Q2 2023 NVIDIA Corp Earnings Call

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After the Speakers' remarks, there will be a question and answer session. If he would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question press.

Star One again I would now like to turn the conference over to Simona Jankowski head of Investor Relations. Please go ahead.

Thank you.

Good afternoon, everyone and welcome to the video conference call for the second quarter of fiscal 2023 with me today from Nvidia are Jensen, Huang President and Chief Executive Officer, and Colette, Kress Executive Vice President and Chief Financial Officer.

I'd like to remind you that our call is being webcast slide when in videos Investor Relations website.

The webcast will be available for replay until the conference call to discuss our financial results for the third quarter of fiscal 2023.

The contents of today's call is <unk> property, it can be reproduced or transcribed without our prior written consent.

During this call we may make forward looking statements based on current expectations. These 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.

K and 10-Q and to report that we May file on form 8-K, with the Securities and Exchange Commission.

All our statements are made as of today August 24th 2022 based on information currently available to us.

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 to GAAP financial measures in our CFO commentary, which is posted on our website with that let me turn the call over to Colette.

Thanks, Simona this was a challenging quarter total revenue of $6 7 billion was down 19% sequentially and up 3% year on year below the $8 1 billion outlook, we provided on our last earnings call as.

As we indicated in our pre announcement press release on August eight we experienced a shortfall to our expectations driven primarily by weaker gaming revenue.

Today, we will share with you more details on our Q2 results and Q3 outlook.

Starting with gaming.

Revenue of 2.04 billion was down 44% sequentially and down 33% year on year, reflecting challenging market conditions as discussed in May we expected a sequential decline in gaming revenue due to softness in Europe related to the war in Ukraine, and Covid Lockdowns in China.

No.

The decline in gaming GPU revenue was sharper than anticipated driven by both lower units and lower <unk>.

Macro economic headwinds across the world drove a sudden slowdown in consumer demand, we implemented programs with our gaming channel partners to adjust pricing and Michelle.

And two price position current high on desktop Gpus as we prepare for a new architecture launch.

As noted last quarter, we had expected crypto currency money to make a diminishing contribution to gaming demand.

We are unable to accurately quantify the extent to which reduced crypto mining contributed to the decline in gaming demand.

In May we expected a sequential decline in gaming revenue due to softness in Europe related to the war in Ukraine, and Covid Lockdowns in China.

While gaming navigate significant short term macroeconomic challenges, we believe the long term fundamentals in gaming remains strong.

The decline in gaming GPU revenue was sharper than anticipated driven by both lower units and lower Asp's Matt.

Nvidia Archie.

Has redefined computer graphics and is now supported by almost 300 games and applications and video <unk> are the most coveted brand by gamers, representing 15 of the top 15, most popular Gpus on stream.

Macro economic headwinds across the world drove a sudden slowdown in consumer demand, we implemented programs with our gaming channel partners to adjust pricing in the channel.

<unk> has emerged from the pandemic as even more popular form of entertainment and social connectivity Esther.

And two price position current high on desktop Gpus as we prepare for a new architecture launch.

Estimated Q4 sell through is up over 70% since before the pandemic.

As noted last quarter, we had expected crypto currency mining to make a diminishing contribution to gaming demand.

Peak concurrent users on scheme are also up more than 70% over the same time period.

We are unable to accurately quantify the extent to which reduced crypto mining contributed to the decline in gaming to Mt.

G Force now registered members now exceed $20 million. This quarter, we added 80 more titles, including the hugely popular Jensen impact, bringing our total to over 1350.

While gaming navigate significant short term macroeconomic challenges, we believe the long term fundamentals and gaming remains strong.

Nvidia RTI.

Moving to professional visualization.

Has redefined computer graphics and is now supported by almost 300 games and applications and video <unk> Gpus are the most coveted brand by gamers, representing 15 of the top 15, most popular Gpus on stream game.

Revenue of $496 million was down 20% sequentially and down 4% from a year ago, a sequential increase in mobile revenue was more than offset by lower desktop revenue, particularly at the high end.

Gaming has emerged from the pandemic, even more popular form of entertainment and social connectivity.

As macro economic headwinds intensified enterprise demand slowed and Oems worked to reduce inventory. We expect these trends to persist in Q3.

Estimated G force sell through is up over 70% since before the pandemic.

While process is undergoing a near term adjustment after doubling last year. We believe we have expanded the market opportunity over the last couple of years with AI and omni versus workloads. We believe hybrid work is here to stay and with the need for collaborative <unk> design.

Peak concurrent users on scheme are also up more than 70% over the same time period.

G Force now registered members now exceed $20 million. This quarter, we added 80 more titles, including this usually popular jensen impact, bringing our total to over 1350.

Enabled by professional graphic workstations, both at home and in the office as well as in the cloud.

Moving to professional visualization.

In June we announced a partnership with Siemens to enable the industrial <unk> and AI powered digital twins connecting humans accelerator platform, two <unk> and video omnivorous.

Revenue of $496 million was down 20% sequentially and down 4% from a year ago, a sequential increase in mobile revenue was more than offset by lower desktop revenue, particularly at the high end.

This connection opened Siemens to the vast ecosystem of Nvidia omni versus and Nvidia to Siemens ecosystem of the world's largest industries.

As macro economic headwinds intensified enterprise demand slowed and Oems worked to reduce inventory. We expect these trends to persist in Q3.

Earlier this month at SIGGRAPH, the Premier Computer graphics conference, we announced advancements to several foundational technologies of the meta birth defined as the three D version of the Internet.

While progress is undergoing a near term adjustment after doubling last year. We believe we have expanded the market opportunity over the last couple of years with AI and omni versus workloads. We believe hybrid work is here to stay and with it the need for collaborative <unk> design.

And video omni versus.

Our cloud engine will enable businesses to create and deploy assistance and avatars transforming interactions across a range of industries.

Enabled by professional graphic workstations, both at home and in the office as well as in the cloud.

We also unveiled 11, new omni versus connectors, bringing the total number of connectors to the omni versus USD ecosystem to 112.

In June we announced a partnership with Siemens to enable the industrial numbers and AI powered digital twins connecting Siemens accelerator platform to MBT Nvidia omnivorous.

And finally, we release SDK for the new field of neuro graphics, which intertwined AI and graphics to help automate the creation of virtual worlds.

This connection opened seamless to the vast ecosystem of Nvidia omni <unk> and Nvidia to Siemens ecosystem of the world's largest industries.

Moving to automotive.

Revenue of $220 million increased 59% sequentially and 45% from the year ago quarter strong growth was driven by auto.

Earlier this month at say graph the Premier computer graphics conference, we announced advancements to several foundational technologies up another birth defined as the <unk> version of the Internet.

AI solutions, which include AI cockpit, and self driving revenue with particular strength in self driving.

Nvidia <unk>.

<unk>, new energy vehicle design wins ramp into volume.

Our cloud engine will enable businesses to create and deploy our systems and avatars transforming interactions across a range of industries.

We believe Q2 was an inflection point for our automotive revenue.

Nvidia, Oregon has great momentum during the quarter, we announced rollout plans of new vehicles from OEM partners, Neil the auto <unk> and human Horizons as well as Tony a honest line of self driving trucks and Robo taxis all built on Nvidia drive looking.

We also unveiled a 11, new omni versus connectors, bringing the total number of connectors to the omni versus USD ecosystem to 112.

And finally, we release SDK for the new field of neuro graphics, which intertwined AI and graphics to help automate the creation of virtual worlds.

Forward, we expect our 11 billion automotive design win pipeline to translate to continued growth.

Moving to automotive.

Moving to data center.

<unk> of $220 million increased 59% sequentially and 45% from the year ago quarter strong growth was driven by auto.

Revenue of 3.81 billion grew 1% sequentially and 61% year on year.

Although our record this was somewhat short of our expectations as we were impacted by supply chain disruptions.

