAAP gross margin was 66%.
GAAP gross margin declined year on year and sequentially due to cost associated with about also acquisition.
Non-GAAP gross margins increased by almost six points year on year, reflecting a shift in product mix with higher datacenter sales and lower automotive sales.
Q2, GAAP operating expenses were 1.62 billion and non-GAAP operating expenses were 1.04 billion up 67% and 38% from year ago, respectively.
Q2, GAAP EPS was 99 cents up 10% from your earlier non-GAAP EPS was $2 in 18 of 76% from a year ago.
Q2 to cash flow from operations was 1.57 billion.
With that let me turn to the outlook for the third quarter of fiscal 2021.
We expect revenue to be 4.4 billion plus or minus 2%.
With that we expect to gaming to be up just over 25% sequentially, which data center to be out in the low to mid single digits sequentially.
We expect both pro beds and auto to be at similar levels out in Q2.
GAAP and non-GAAP gross margins are expected to be 62.5% and 65.5%, respectively, plus or minus 50 basis points GAAP and non-GAAP operating expenses are expected to be approximately 1.54 billion and one point.
Zero 9 billion respectively.
Full year, GAAP and non-GAAP Opex is tracking in line with our outlook of 5.7 billion and 4.1 billion respectively.
GAAP and non-GAAP, a widening are both expected to be expense of approximately 55 million.
GAAP and non-GAAP tax rates are both expected to be a percent plus or minus 1% excluding discrete items.
Total expenditures are expected to be approximately 225 to 250 million.
Further financial details are included in the CFO commentary and other information available on our IR website in closing, let me highlight upcoming events for the financial community you will be at the PMO virtual technology Summit on August 20.
Cities 2020 Global Technology Conference on September nine Deutsche Bank Technology Conference on September 14th and the Evercores virtual Menlo form the future of mobility on September 21st we will also post a financial analysts today with Johnson on October as partners.
Our next virtual GTC.
Our earnings call to discuss our third quarter. This result is scheduled for Wednesday November 18th.
We will now open the call for questions. Operator would you. Please poll for questions. Thank you.
Simply at this time I would like to remind everyone in order to ask a question Press Star then one on the telephone keypad.
We'll pause for just a moment to compile documenting roster.
First question comes from the line has been Big argue with Bank of America. Your line is open.
Thanks for taking my question and congratulations on the strong growth and execution.
Gentlemen, I'm wondering how much of this trend on that you're seeing in gaming and data center is maybe more temporary because of coal the dollar.
Customer, Poland, and the datacenter and so forth on how much of it is more structural and more secular.
I can continue even once we get into hopefully sooner rather than later into a more normalized.
For the industry.
Yes. Thank you.
So first of all within the core wins.
We're in the beginning of our brand new product cycle, we're ramping.
So so the vast majority of the business in the growth came from them.
The the the gaming industry.
Yes.
Dave with all the companies around the world is really important.
But its main.
Gaming the largest entertainment.
Medium in the world.
More and more than more than ever before spending time digitally spending on time.
During the third playing video games the thing that presume that people haven't realized about video games is that it's not just the game so any more.
Variety of different ways, you can corey.
When you compare.
And what would your friends and Ford Marine Goodwill concert importantly.
Building virtual worlds and Minecraft.
Your your spending time with your friends, you're using the to create.
I realize you're munitions.
People are using it for work for broadcast.
For.
Sharing sharing ideas into each with other people into the and then of course is just an incredibly fun way to two on screen spend time given consumption of the video of the video game.
Yes, so much that you could do with video games now.
I think that this this.
This way of enjoying entertainment digitally.
Has been accelerated as we go through the growth depend dramatic, but I don't think it's going to return.
Video game adoption has been going up.
Over time.
Steadily.
PC is now the single largest entertainment.
Platform into the largest can mean platform and.
Q4's is now the largest didn't perform in the world.
And as I mentioned is not just about gaming, there's just so many different ways in could into weakened.
The data centers.
Good within that.
Gokul change that's happening data center.
Our or couple of different dynamics that are happening at the same time.
The first dynamic of course, the movement to the cloud.
The way the cloud data center is built into legally in enterprise data Center.
Cluster rebuilds is fundamentally different.
And and it's really really beneficial to have held.
On the ability to to accelerate applications.
Cloud service providers would like to offer which is basically everything.
And we know that one of the most important applications of today is artificial intelligence.
It's a it's a typo software that really wants acceleration and videos GP solutions the proof medium perfectly.
And then the last the last reason above data center that is the architectural change.
From hosting applications the hosting services the driving this new type of architecture called this aggregation versus hyper converge.
The original namely Hyperscalers is a large data center of a whole bunch of hyper converged computers.
The computers that today are really are really just aggregated.
A single application service.
Could be running on multiple servers.
The same time, which generally the tone of this was traffic.
In a lot of its artificial artificial intelligence neural network models and so because of this type of architecture two components.
Two types of technologies are really important to the future cloud one of them as I mentioned was.
Acceleration in our GPU is ideal for them at the other one is high speed networking.
And the reason for that is because the servers notice aggregated the applications fractionalized and broken up into a bunch of small pieces that are running across the David sooner and whenever an application it's and.
Parts of the answer to another another surber.
For the micro services to run.
That does transmission.
As cold East West traffic in the most important thing you could you could possibly do for yourself is the by really high speed low latency met with the nets were mellanox is going to test again, and so we find ourselves we find ourselves really really.
In this perfect condition, where the future is going to be more virtual more digital and Thats. One of the puts the reason why don't you forces. So successful and then we find ourselves in a world where the future is going to be more autonomous and more more driven and that's the benefit of those of our Gpus and then lastly.
Cloud Microservices transaction really benefit high speed noticing and Thats with numerous comes in and so so I think the this is the dynamic for them describing our permanent.
And it's just an accelerated to the prison.
Because of everything that's happening to us.
But this is the future and it's not Theres no goes back to.
So we just going to reduce noted.
Your next question comes from the line of Timothy occurring with media. Your line is open.
Thanks, a lot on gentle I guess, we had a question on those architecture and also manufacturing again I think on the manufacturing side.
The medical in the now for some time and when you didn't ask in the past about moving to more of the tangled or should that approach you sort of made in light of that the DCP. You guys are clearly taking that approach. So I guess the question is why do you think you won't have to make a similar move and then on the side of architecture.
In the past trips to Threeq was really how compute in industrial stripping computing power and then we see this talk about you an owner and so I guess can you talk about whether GPU is the future and maybe to further opportunity to integrate to be in GP. Thanks.
Yes.
We we.
We push architecture really hard and and the way we push architectures, we start from the system.
We believe that the future computer computer company is a data center scale company.
The computing unit is no longer.
Microprocessor or even a server or even a cluster.
Computing unit is an entire data scenario.
And as I was explaining.
To the venture skill.
That that a micro service, but we're enjoying.
Hundreds of billions of transactions a day.
Those are broken up into a whole bunch of micro services that are running across the entire Davidson.
And so so the datacenter is running the entire data centers, winning an application we must pretty remarkable thing that happened in the last several years. We were we were ahead of this trend that we recognized that.
As a competing companies we had to be a data centers company and the architect from that's been story.
If you look at our architecture.
The first in the world to create the concept of an enviable.
With with eight processors being fully synchronized across but across the computing node and we created the DGX.
We recognize the importance of high speed networking and low latency networking and Thats why we bought nodes and the amount of software that we invented along the way to make it possible for low latency.
Indications, whether its GPU director recently, the invention MACI future bookstores.
All of that technologies as was the inspired by the idea that you have to think about the data center only one holistic way.
Then in the last in this current generation with impure, we invented the world's first multi instance, GPU.
We invented the world's first multi instance between.
That are in a pure GPU could simultaneously.
The one GPU.
And with Envy link eight Gpus component working together. So you could you could think about us being tiles. So those eight gpus are working on them together or each one of the Gpus to fractionalized. So if you don't need them, which GPU working on workload of fresh unwise into a multi.
GPU instance, we commented a little tiny instance, and each one of those time weaknesses are more powerful and more performance than our entire both the GPU output.
So so whether you do you like to fresh lines, the GPU, which happens often times create a larger GPU are using and de link or create an even larger GPU. The size of DGX part commit that together with high speed low latency network users Mellanox, we could we could architected anyway.
And you will decline.
You made the comment about you asked a question about are we going a long term partner volumes and we use arm.
And a whole bunch of applications and whether it's whether it's a autonomous driving or a robotics application.