AI solutions, which include AI cockpit, and self driving revenue with particular strength in self driving as new energy vehicle design wins ramp into volume.

Revenue from Hyperscale customers nearly doubled year on year sequentially sales to North America, Hyperscale and cloud computing customers increased but were more than offset by lower sales to China hyperscale customers affected by domestic economic conditions.

We believe Q2 was an inflection point for our automotive revenue.

Nvidia, Oregon has great momentum during the quarter, we announced rollout plans of new vehicles from OEM partners Neil The auto do you do in human Horizons as well as Tony a honest line of self driving trucks and robo taxi all built on Nvidia drive.

Vertical industries grew both sequentially and year on year.

Key workloads driving growth include natural language processing recommend or systems.

To Ms vehicle fleet data processing and training and cloud graphics.

Looking forward, we expect our 11 billion automotive design win pipeline to translate to continued growth.

Let me share a couple of customer examples.

Interest transitioned to 100 X larger recommend or models by moving its imprint from Cpus to Nvidia Gpus, it's ability to deploy a higher quality model at high throughput and low latency resulted in a 16% increase engagement.

Moving to data center.

Revenue of $3, eight 1 billion grew 1% sequentially and 61% year on year.

Although our record this was somewhat short of our expectations as we were impacted by supply chain disruptions.

Revenue from Hyperscale customers nearly doubled year on year sequentially sales to North America, Hyperscale and cloud computing customers increased but were more than offset by lower sales to China hyperscale customers affected by domestic economic conditions.

The critical metrics for the company, which has over 400 million users and 300 billion images.

And Tesla recently upgraded its supercomputer to use over 7100 Gpus for auto pilot training.

From a product perspective networking led growth this quarter with strong demand from our high speed Ethernet adapters and design win momentum towards next generation adopters, including the connect at six and connected seven we.

Vertical industries grew both sequentially and year on year.

Key workloads driving growth include natural language processing recommend or systems.

MS vehicle fleet data processing and training and cloud graphics.

We also see growing interest from cloud service providers for our new spectrum for 400 gigabit per second Ethernet networking platforms.

Sure a couple of customer examples.

Entrust transitioned to 100 X larger recommended models by moving its imprint from Cpus to Nvidia Gpus, it's ability to deploy a higher quality model at high throughput and low latency resulted in a 16% increase in engagement.

Additionally, we are ramping into the upcoming launches of our next generation platforms.

Hopper architecture flagship H 100, datacenter GPU is in production.

This is our first CPU top.

A critical metric for the company, which has over 400 million users and 300 billion images.

Computer makers, including Dell HPE Ginsberg, Lenovo and supermicro are adopting the new Nvidia Grace CPU Super Chip and Grace Hopper Super Chip to build the next generation of Supers.

And Tesla recently upgraded its supercomputer to use over 7100 Gpus for auto pilot training.

From a product perspective networking led growth this quarter with strong demand from our high speed Ethernet adapters and design win momentum towards next generation adopters, including the connect at six and connect at seven.

71% of the systems on her latest top 500 list of the world's fastest supercomputers are powered by Nvidia, including 31 of 39 new systems.

It is one so lean a supercomputer ranked at number eight in the top 500 and as the world's fastest enterprise supercomputer.

We also see growing interest from cloud service providers for our new spectrum for 400 gigabit per second Ethernet networking platform.

Moreover, 22 of the top 30 systems on the Green 500 list of the most energy efficient supercomputers are powered by Nvidia.

Additionally, we are ramping into the upcoming launches of our next generation platforms.

Hopper architecture flagship H 100, datacenter GPU is in production.

Significant advances in software technologies are key to our platform performance in the past two years are a 100 based platform has delivered six X more performance as measured by BMO curve industry benchmark largely through new software technologies and optimizations.

<unk> is our first CPO top.

Computer makers, including Dell HPE in spur Lenovo and supermicro are adopting the new Nvidia Grace CPU Super Chip and Grace Hopper Super Chip to build the next generation of shippers.

Month, we announced an update to the Nemo Megatron framework that can speed up the training of large language models by up to 30%.

70% of the systems on the latest top 500 list of the world's fastest supercomputers are powered by Nvidia, including 31 of 39 new systems.

Improving a multi hundred million dollar AI infrastructure by 30% translates to significant value for customers.

If it is an <unk> supercomputer ranked at number eight in the top 500 and as the world's fastest enterprise supercomputer.

Hello, and are one of the most important neural networks today ranging in size from tens of billions over a trillion parameters learnings.

Moreover, 22 of the top 30 systems on the Green 500 list of the most energy efficient supercomputers are powered by Nvidia.

Turning from tax they can be used for real time content generation.

Summarization customer service chat box and question answering for conversational AI interfaces.

Significant advances and software technology are key to our platform performance in the past two years were a 100 based platform has delivered six X more performance as measured by BMO curve industry benchmark largely through new software technology and optimization.

Currently these capabilities are available to early access customers to run on Nvidia <unk>, Supercars and Nvidia <unk> foundries as well as in Microsoft Azure cloud with other platforms available soon.

Month, we announced an update to the Nemo Megatron framework that can speed up the training of large language models by up to 30%.

We are working with the industry leaders in large language models, the very active and exciting space of AI.

Improving a multi hundred million dollar AI infrastructure by 30% translates to significant value for customers.

Moving to the rest of the P&L GAAP gross margins was 43, 5% and non-GAAP gross margin was 45, 9%.

Hello, and are one of the most important neural networks today ranging in size from tens of billions over a trillion parameters.

Gross margin includes one point to $2 billion and charges for inventory and related reserves based on revised expectations of future demand.

Learning from tax they can be used for real time content generation.

And $122 million for warranty reserves these charges incurred in the quarter reflect purchase commitments that we made during a time of severe component shortages and our current expectation of ongoing macro uncertainty we believe our long term gross margin profile.

Summarization customer service chat box and question answering for conversational AI interfaces.

Currently these capabilities are available to early access customers to run on Nvidia <unk>, Supercars and Nvidia <unk> foundries as well as in Microsoft Azure cloud with other platforms available soon.

Is intact.

GAAP operating expenses were up 36% from a year ago and down 32% <unk>.

We are working with the industry leaders in large language models, a very active and exciting space of anyway.

Sequentially as Q1 included a 135 billion acquisition termination charge related to the arm acquisition transaction.

Moving to the rest of the P&L GAAP gross margins was 43, 5% and non-GAAP gross margin was 45, 9%.

non-GAAP operating expenses were up 38% from a year ago and up 9% sequentially. These increases were driven primarily by employee growth costs as well as increases in salaries to support our employees. During this high inflationary environment and engineering development.

Gross margin includes one point to $2 billion in charges for inventory and related research.

Based on revised expectations of future demand and $122 million for warranty reserves.

Of new products coming to market.

These charges incurred in the quarter reflect purchase commitments that we made during a time of severe component shortages and our current expectation of ongoing macro uncertainty.

We have slowed operating expense growth <unk> seen investments for long term revenue growth, while managing near term profitability.

Our full year non-GAAP Opex is expected to grow over 30%.

We believe our long term gross margin profile is intact.

During the first half of fiscal 2023, we returned $5 5 billion to shareholders in the form of share repurchases and cash dividends.

GAAP operating expenses were up 36% from a year ago and down 32%.

Sequentially as Q1 included a 135 billion acquisition.

To continue share repurchases.

We have nearly $12 billion remaining under our operation through December of 2023.

Acquisition termination charge related shipping arm acquisition.

Transaction.

non-GAAP operating expenses were up 38% from a year ago and up 9% sequentially. These increases were driven primarily by employee costs as well as increases in salaries to support our employees during this high inflationary environment.

Let me turn to the outlook for the third quarter of fiscal 'twenty three.

We expect gaming and Provus revenue to decline sequentially.

As Oems and channel partners reduced inventory levels to align with current levels of demand and prepare for our new product generation.

Engineering development of new products coming to market.

We have slowed operating expense growth outpacing investments for long term revenue growth, while managing near term profitability.

We expect that decline to be partially offset by sequential growth in data center and automotive.

Revenue is expected to be $5 9 billion plus or minus 2%.

Our full year non-GAAP Opex is expected to grow over 30%.

GAAP and non-GAAP gross margins are expected to be 62, 4% and 65%, respectively, plus or minus 50 basis points.

During the first half of fiscal 2023, we returned $5 5 billion to shareholders in the form of share repurchases and cash dividends, we plan to continue share repurchases.

GAAP operating expenses are expected to be approximately $2 $5 9 billion non-GAAP operating expenses are expected to be approximately 182 billion.

We have nearly 12 billion remaining under our operation through December two.

2023.

Let me turn to the outlook for the third quarter of fiscal 'twenty three.

GAAP and non-GAAP other income and expenses are expected to be an expense of approximately $10 million, excluding gains and losses on non affiliated investments.

We expect gaming and provost revenue to decline sequentially.

As Oems and channel partners reduced inventory levels to align with current levels of demand and prepare for our new product generation.

GAAP and non-GAAP tax rates are expected to be 9.5% plus or minus 1%, excluding any discrete items.

We expect that decline to be partially offset by sequential growth in data center and automotive.

Capital expenditures are expected to be approximately $550 million to $600 million.

Revenue is expected to be $5 9 billion plus or minus 2%.

Further financial details are included in the CFO commentary and other information available on our IR website <unk>.

GAAP and non-GAAP gross margins are expected to be 62, 4% and 65%, respectively, plus or minus 50 basis points.

In closing, let me highlight upcoming events for the financial community, we'll be attending the Jefferies Conference in Chicago on August 30th.

And the Goldman Sachs Conference in San Francisco on September 12.

GAAP operating expenses are expected to be approximately $2 $5 9 billion non-GAAP operating expenses are expected to be approximately 182 billion.

And we will be holding a financial analyst Q&A with management following Jensen to GTC keynote on September 20th.

GAAP and non-GAAP other income and expenses are expected to be an expense of approximately $10 million, excluding gains and losses on non affiliated investments.

Our earnings call to discuss the results of our third quarter of fiscal 2023 is scheduled for Wednesday November 16th.

We will now open the call for questions. Operator can you assist would you please poll for questions.

GAAP and non-GAAP tax rates are expected to be nine, 5% plus or minus 1%, excluding any discrete items.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster. As a reminder, please limit yourself to one question.

Capital expenditures are expected to be approximately $550 million to $600 million.

Further financial details are included in the CFO commentary and other information available on our IR website <unk>.

Your first question comes from the line of C. J Muse with Evercore ISI. Your line is open.

In closing, let me highlight upcoming events for the financial community, we'll be attending the Jefferies Conference in Chicago on August 30th and.

Yeah. Good afternoon. Thank you for taking the question I think the question. We all have is what is normalized revenues for gaming for you guys. Obviously.

And the Goldman Sachs Conference in San Francisco on September 12.

The challenge there as well, but curious how you're thinking about it today is the <unk>.

And we will be holding a financial analyst Q&A with management following Jensen GTC keynote on September 20th.

Fiscal 'twenty recovery post the first half margin correction in appropriate framework or was that it's weighted by crypto as well.

Our earnings call to discuss the results of our third quarter of fiscal 2023 is scheduled for Wednesday November 16th.

And I guess as part of that how do we think about that.

Cascading in of the new product cycle.

And is there potential for future.

We will now open the call for questions. Operator can you assist would you please poll for questions.

Reserves.

It can be taken at gaming does not meet your new updated outlook. Thanks, so much.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster. As a reminder, please limit yourself to one question.

Well, let me start first there and see if I can assist in terms of how to think about after we get through.

Your first question comes from the line of C. J Muse with Evercore ISI. Your line is open.

Our completion, just now with Q2.

And what we have provided here for guidance for Q3 across those two quarters for Q2 of <unk> 23 for Q3 of 'twenty three we have likely under shipped gaming to our end demand significantly.

Yeah. Good afternoon. Thank you for taking the question I think the question. We all have is what is normalized revenues for gaming for you guys. Obviously.

The challenge there as well, but curious how you're thinking about it today is that fair.

We expect that sells through our essentially our end demand for those combined two quarters are Q2, and Q3 to be approximately $5 billion.

Fiscal 'twenty recovery post the first half 19 correction of appropriate framework or was that an inflated by buyer group deal as well.

And I guess as part of that how do we think about that.

Now on top of this keep in mind that we do have a gaming growth drivers to consider for the future. These conclude our new gaming product introductions that are around the corner as well as new segments of the market that we plan to reach with our gaming technology to just name a couple.

Cascading in of the new product cycle.

And is there potential for future.

Reserves need to be taken at gaming does not meet your new updated outlook. Thanks, so much.

I'll turn it over to Jensen to talk a little bit more about that now regarding any further types of write downs on this perspective, we did a thorough assessment with this quarter not only just looking at what we needed for this quarter, but what we need for the long term keep in mind our inventory.

Well, let me start first there and see if I can assist in terms of how to think about after we get through.

Our completion, just now with Q2.

And what we have provided here for guidance for Q3.

Cross those two quarters Q2, 'twenty three the Q3 of 'twenty three we have likely under shipped gaming to our end demand significantly.

<unk> and write downs that we took into account how to reflect some of the purchasing that we did a supply back more than a year ago when.

We expect that sell through our essentially our end demand for those combined two quarters are Q2, and Q3 to be approximately $5 billion.

When we were still in extreme supply shortages.

And almost all of our products and so this was an opportunity for us to re size given the macro economic conditions.

Now on top of this keep in mind that we do have a gaming growth drivers to consider for the future. These can include our new gaming product introductions that are around the corner as well as new segments of the market that we plan to reach with our gaming technology to just name a couple.

We needed in terms of supply so our expectations for higher and we took this opportunity to <unk>.

Write them down to what our current expectations are.

Turn it over to Jensen, the Cfe wants to Ahmad.

I'll turn it over to Johnson to talk a little bit more about that now regarding any further types of write downs on this perspective, we did a thorough assessment with this quarter not only just looking at what we needed for this quarter, but what we need for the long term keep in mind our inventory.

Yes, thanks Cliff.

C J our sell through.

Off the highs.

At the beginning of the year.

But it is still very solid.

In fact.

Sell through is has increased.

70% since pre Covid pre pandemic.

Provisions and write downs that we took into account how to reflect some of the purchasing but we did have supply back more than a year ago.

So it's very clear that gaming is the fundamentals of gaming are strong and.

This does medium is is really doing well not to mention.

When we were still in extreme supply shortages.

And almost all of our products and so this was an opportunity for us to re size given the macro economic conditions.

The gaming platforms are being used are gaming Pcs are being used for influencers people sharing content, creating content.

B bloggers <unk>, there's all kinds of new ways of.

We needed in terms of supply so our expectation for higher and we took this opportunity to write them down to what our current expectations.

Engaging in and.

Spending time with video games.

<unk> strategy is to reduce.

Turn it over to Jensen, the CFO <unk> Ahmad.

The sell in.

Thanks Cliff.

Reduce the solar in this quarter next quarter to lead channel inventory correct.

C J our sell through.

<unk> off the highs.

Obviously, we're off the highs and the macro condition turned sharply worse.

In the beginning of the year.

But it is still very solid.

And so.

In fact.

Our first strategy is to reduce sell in in the next couple of quarters to correct channel inventory. We've also.

Sell through is has increased.

70% since pre Covid <unk> pandemic.

Institute.

So it's very clear that gaming is the fundamentals of gaming are strong and.

Programs to price position.

Current products.

This does medium is is really doing well not to mention.

To prepare for next generation products.

And pure.

The gaming platforms are being used are gaming Pcs are being used for influencers people sharing content, creating content.

Is the most popular GPU we've ever created it is in the.

The top 15 most popular.