The Nintendo switch console business that we're in.
And then recently, we brought we brought kudos to learn and to bring accelerated computing and so so we work with what we worked very.
Very closely the growth rate really great guys and and one of the special special specials about the or market picture that you may very well within its incredibly energy efficient.
And because of energy efficient.
The headwinds the scale into very high performance levels.
Over time so.
So anyway as we love working.
Your next question comes from the line of Aaron Rakers with Wells Fargo lines open.
Yes. Thanks for taking my question is congratulations on a quarter just building on some prior questions.
The first one I was just curious if you could help us appreciate kind of the installed base of the gaming Gpus.
Relative to where we're at the touring upgrade cycle, what do we see still on prior generations. The APAC our before and then secondly, I was wondering collect could you just give me any kind of update commentary or views on visibility.
In the data center business, how that has that changed over the last three months.
What does that look like as you look through the back half the calendar year. Thank you.
Okay.
Yes, Thanks, a lot Eric.
We are we're still in the ramping up the Rts generation touring touring the current generation that we're in.
Is the world's first.
Ray tracing GPU and uses the arts the artist technology fuses three fundamental technologies. The programmable shared that we introduced a long time ago revolutionized computer graphics, and we added two new technology.
One technology is.
Retracing acceleration core.
That may make the tracing of rains and looking for intersections, new the Raymond and the scene objects and see Super Super fans.
And and it's a complicated problems, it's a super complicated probably wanted to be running.
Concurrently or to share used today, so the rate the rates reversal.
And just any of the pick those could be done independently and concurrent with the second thing is we invented this technology to bring AI artificial intelligence are using us this new type of elderly cost deep learning to computer graphics.
And and.
One example of its capability is the the algorithm we introduced called deal as deep learning Supercenter, which allows us to essentially synthesize.
Synthesize.
By moving from previous examples.
Essentially learning from previous advantage of images and remembering.
Remembering we are beautiful image it looks like so that when you take a look low resolution images and you'd rather through the neural network synthesizes a high resolution image that really really beautiful and.
And people have commented that that it's even more beautiful native rendered images.
At the native resolution and and.
In the benefit as not only the beautiful. It's also superfast, we essentially nearly doubled the performance.
Of on our tiers as result of doing that can you kind of the benefit of re pricing as well as very high.
Very high resolution and very high speed.
So thats called RPX.
And and.
Turing is probably not.
Not even close not even 90 to one third.
Of the the the total installed base.
Of of all of our Chief Force Q4's, Gpus, which is which is which as you know.
The single largest installed base of the new platforms.
And so we are we support this large install base and when the prices and bringing them to the future with Rts.
And now with the with the new console generation coming every single game developer on the planet is going to be doing matrices and they're going to be creating much much richer content and because of multi platform cross platform play on and because of the sizable that gaming platform PC gaming class.
Morning.
It's really important of these game developers during the latest generation content, the PC, which is great for us.
And then on the data service growth.
Yes, let me led chip architecture, that's on Oreo.
Actually have been talking about our visibility of data center and his team and our Q2 results you can see that our overall adoption of the embedded computing portfolio has accelerated quite nicely.
Keep in mind will show really early in the product cycle.
100 is wrapped payments ramping very strong.
Into our existing.
Installed bases, but also into new markets.
Right now a 100, probably represents less than a quarter our data center revenues. So we solve a lot to grow.
We have good visibility looking into Q3 with our hyper sales, but a little bit more of a mixed outlook in terms of our vertical industries, given a lot of the uncertainty in the market.
Terms of the overall economy.
On premises are challenged because of the overall code covered but remember industries are quickly and continuing to adopt and move to the overall cloud, but overall, we do expect very strong catering.
Your next question comes from the line CJ Muse with Evercore ISI your lines open.
Yes. Thank you for taking the question I guess to two questions.
If I look at your outstanding inventory purchase obligations grew.
17% sequentially.
Is that.
As you prepare for the September one launching can you kind of comment on gaming visibility into the back half of virulent during the second question Joseph.
I know, you're very focused on platforms and driving recurring revenues would love to hear if there's any particular platforms over the last three months, where you've made real headway on gets you excited where the Jarvis Merlin sports or whatever thank you.
Yes, they did.
Thanks, CJ, we're expecting we're expecting a really strong second half for Dean.