B bloggers V tubers, theres, all kinds of new ways of.

Gaming Gpus on steam.

Engaging in and.

And it remains the best Gpus in the World and it will be very successful for some time.

Spending time with video games.

Our strategy is to reduce.

However, we do have exciting new next generation coming in is going to be layered on top of that and so we've taken two we've done two things we've reduced sell in to low channel inventory correct and we've.

The sell in.

Reduce the solar in this quarter next quarter to.

To lead channel inventory correct.

Obviously, we're off the highs and the macro condition terms sharply worse.

Implemented programs with our partners to price position.

And so.

Our first strategy is to reduce sell in in the next couple of quarters to correct channel inventory. We've also.

The products in the channel.

In preparation for our next generation <unk>.

All of this we anticipate we're working towards a path to be in a good shape.

Instituted.

Programs to price position our current products.

Going into next year.

Okay, So thats that.

To prepare for next generation products.

Yes.

That's what our viewpoint is.

And pure.

Your next question will come from the line of Vivek Arya with Bank of America Securities. Your line is open.

Is the most popular GPU, we've ever created it isn't.

The top 15 most popular.

Alright, Thanks for taking my question actually I, just wanted to clarify Jensen.

Gaming Gpus on Steve.

So should we assume that gaming sell in will kind of stay at these levels into your Q1 or Q2 or depending on new product launch it might recover so just wanted to make sure our baseline assumption et cetera.

And it remains the best Gpus in the World and it will be very successful for some time.

However, we do have exciting new next generation company is going to be layered on top of them and so we've taken two we've done two things we've reduced sell in to lead channel inventory correct.

And then my question is actually similar on the data center sales.

Sales are pretty strong right now, but that is the concern that data center capex could be the next shoe to drop and this ruling correction in semiconductors I'm curious, what's your sense of utilization of your data center shipments and what is the risk that there could be a correction in the data center given some of the macro caution.

And we've.

Implemented programs with our partners to price position.

The products in the channel.

In preparation for our next generation <unk>.

All of this we anticipate working towards a path to being in a good shape going into next year.

Expressed by some of the Hyperscale and enterprise customers.

Okay. So that's.

That's what our game plan is.

Okay. Thanks for that.

Your next question will come from the line of Vivek Arya with Bank of America Securities. Your line is open.

Yeah.

The sell through the sell through as I mentioned earlier.

G Force is solid.

Thanks for taking my question I actually just wanted to clarify Jensen.

The end market gaming demand is solid as off the highs, which was which was really high recently and the beginning of the year.

So should we assume that gaming sell in will kind of stay at these levels into your <unk>.

Q1, or Q2 or depending on new product launch it might recover so just wanted to make sure our baseline assumption set there.

And so we have and because we were building for.

Hi.

As such a such a vibrant market.

And then my question is actually similar on the data center sales.

We found ourselves with.

Sales are pretty strong right now, but that is a concern.

Excess inventory.

Data center Capex could be the next shoe to drop in this ruling correction in semiconductors I'm curious, what's your sense of utilization of your data center shipments and what is the risk that there could be a correction in the data center given some of the macro caution.

And so our strategy is to sell well below well sell in well below the current sell through levels in the marketplace to give the channel an opportunity is it correct. We will do that for a couple of couple of quarters or so.

<unk> by some of the Hyperscale and enterprise customers.

We believe that by the end of the year will be in a good shape going into next year.

Thanks Vivek.

Yeah.

And so so.

<unk>.

The sell through the sell through as I mentioned earlier.

Hope that answers your question, but the important thing is our sell in rate.

G Force is solid.

As far below.

The end market gaming demand is solid as off the highs, which was which was a really high recently and the beginning of the year.

What is happening in the market for so sell through the sell through to solid.

It has increased 70% since pre COVID-19.

And so we have and because we were building for.

And so the gaming market is really quite vibrant.

Alright.

Such a such a vibrant market and we found ourselves with excess inventory.

Hi.

On the second question on data center end markets.

We hear fairly broadly.

And so our strategy is to sell well below well sell in well below the current sell through levels in the marketplace to give the channel an opportunity to correct. We'll do that for a couple of couple of quarters or so.

But GPU supply is in shortage in the cloud.

We hear quite broadly.

Demand for GPU rentals.

Alright, it far exceeds.

Current supply.

And it's fairly sensible to us.

We believe that by the end of the year will be in a good shape going into next year.

Partly because.

The number of use cases for Gpus in the cloud has grown quite a bit.

And so so I hope that answers your question, but the important thing is our sell in rate.

If you look at if you look at one particular segment and just managing collecting data and managing the data of the AAV fleet and using that data to train AI models using that data to reconstruct HD maps.

As far below.

What is happening in the market for so sell throughs to sell through the solid.

<unk> decreased 70% since pre COVID-19.

The usage of Gpus in the cloud for just that one application has grown a lot.

So the gaming market is really quite vibrant.

Alright.

On the second question on data center end markets.

And.

<unk>.

Furthermore, there is the.

We hear fairly broadly that.

<unk>.

Deep Red deep learning based recommend our systems have demonstrated as such.

That GPU supply is in shortage in the cloud.

Significant effectiveness.

We hear quite broadly.

It helps it helps internet service providers.

Demand for GPU rentals.

To enhance engagement enhanced click through rate and so that so this particular form of recommend or systems.

Alright, it far exceeds.

Current supply.

And and it's fairly sensible to us.

<unk> is going to really drive a fair amount of.

Partly because.

The number of use cases for Gpus in the cloud has grown quite a bit.

Data processing and machine learning and the cloud.

And then of course.

Over the last several years very important model has emerged called Transformers.

You look at if you look at one particular segment and just managing collecting data and managing the data of the AAV fleet and using that data to train AI models using that data to reconstruct HD maps.

You and I have spoken about this model several times in the past.

And its been filmed that this transformer model these linked largely which does language model, which when scaled up in size.

The usage of Gpus in the cloud.

That one application has grown alone.

Exhibits.

<unk> and <unk>.

Really spectacular.

Furthermore, there is the.

And.

Deep Red deep learning based recommend our systems.

Effective capabilities.

Four.

Has demonstrated such.

To be to be used to to learn skills.

Significant effectiveness.

With either few shots or almost no shot meaning it could it could learn skills it could perform skills, but never learned.

And it helps it helps internet service providers.

To enhance engagement enhanced click through rate and so that so this particular form of recommend or systems.

The knowledge was somehow encoded from the large amount of data that have learned.

Is going to really drive a fair amount of.

<unk> from.

And so this large language model.

Data processing and machine learning and the cloud.

Area.

And then of course.

Innovations.

The last several years very important model has emerged called Transformers.

<unk>.

The used and of course conversational chat.

You and I have spoken about this model several times in the past.

Q&A summarization techs generation image generation.

And it's been found that this transformer model these linked largely which does language model, which when scaled up in size.

But very importantly, its being used in life sciences for understanding chemistry, we've done some very important work in this area ourselves <unk> understanding proteins understanding DNA to learn the language of these large very very large.

Exhibits.

Really spectacular.

And.

Effective capabilities.

Four.

To be to be used to to learn skills.

Especially as well as temporarily where sequentially types of data.

With either few shots or almost no shot meaning it could it could learn skills it could perform skills, but never learned.

And so so the impact of of this area is really quite worth staying close to is called large language models I think Stanford did a paper that causes foundation models that could be used for training all kinds of other types of data and so we're seeing a great deal of demand for Gpus in the cloud.

The knowledge was somehow encoded from the large amount of data that had learned.

And from.

And so this large language model.

Area.

Innovation is.

<unk>.

The used and of course conversational chat.

We were challenged.

This quarter with a fair amount of supply chain challenges because.

Q&A summarization techs generation image generation, but very importantly, its being used.

As you know we we.

Don't just sell the GPU chip.

But these systems are really complex with <unk>.

In life Sciences for understanding chemistry.