I think this may very well be one of the best gaming seasons ever.
And the reason for that is because because PC gaming has become such a large format.
The the the combination of of mainly games like ordinary than Minecraft and.
Because of the way people game now that the gaming and their E sporting.
Even ask ones in sport now.
They are hanging out with trends, we are using it to create other content.
Using gain captures the create ours.
They're sharing sharing it with the with the community.
The broadcast medium.
The number of different ways, you could game has just really really exploded and it and it works on Pcs because all the things that are described.
We will require cameras, a keyboard to or screening systems or.
But it requires an open system that is multi tasking so.
So the PC has just begun Mr large platform for gaming.
Yes.
The second thing is is the Rts, it's a home run.
We really really raise the bar where was the computer graphics, and mccain's or so beautiful and it's really going to Mexico.
It's not been this amazing.
Since we introduced programmable shooters about 15 years ago.
Since over last 15 years, or maybe even make incremental shares better and better and better and it hasn't getting better.
That is never been a giant leap like the Rts brought both artificial intelligence as well as retracing.
Two to two PCT and then and then the third the third factor is.
The cost to launch this.
People are really begin to overcome really gearing up for for a big leap and.
Super Nintendo more than all depend upon.
He asked which was which was one of the best selling consoles of all time I mean, there on a they're under way too.
To to make switch the most successful gaming platform of all time, and so I'm super excited for them.
So I think it's going to be it's going to be quite a huge quite a huge second half.
Your next question and turn the Lilac Tasha Herring Goldman Sachs. Your line is open.
Kurt I felt like I Didnt I missed CJ second question can we jump on and answered.
I think there I think the question was regarding our inventory purchases.
Yes, it's not a part again, referring to negotiate and lighter.
Yeah keep in mind CJ.
When you think about the complexity of the products that we are building.
I have extremely ball lead times are both in terms of what we produced for the data center, our full systems that we need to do as well as what you are seeing now between the sequential growth between Q2 and Q3 for overall gaming. So all of that is in preparation for the second half nothing unusual.
About it other than yes, we've got hit those revenue numbers that are in our Q3 contracts.
Okay.
Next question comes from the line of Kasha Harmon with Goldman Sachs. Your line is open.
Hi, good afternoon. Thank you so much for taking my question I.
I had one for Janssen and another one for Colette.
Justin just following up on the data to our business.
View as you probably how.
Quite a few your peers have been talking about potential digestion of capacity on the part of their hyperscale customers over the next call. It six to 12 months.
Curious is that something that you think about worry about.
In your and your datacenter business or do you have enough idiosyncratic.
Growth drivers like the 100, Ralph and I guess, the breadth that youve built within your data center business across compute and networking or there was enough to bifurcate for you to bucked. The trend I will then data center over the next six to 12 months and then the second one for collect just on gross margins, you're guiding October quarter gross margins down 50.
<unk> basis points sequentially.
Based on the color that you provided for the individual segment. It looks like mix remains pretty positive. So just curious what's driving the marginal decline in gross margins the October quarter. Thank you.
Yes. Thank you.
So.
Thanks for the question.
The the our data center trend is is really tie to a few factors. One is the is the.
So the proliferation of using deep learning and artificial intelligence in all the services.
That are in in the cloud service providers and and I think it's fair to say that over the last.
Last several years the the number of breakthroughs.
In artificial intelligence has been really terrific and and.
We're seeing anywhere from 10 times 10 mix more computational requirement each year to more than that and so in the last three years, we've seen somewhere between a thousand two 3000 times increase the size of models the computational requirements necessary.
A two to create the.
Models and the deployment models.
And so so number the number one trend that we are word work will probably indexed to is the breakthroughs of AI and and the usefulness of AI and.
How people are using it in and one of the one of the.
And I remember the CJ question.
Through this along with that one of the things that we look for and you should look for is is how how what kind of breakthroughs are are based on deep learning and based on AI.
The services all of demand and and there are three there are three.
Big ones just gigantic one.
Of course, one of them is natural language understand the ability to take.
Very complicated text and use deep learning to create essentially a dimension reduction cost deep embedded dimension reduction.
And that body of text, so that you could use that.
Vector as a way too.
Teach a recommender system, which is the second major breakthrough the Recommender system.