A large number of chips in the system components that we offer like H Gx and so kidding all of the all of the components that come together for us to be able to deliver the final component and then Furthermore, these data centers.

Done some very important work in this area ourselves combing mobile art understanding proteins understanding DNA to learn the language of these large very very large.

<unk>.

Especially as well as temporarily where sequentially types of data.

Sit idle until the last piece comes together and the last piece includes very complicated switches and very complicated mix in networking and cables.

And so so the impact of of this area is really quite worth staying close to this called large language models I think Stanford did a paper that causes foundation models that could be used for training all kinds of other types of AI and so we're seeing a great deal of demand for Gpus in the cloud.

This building.

Building. These high performance computing data centers at very large scale for the world's clouds is not not.

Particularly easy and so the supply chain challenges.

Been somewhat somewhat disruptive, but the demand is there.

And.

We were we were challenged.

On top of that.

We're ramping into ramping into Hopper, which is which is really a fantastic for generation.

This quarter with a fair amount of supply chain challenges because as you know we.

We don't just sell the GPU chip.

Your next question will come from the line of Matt Ramsey with Cowen Your line is open.

But these systems are really complex with.

A large number of chips in the system components that we offer like H Gx and so kidding all of the all of the components have to come together for us to be able to deliver the final component and then Furthermore, these data centers.

Thank you very much good afternoon.

I wanted to follow up on the data Center question Vivek, just ask from a couple of angles.

I guess collect the first angle being.

In the release you guys talked about pulling.

Sit idle until the last piece comes together and the last piece includes very complicated switches and very complicated mix of networking and cables and so these are building. These high performance computing data centers at very large scale for the world's clouds.

Hi, 200 millions of revenue into the July quarter from from October , but also with supply chain challenges, maybe some deliveries that were meant for July got pushed back into October . So if you could talk a little bit more about those dynamics.

Just clarify for us that the October sequentially up data center guidance is actually clean of any pull ins and <unk>.

Not not.

Particularly easy and some supply chain challenges.

It has been somewhat somewhat disruptive, but the demand is there and on top of that.

And the second part so.

So moving pieces networking stronger and data center U S Hyperscale stronger China Hyperscale weaker if you could kind of walk us through the trends that you're seeing into the October and January quarters.

We're ramping into ramping into Hopper, which is which is really a fantastic generation.

And those sort of those breakouts and win clarify for US. When you think it's 100 will really start to drive revenue.

Your next question will come from the line of Matt Ramsey with Cowen Your line is open.

Thank you very much good afternoon.

Yeah.

I wanted to follow up on the data Center question Vivek, just ask from a couple of angles.

Great. Thanks for the question and it's kind of a little bit of an add on to some of the statements that gentleman was discussing regarding our supply chain from what we're seeing today.

I guess collect the first angle of being in the release you guys talked about pulling I don't know high 200 millions of revenue into the July quarter from from October , but also with supply chain challenges, maybe some deliveries that were meant for July got pushed back into October . So if you could talk a little bit more about those.

Our supply chain.

During the quarter.

Really was quite difficult.

Quite challenging to work through.

Our platforms, including <unk> networking chips cables switches.

Dynamics and.

Just clarify for us that the October sequentially up data center guidance is actually clean of any pull ins and Jackson and the second part.

Were very important to the customers, it's not just about us selling the gpus, so even though.

Moving pieces networking stronger and datacenter U S hyperscale stronger China Hyperscale weaker if you could kind of walk us through the trends that you're seeing into the October and January quarters.

Customers orders components themselves. So looking from US we may refer to as Curt catch that go with those gpus for them to stand up their data centers.

And those sort of those breakouts and win clarify for US when you think your H 100 will really start to drive revenue.

We also experienced supply disruptions internally with our logistics and our component availability some of our supply.

Yeah.

Great. Thanks for the question.

Arrived very late in the quarter.

It's kind of a little bit of an add on to some of the statements that Jim Lindstrom.

We had very little time from a logistics and a.

Availability to get those things out.

With discussing regarding our supply chain from what we're seeing today.

Customers were impacted as well by availability of key third party other components that we weren't offering which was slowing down some of the care.

Our supply chain.

During the quarter.

Really was quite difficult.

Quite challenging to work through.

Care to finance, so what we did in our Q2 orders that couldnt be delivered in Q3, given that some of the supply constrained existed and we had Q3 demand where we did have supply in Q2, So we worked with customers to optimize that.

<unk> platforms, including an HTS network and chips cables switches.

Very important to the customers, it's not just about us selling the GPS so even though.

Customers orders components themselves, so looking from us, but we may refer to as cuts catch that go with those gpus for them to stand up their data centers.

Supply and demand and that's what we've disclosed to you.

Your next question C.

We also experienced supply disruptions internally with our logistics and our component availability some of our supply.

Hello.

Let me answer let me answer the questions about the North American and China, China Hyperscale.

On the.

The Chinese hyperscale or is in the Chinese internet companies.

Right very late in the quarter, we had.

Very little time from a logistics and a.

No.

Really really slow down infrastructure investment.

Availability to get those things out.

This year.

Customers were impacted as well by availability of key third party other components that we werent offering which was slowing down somewhat.

Particularly sorting.

They've been on.

Rather rather slow and building out.

And so.

<unk> appointment.

Really excellent was.

So what we did in our Q2 orders that couldnt be delivered in Q3, given that some of the supply constraints existed and we had Q3 demand where we did have supply in Q2. So we worked with customers to optimize that supply and demand and that's what we.

It was really slow down in Q2.

Alright.

Bruce.

The slowdown can't last forever.

And.

The number of the number of new technologies and software the number of people who are using clouds on a number of cloud services is continuing to grow and so I fully expect investment returns are very important market for us very large market for us.

Describe to you.

Your next quite see.

And the fact that the facts are.

Let me answer let me answer the questions about the North American and China, China Hyperscale.

Hybrid North American Hyperscale doubled.

Year over year revenues at North American Hyperscale.

On the.

The Chinese hyperscale or <unk> and the.

And that was offset by declines in.

Internet companies.

No.

Really really slow down infrastructure investment.

China.

Says something about about.

The slowdown in China, and so I don't think thats going to lunch forever I think it's going to return.

This year.

Particularly starting in.

Well.

With respect to Hopper, we're in full production now and we're racing to get Hopper too, although the csp's were core.

<unk> bin.

Rather rather slow and building out.

And.

Really accelerated was slow really slow down in Q2.

Sure.

Alright.

Going to get them.

This.

And it goes with our <unk>.

The slowdown can't last forever.

<unk>, which is multiple hoppers on a on a system system trade, it's really it's really a supercomputer and the.

And.

The number of the number of new technologies and software the number of people who are using clouds on a number of cloud services is continuing to grow.

And a motherboard if you will.

So it goes along with it.

Networking gear and switch gear.

And so I fully expect investment to return to a very important market for us very large market for us.

And so there's just.

Enormous amount of resources.

And the fact that.

Applying from all of the Csp's around the world and ourselves to get opportunity we expect to.

Hybrid North American Hyperscale doubled.

Year over year, our revenues in North America in Hyperscale.

To ship.

Substantial hoppers in Q4.

And and.

And that was offset by.

Declines in China.

Your next question will come from the line of Toshi Hari with Goldman Sachs. Your line is open.

That's something about about.

The slowdown in China, and so I don't think Thats going to last forever I think it's going to return.

Okay.

Hi, good afternoon. Thanks, so much for taking the question.

With respect to Hopper, we're in full production now and we're racing to get Hopper too, although the Csp's word core.

I had a question regarding the.

One Q2 billion inventory charge maybe for platts.

Hi.

August one specifically.

Dying to get them.

In the CFO commentary I think you state that.

And it goes with our <unk>, which is multiple hoppers on on our system system tray.

Those inventory charge.

Is it related to weaker demand in both data center and gaming.

Really it's really a supercomputer in the motherboard if you will.