How to predict and make a recommendation to somebody recommendation on add them video isn't there a trillions of videos on Printwear, you need unique ways to recommend.
Both the news and just the amount of information that is going to that it's been true dynamic form required. These recommenders to to be instantaneous and so the first one is natural ends of understanding the second one is the recommenders system gigantic breakthroughs in the last several years and third is conversation.
And the way, we're going to have conversational agents that are just super clever and and.
And they can predict what you're about to ask they're going to predict the right answer for you make recommendations to you based on the three pillars that I just described and I haven't even started talking about robotics. The branches that are happening there with all the factories need to automate.
And the breakthroughs that we're seeing self driving cars. The models there are really improving balancing and so so.
The answer to.
You could buy and Fiji or kind of similar that that on the first one we're index to AI. The second we're index to breakthroughs are they on it so.
So that it can continue to consume more and more capability and more technology and then the third thing that we're we're index too.
Is.
Is the movement of workloads to the cloud.
It is now possible to to do rendering into cloud.
Our remote graphics workstations in a club and video virtual workstations and is in every single crowd you.
You could do big data analytics in the cloud.
And these applications I, just giving you a few applications where are you can do scientific computing the club.
These applications all have fundamentally different computing architectures.
And many of the only accelerated architecture that allows you to do.
Microservices score for conversational AI.
And other types of applications to.
Well applications like high performance computing training.
Big data analytics.
To virtualize application like workstation.
Our platform is universal and these three decreased that's what I just described our supremely complex Virtualized micro services based and.
On a scale up base and so these bare metal skill and these are complicated and and it's one of the reasons why we bought notes because they are at the core and at the intersection of all of that.
The storage the networking that security virtualization, there at the intersection of all of them and and I just described three dynamics.
That are that are that are very very powerful and our at the early stages, yet and so those are things that were really index too.
And then lastly.
When when somebody has to us when we introduce a new platform.
Like and peer or in the beginning of a multiyear product cycle.
And pure is such a gigantic breakthrough it's the first universal GP was over created.
It is it is both able to scale up as well as scale out scale up as a more multi GPU stay alive is fractionalization.
Multi instance, gpus.
And it is.
It reduced it saves money tremendous amount of money for where people who use the.
Speeds up their application that reduces CTO their tcl value just goes through the roof.
And so so one.
We're in the beginning of this multiyear cycle and the enthusiasm has been fantastic. This is the fastest ramp we were happy.
And.
And so we're in a coupon rates in two seconds.
Okay and can share your asset question regarding our guidance going forward regarding gross margin and within our Q3 guidance. We have just a small decline.
In our gross margin from Q most of that is really associated with Max but also a little bit in terms of the ramp.
Yep here architecture products that we have so keep in mind, our data center will likely be lower percentage of total revenue, but given the strong overall gaining growth that we expect Keytrade Q2 Q3 within that came in graph keep in mind consoles are also included.
Which will continue to be about our company totals average gross margin and that is expected to be up strongly quarter over quarter for our overall consumption match, we're going to be ramping those new architectures.
Over time, we have the ability to expand our gross margin hours Emcare Gpus mature chip.
Okay.
Your next question comes from the line Stacy Rasgon with Bernstein Research. Your line is open.
Hi, guys. Thanks for taking my question I wanted to dig into data center will but this is a question for our collapse. So in the quarter ex Mellanox data center was up Corrugators not maybe six 7% the guide looks to be roughly similar to that out into Q3 can you talk a little bit about what's driving the trajectory or are you more demand or.
More supply limited at this point what does your supply situation look like and what are the lead times, especially on the a 100 products for datacenter look like at this point, but can you get more capacity.
They are level do you think you have like a stronger trajectory than you have right now.
Yes. So thanks for the question, let me first start on our Q3 outlook and what we're seeing and.
Only think about market down and our supply we're very comfortable with the supply that we have keep in mind, our products are quite complex and Bob our time spent in terms of procuring every aspect of that supply over multiple quarters trading last night, so thats probably bar.
Our very confident but the overall supply that we have across the board in data center keep in mind, that's not just a 100, we're continuing to shallow RG 100, Archie for and we're also bringing new versions of the 100 coming to overall market.
So I hope that helps to understand our statements.
Where we Havent changed the Q3 guidance, let's see if jensen wants to add a little bit more tomorrow.