The gaming side is a pretty clear based on your comments. So far curious whats changed of the data center side is it mostly.

And it goes along with it.

Networking gear and switch gear.

And so there is there.

Enormous amount of resources.

The Chinese hyperscale areas, but Jonathan just spoke to or is there something else going on in terms of how youre thinking about demand in data center over the next couple of quarters and related to this curious.

Applied from all of the Csp's around the world and ourselves to get opportunities we expect.

To ship.

Substantial hoppers in Q4.

The delay in Sapphire Rapids that Intel is having any impact on your business in the near to medium term. Thank you.

Your next question will come from the line of <unk> Hari with Goldman Sachs. Your line is open.

Thanks for the question so our inventory charges as we commented we are taking a thorough look of not only.

Yeah.

Hi, good afternoon. Thanks, so much for taking the question.

I had a question regarding the.

One Q2 billion inventory charge maybe for clay.

This last quarter as well as the quarter that we're guiding but looking over the long term of what we need for demand.

August one specifically.

In the CFO commentary I think you have states that.

And what we had in terms of supply the number we had purchased us very early on.

So the inventory charge.

Is it related to weaker demand in both data center and gaming.

In the year as we needed to to drive the commitment of the supply that we already have.

The gaming side is pretty clear based on your comments so far curious whats changed of the data center side is mostly.

So what is happening here for the data center, we had great high expectations, we still have very strong solid growth projection for our data center as well.

The Chinese Hyperscale is that Johnson, just spoke to or is there something else going on in terms of how youre thinking about demand in data center over the next couple of quarters and unrelated to this curious.

We're going to take this opportunity for some of the prior architecture.

The delay in Sapphire Rapids that Intel is having any impact on your business in the near to medium term. Thank you.

Mrs to write down those given what we see.

Just a change in terms of our expectations going forward.

Yeah.

Thanks for the question so our inventory charges as we commented we are taking a thorough look of not only.

So you are correct. There are also pieces and therefore.

Gaming, we have written down some on a silicon chips as the macroeconomic conditions and we get ready for our future product launches kick into account, but there's also components services and capacity and some of the other drivers that are operated in those write downs.

This last quarter as well as the quarter that we're guiding but looking over the long term of what we need for demand.

And then what we had in terms of supply whenever we had purchased us very early on.

In the year as we needed to to drive the commitments of the supply that we already have.

Here are.

Hopper supports.

So what is happening here further data center, we had great high expectation, we still have very strong solid growth projection for our data center as well, although we're going to take this opportunity for some of the prior architecture piece.

Previous generation.

It appears.

Okay.

I guess next generation Gpus Cpus.

For our Rapids in general after that.

As well as scrap at times.

So so we certify and test across all of the CPU.

Can you write down those given what we see.

Cpus, because the cloud service providers and the.

Just a change in terms of our expectations going forward.

They intend to deploy.

So you are correct. There are also pieces and therefore.

Nvidia accelerators and via hoppers.

Across a large number of Cpus.

Gaming, we have written down some silicone and chips.

Yes.

There is no question that the.

The macroeconomic conditions, and we get ready for our future product launches take into account, but there's also components services and capacity in some of the other drivers that are incorporated in those write downs.

The delay is.

Disruptive in a lot of engineers has to have to scramble alright.

Alright, it would have been it would have been a lot easier.

Next generation Cpus were to have executed.

Perfectly.

There are.

However, hopper goes into an environment with Csp's, where they.

Hopper supports.

Previous generation.

Connect our PCI Express.

It appears.

Right.

Connectors to OLED old generation current generation Cpus, as well and so so nobody likes nobody likes to delay the next generation Cpus will trigger.

I guess next generation Gpus Cpus.

For our Rapids in general after that.

As well as Gravitons.

So so we certify them test across all of the CPE.

A.

Refresh of infrastructure in new servers, and so I'm Super excited about them. However.

Cpus, because the cloud service providers demanded and the.

However, however, we're going to be able to go to market plenty flying with hopper supporting existing infrastructure.

They intend to deploy.

Nvidia accelerators in via <unk>.

Across a large number of Cpus.

Your next question will come from the line of Aaron Rakers with Wells Fargo. Your line is open.

Right.

There is no question that the delay is.

Disruptive in a lot of engineers have to have to scramble.

Yes, thanks for taking the question.

Lot of it is kind of talked a little bit about but I'll just.

Alright, it would have been it would have been a lot easier.

Colin I wanted to think about the numbers a little bit more.

Our next generation Cpus were to have executed.

Based on the guidance commentary, where I would come up thinking about would be like a 30% sequential decline in gaming professional visualization and may be kind of low to mid single digit growth in data center and auto. So I guess is that the right context, and with that and with hopper coming down the pipeline.

Perfectly.

However, hopper goes into an environment with Csp's, where they.

Connect our PCI Express.

Connectors to OLED old generation current generation Cpus, as well and so so nobody likes nobody likes to delay the next generation Cpus will trigger.

We're going to have a lot of questions around kind of a deceleration of year over year growth in data Center I believe.

A.

Refresh of infrastructure in new servers, and so I'm Super excited about them. However.

Do you think that hopper as that comes fully available it sounds like in fiscal <unk>.

However, however, we're going to be able to go to market plenty of fine with hopper supporting existing infrastructure.

You actually see data center growth Reaccelerate.

As that product cycle materializes.

Yes, thanks for the question and that's a pretty good understanding of our guidance.

Your next question will come from the line of Aaron Rakers with Wells Fargo. Your line is open.

Yes, thanks for taking the question.

We do expect yes gaming to decrease not in the dollar amount that a decrease between Q1 and Q2.

It's kind of been talked a little bit about but I just.

Colin I wanted to think about the numbers a little bit more.

So that may be of our two areas of the decline our gaming and co beds that may be about three quarters of that associated with that gaming and then professional visualization would probably be about one quarter.

Based on the guidance commentary, where I would come up thinking about would be like a 30 plus percent sequential decline in gaming and professional visualization and may be kind of low to mid single digit growth in data center and auto. So I guess is that the right contacts and with that and with hopper coming down the pipeline.

The two areas that will decline.

Our data center, yes, we do expect it to grow and May grow about what we just saw between Q1 Q2, we'll continue to look at it.

We're going to have a lot of questions around kind of the deceleration of year over year growth in data Center I believe do you think that hopper as that comes fully available it sounds like in fiscal <unk> that you actually see data center growth Reaccelerate.

There may be some more opportunity there and automotive very similar to our thoughts at the very beginning of the quarter. We are expecting continued growth through each of the quarters of this fiscal year. We felt that Q2 was an inflection point. So we will continue to grow into Q3, and hopefully Q4 going forward.

As that product cycle materializes.

Yes, thanks for the question and that's a pretty good understanding.

Our guidance.

I'll turn it over to Jensen to see his thoughts in terms of hopper.

We do expect yes gay.

Gaming to decrease not in the dollar amount, but a decrease between Q1 and Q2.

Harper brings to us in Q4 and expectations.

So that may be of our two areas of the decline our gaming and pro beds that may be about three quarters of that associated with that gaming and then professional visualization would probably be about one quarter.

The first thing I'll say Aaron is that we are.

Selling in.

We're selling.

Far below the market demand.

<unk> excuse me far below the market sell through.

The two areas that will decline our data center, yes, we do.

And the reason for that is to allow the inventory the channel inventory in the OEM inventories to correct.

Expect it to grow and May grow about what we just saw between Q1 Q2, we'll continue to look at it there.

And this allows us to prepare for our next generation.

There may be some more opportunity there and automotive very similar to our thoughts at the very beginning of the quarter. We are expecting continued growth through each of the quarters of this fiscal year and we felt that Q2 was an inflection point. So we will continue to grow into Q3, and hopefully Q4 going forward.

And our next generation has hopper for compute.

But.

We also have a next generation for computer graphics that that will be coming to market.

Hopper Hopper as is.

Giant new generation.

Because.