Well when we're ramping.
We share a love to have more in sooner.
And but.
This is our plan and.
We're executing to the plan. It is a very complicated product this as a as Colin mentioned it is the most comp.
Got it got it and to start just a quick follow up.
Within the data center guidance, how do you think about like the core data center sequential growth versus Mellanox.
Yes, so in terms of moving from Q2. The Q3, we will be that most of the actual growth that we will receive in that single low single digits option that single digit growth for likely stemmed from Nvidia Comperj, Bob will be to market.
Stryker about.
Your next question comes from the line Joseph Moore with Morgan Stanley. Your line is helping.
Great. Thank you I wonder if I could ask a longer term question about the how are you guys see the importance of process technology, there's been a lot of discussion around that in the CP you domain, but.
You guys haven't really felt the need to be first on seven nanometer and you've done very well just how important do you think it is to be early in a new process node and how does that factor into the cycle of innovation in Lydia.
Yes.
Thanks Jody.
Process technology as a lot more complex than a number.
I think people as simplified the down to two almost a ridiculous level.
And and.
And so comp process technology, we have a really awesome process engineering team.
World Class everybody will recognize is absolutely worldwide and we worked with the boundaries.
What would TSMC really closely.
To make sure that that we engineer transistors that are ideal for us than we end, we engineer metallization systems are ideal for us it's a complicated thing.
And we do it at high art.
Then the second part of it it is where architecture, where the process technology and the rest of the design process the architecture as the chip.
In the final analysis, what in video paid for his architecture not procurement of transistors.
We're paid for architecture.
Theres a vast difference between our architecture and the second best architecture and the rest of the architectures. The difference is incredible.
We are easily twice the energy efficiency all the time.
Irrespective of the number of to assist in the transistor site.
And and so it must be more complicated answer. So we we put a lot of energy into them and then lastly, I would say that going forward, it's really about data center scale computing.
Going forward you optimize at the data center scale and the reason the reason why this for a fact is because of your software engineer you would be sitting at home right now and you were right a piece of software that runs on the entire data center in the crowd.
We have no idea, what's underneath that northern new care and so what you really want it to make sure that that data centers as high throughput on there are not coding.
And so what Nvidia has decided to do over the years is to take our deep into a new level of course, we start rebuilding the world's best processors.
And we use the world's best down.
And we partner with them very closely to engineer the best process for us.
We partner with the best packaging companies to create the world's best packaging, where the world's first user cobots.
And and.
With that I think were im pretty sure we're still the highest volume by far.
Two and a happy and Threed packaging and so.
So we start from a great chip, we start from a great shift, but we don't and that's just the beginning for us.
We take this thing all the way through system the system software algorithms networking all the way up to the entire data center and the difference.
Absolutely shocking.
We built our our our data center the lean.
And it took us four weeks, we put up the put up saline and four weeks time. It is the seven fastest supercomputer in the world one of the fastest AI supercomputer in the world. It's the most energy efficient supercomputing World and it broke every single record in MLP.
And that kind of shows you something about where the scale that we work and the complexity the work that we do.
This is this is the future it's for for the future is about data centers.
No further questions at this time Jensen long I turn the call back over to you.
Thank you we accelerated computing model, we pioneered has clearly past the tipping point adopting.
In video computing is accelerating.
And this foundation and leveraging one architecture, we have transformed our company in three dimensions first and media is a full stack computing platform company.
Offering the world's most dynamic industry, the chips system software and library like India AI to tackle the most pressing challenges.
And many of US second and video the datacenter scaled company with capabilities to architect build and operate the most advanced data centers. The datacenter is the new computing unit.
With this capability, we can create modern data center architectures that are computer maker partners.
And then scale out to the world's industries.
Third.
And maybe as a software defined company today.
With rich software content by two personnel.
And video virtual workstation in the cloud.
Video AI and Nvidia drive that will add recurring software revenue to our business model.
In the coming years.
I will revolutionize software.
Robotics will automate machine.
And the virtual and physical worlds will become increasingly integrated through VR and AR.
Industry advancements, we accelerate and in video accelerated computing will play an important role.
Our next GTC will be coming on October step again from my kitchen.
Morning.
I have some exciting developments to share with you.
Thanks, everyone.
This concludes today's conference call you may now disconnect.
Okay.
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