I'll turn it over to Jensen testing his thoughts in terms of hopper.

It is designed to perform this new type of.

AI model called Transformers.

Harper brings to us in Q4 and expectations.

<unk> has an engine inside of called transformer engine with numerical formats.

The first thing I'll say Aaron is that we are.

Pipelines, but allows us to do a spectacular job on.

Selling in.

Transformer type of models.

We're selling <unk>.

Which includes large language nordson language models, but it also includes computer vision models that they are now able to be.

Far below the market demand.

<unk> excuse me far below the market sell through.

And the reason for that is to allow the inventory the channel inventory in the OEM inventories to correct.

Process with this new type of.

Article Transformers.

I fully expect opportunities too.

And this allows us to prepare for our next generation.

B the mixed springboard for future growth.

And our next generation has hopper for compute.

And the importance of this new model Transformers can't possibly be understated.

But.

We also have the next generation for computer graphics that that'll be coming to market.

Can't be overstated.

Hopper Hopper as is.

The impact of this model across.

Good.

Robotics computer vision languages biology, chemistry drug design.

Giant new generation.

Because.

It is designed to perform this new type of AI.

It's just really quite spectacular.

AI model called Transformers.

Im sure that <unk> been.

<unk> has an engine inside of called transformer engine with numerical formats.

Hearing hearing about this new breakthrough.

AI.

Great.

Pipelines that allows us to do a spectacular job on <unk>.

And Hopper was designed for this.

Transformer type of models.

Your next question will come from the line of <unk> Malik with Citi. Your line is open.

Which includes large language large language models, but it also includes computer vision models that they are now able to be.

Hi, Thank you for taking my question can you talk about networking versus compute with at bolt supply constrained.

Process with this new type of.

Multiple transformers.

I fully expect this opportunity to.

The July quarter.

Both sequentially growing in the October quarter.

Hi.

B the next springboard for future growth.

So within our Q2 results.

And the importance of this new model Transformers can't possibly be understated.

And then continuing to improve our supply for networking.

Cannot be overstated as this is the impact of this model across.

We have a lot of it.

Products that the <unk> many of our customers' needs and we have been working to build.

Robotics computer vision languages biology, chemistry drug design.

Improved out supply and we were able to set.

It's just really quite spectacular.

Very strong growth in terms of networking, both sequentially and year over year.

I'm sure that you've been.

Hearing hearing about this new breakthrough.

And as we move into the next quarter.

AI.

Great.

We're going to have to see.

And Hopper was designed for this.

Which is going to be growth larger, we're just kind of help to take them up once we finish type quarter.

Your next question will come from the line of <unk> Malik with Citi. Your line is open.

But our supply for compute is here, but as we've discussed sometimes it's important.

Hi, Thank you for taking my question could you talk about networking versus compute was at bolt supply constrained.

That they have many of our other components that we provide in networking at the same time that we are providing nicky peers. So sometimes those are very important for us to deliver together as we always have to keep that in mind. So it's not always to support supply constraint.

The July quarter.

Both sequentially growing in the October quarter.

Yeah.

So within our Q2 results.

And then continuing to improve our supply for networking.

There are.

Certain parts of ethanol.

We have a lot of.

The products that the CFPB as many of our customers' needs and we have been working to really improve that supply and we were able to very strong growth in terms of networking both sequentially and year over year.

Your next question will come from the line of Joseph Moore with Morgan Stanley . Your line is open.

Okay.

Great. Thank you I wanted to ask.

Why did the supply constraints.

And as we move into the next quarter.

You guys. So hard this quarter I mean, you've done such a great job the last couple of years.

We're going to have to see.

Outgrowing really everybody in a very challenging supply chain environment.

Which is going to be growth larger we're just going to have to take them up once we finish that quarter.

It Hasnt trips you up at all and it seems like now kind of hitting your fairly hard at a time when in other cases, it kind of easing. So I'm just kind of curious what is it about the timing and how long does it sort of take sure.

But our supply for our compute is here, but as we've discussed sometimes it's important.

They have many of our other components that we provide in networking at the same time that we are providing the GPS. So sometimes those are very important for us to deliver together as we always have to keep that in mind. So it's not always just supply constraint.

Is that a hop ratio as it related to other components as you talked about how long does it take to clear those thank.

Thank you.

Okay.

Let me start and see if Ken wants.

Lance to add onto that.

But there are.

Certain parts of it that are.

Our execution has absolutely been phenomenon when you think about the challenges of where we're almost putting together a full data center for our customers and getting that shutdown. So we're no different than in the same way that the CSP is a challenging we're setting up their data centers as well.

Your next question will come from the line of Joseph Moore with Morgan Stanley . Your line is open.

Great. Thank you I wanted to ask.

Why did the supply constraints.

You guys. So hard this quarter I mean, you've done such a great job the last couple of years.

An integral part of that.

So networking has been short of supply. These are the same supply issues.

Outgrowing really everybody in a very challenging supply chain environment. It hasnt trips you up at all and it seems like now it's kind of hitting your fairly hard at a time when in other cases, it's kind of evening. So I'm just kind of curious what is it about the timing and how long does it sort of take is that hopper issue as it related to other <unk>.

Some of our Csp's or housing.

So our.

Supply arrived a little bit late in the quarter for some of our key <unk>.

<unk> that we needed to get out.

And putting that together caused some disruption in our logistics.

As you talked about how long does it take to clear those issues.

<unk>.

In distribution we were.

Yeah.

Please in terms of reaching the levels of networking that we get it but we did have some challenges this quarter.

Let me start and CF Jensen.

Wants to add onto that.

Our execution has absolutely been phenomenon when you think about the challenges of where we're almost putting together a full data center.

Your next question will come from the line of Stacy Raskin with Bernstein. Your line is open.

Hi, guys. Thanks for taking my question I Wonder if you go back to that data center inventory charge.

For our customers and getting it shipped out so we're no different than in the same way about the CSP is a challenging we're setting up their data centers as we are such an integral part of that.

Cool.

You listed data center first when you talked primarily related to datacenter and gaming can you give us a feeling for how much of that charge was datacenter versus gaming and then to follow up on that.

So networking has been short of supply. These are the same supply issues.

Good sounds like to me that it was mostly <unk>.

And not hopper.

Some of our Csp's or housing.

And expectations can you can you verify that or clarify it and just talk about what's happened with your expectations for hopper have they gone up or down or has there been any change at all our relevant to that inventory charge.

So our.

Supply arrived a little bit late in the quarter for some of our key <unk>.

Alex that we needed to get out and putting that together caused some disruption in our logistics.

Yes Stacy.

Regarding our inventory charges that we had.

And distribution.

We're pleased in terms of reaching the levels of networking that we get it but we did have some challenges this quarter.

When you think about what we have in supply whether it be chips.

Components, whether it be memory number a lot of these things can be used interchangeably across the tail in.

Additionally, the value of our inventory for data center is much different than the value of what we have for gaming from a cost perspective.

Your next question will come from the line of Stacy Raskin with Bernstein. Your line is open.

Hi, guys. Thanks for taking my question I wanted to go back to that a data center.

So we're creating a capacity opportunities putting together all of those systems as we work on data center. It is prior architecture. Absolutely. This is not a question regarding anything up our future products coming to market nothing on the inventory provisions has to do with that so.

Inventory charge.

So.

Your list of data Center first when you talk primarily related with datacenter and gaming can you give us a feeling for how much of that charge was datacenter versus gaming and then to follow up on that.

It did sound like to me that it was mostly and Pierre.

So we took this as looking at the macroeconomic conditions as we've discussed.

And not hopper.

Change in expectations can you can you verify that or clarify it and just talking about what's happened with your expectations for hopper have they gone up or down or has there been any change at all of them are relevant to that inventory charge.

Our expectations our plans our higher that's still quite solid that we see in demand both for gaming as well as solid for data center and that will continue.

Yes, Stacy regarding our inventory charges that we had.

We did have to just take a right sizing automotive line.

When you think about what we have in supply whether it be chips.

Sure.

It was designed for Transformers.

Components, whether it be memory remember a lot of these things can be used interchangeably across hotel.

New Transformers was.

We're going to be important.

Nobody could have predicted.

Additionally, the value of our inventory for data center is much different and the value of what we have for gaming from a cost perspective.

The profound importance.

Large language models.

Language models.

Excitement innovation.

So we're creating a capacity opportunities putting together all of our systems, which we won't get a shot at his prior architectures. Absolutely. This is not a question regarding anything of our future product coming to market nothing on the inventory provisions has to do with that so we took this.

Ideas.

Denise.

Art ups.

Industries.

All exceeding everyones expectations I don't think anybody could have predicted.

The impact of.

Transformers as a scaled up to these giant sizes.

Looking at the macroeconomic conditions as we've discussed.

There is a fair amount of literature now written about language models that were small fish in the old days in the beginning several years ago three years ago and the ones that are in the hundreds of billions and moving towards probably.

Our expectations our plans our higher they are still quite solid that we see in demand both for gaming as well as solid for data center and that will continue.

But we did have to just take a right sizing and emotionally.

Several trillion parameters.

The effectiveness of the AI.

Sure.

It was designed for Transformers.

Is is really quite spectacular and to have to have AI that that was never never trained on a particular skill and yet within one shot a one shot of trying or even no shots.

New Transformers was.

We're going to be important.

Nobody could have predicted.

The profound importance.

Large language models.

Are able to perform that skill is beyond anybody's expectations I would think.

Harsh language models.

Excitement innovation.

So I think the.

Ideas companies.

If the if.

The success.

Start ups.

Success of Hopper.

Industries.

As is reflects the.

All exceeding everyones expectations I don't think anybody could have predicted.

The amount of work and income.

The impact of <unk>.

Pent up demand for large training systems.

<unk> Harper is going to go into investment indicator I think copper is going to be a spectacular success.

Your next question will come from the line of Sweeny partnering with SMB CE Gao Your line is open.

Thank you I have a question on gross margins Colette.

The 65% non-GAAP remember youre guiding to does that include or assume any additional write offs.

Yeah.

The effectiveness of the AI.

Is is really quite spectacular.

Centuri front, and then just to expand on that.

To have to have AI debt that was never never trained on a particular skill and yet within one shot a one shot of trying or even no shots.

Your mixed phase, probably a tailwind to gross margins.

Given that gaming is down significantly on the data center is up.

Are able to perform that scale, it's beyond anybody's expectations I would think.

Little bit.

And I'm just wondering.

Are there any other offsets because I would have thought gross margins could actually be better than your longer term model because of the mixed tailwind. Thank you.

And so I think the.

Sure.

<unk>.

The <unk>.

Success of Hopper.

As is reflects the.

Yes. Thanks for the question so our gross margins outside of.

The amount of work in.

The inventory charges in Q2 as well as going into Q3 is really about our sales mix that we have and probably also to understand that our sales mix in the next quarter.

Pent up demand for large training systems.

That hopper is going to go into if thats, an indicator I think copper is going to be a spectacular success.

Your next question will come from the line of Sweeny Boccieri with NBC Mizuho. Your line is open.

For Gpus is not in the high end.

So that has impacted our gross margin as we move into Q3, you are correct, we do expect that.

Thank you I have a question on gross margins Colette.

The 65% non-GAAP number you are guiding to does that include or assume any additional write offs on the inventory front and then just to expand on that.

That data center will assist in our gross margins.

But we also have growth plans in auto auto is below our company average and so that will.

Your mix is probably a tailwind to gross margins.

Tend to offset some of those upper bound things that we will see in terms of data center.

That gaming is down significantly and data center is up a little bit and I'm just wondering.

From time to time, there's always a small amount of scrap that we will house in our gross margin estimates.

Are there any other offsets because I would have thought gross margins could actually be better than your longer term model because of the mix tailwind. Thank you.

So nothing material as planned.

There is small scraps that may occur from quarter to quarter that arent, giving up margins.

Yes. Thanks for the question so our gross margins outside of.

The inventory charges in Q2 as well as going into Q3, it's really about our sales mix that we have.

Your next question will come from the line of Timothy Arcuri with UBS. Your line is open.

Thanks, a lot.

I had a clarification and then a question for my clarification is whether October gross margins are benefiting at all from the sale of previously written down inventory and then my question is whether you can give us the enterprise cloud split in datacenter because it sounds like.

Probably also to understand that our sales mix in the next quarter for.

<unk> Gpus.

Not in the high <unk>.

And so that has impacted our gross margin as we move into Q3, you are correct, we do expect that.

The mix shifted more towards enterprise in July .

That data center.

And our gross margins.

I think investors might want to see that as risky in the face of.

But we also have growth.

Auto auto was below our company average and so that will.

Enterprise clearly slowing so I'm wondering if you can give us that thanks.

Tend to offset some of those upper bound things that we will see in terms of data center.

Okay no.

No there is nothing in our Q3 regarding inventory provisions that we took.

From time to time, there is always a small amount of scraps on that we will have in our gross margin estimates.

In terms of earnings back in terms of our key brand.

So nothing material as planned.

Regarding our split.

There is small scraps that may occur from quarter to quarter that aren't customers.

Tween or Hyperscale data centers, and what we refer to as our vertical industries. They only tend to be about the same.

Margins.

8%, 150% and the others are still in about that range, we had discussed that our China hyper sales.

Your next question will come from the line of Timothy Arcuri with UBS. Your line is open.

Thanks, a lot.

I had a clarification and then a question for my clarification is whether October gross margins are benefiting at all from the sale of previously written down inventory and then my question is whether you can give us the enterprise cloud.

It did not drive growth in terms of sequentially care and so that did influence in terms of hyperscale, but still we are approximately not 50 50.

Split in datacenter because it sounds like.

The mix shifted more towards enterprise in July .

Your next question will come from the line of Harlan sur with Jpmorgan. Your line is open.

And I think investors might want to see that as risky in the face of.

Good afternoon. Thanks for taking my question on the weakness in poses decision enterprise focused business right <unk>.

Enterprise clearly slowing so I'm wondering if you can give us that thanks.

Okay no.

Narrow vertical marketplace. It does sort of play into the market concerns that consumer is weak now enterprises in the next shoe to drop so is the decline in <unk> is attributed to enterprise spending weakness.

No there is nothing in our Q3 regarding inventory provisions that we took.

In terms of earning back in terms of our key brands.

Regarding our split between our Hyperscale data centers.

Is there some other dynamic and why or why not is not a leading indicator for your enterprise and vertical industry segments.

For example, vertical industries, they only tend to be about the same.

In your data center business.

15% per $1, 50% for the others.

So our pro visualization business just in such a short time they were in short supply and really trying to.

Theyre still in about that range, we had discussed that our China hyperscale.

It did not drive growth in terms of sequentially here and so that did influence in terms of the hybrid sales, but still we are approximately not 50, 50%.

So much of the industry's desire to bolt refresh and attracted to the new RPX.

Workstations that were there we were fueling pulse.

Your next question will come from the line of Harlan sur with Jpmorgan. Your line is open.

Mobile as well as desktop for that market and growing quite nicely remember all of last year.

Good afternoon, Thanks for taking my question.

<unk> doubled the size of progress in one year.

The weakness in pros is this is an enterprise focused business right granted it's a somewhat narrow vertical market, but it does sort of play into the market concerns that consumer is weak now enterprises is the next shoe to drop so is the decline in probe is attributed to enterprise spending weakness or is there some other dynamic in.

So right now the Oems are concentrating on their levels of inventory, we want to make sure that they can get through that inventory.

Keep in mind very similar to our discussion on gaining there is still solid demand for installs up solid demand.

Why or why not is just not a leading indicator for your enterprise and vertical industry segments within your data center business.

We just have to correct some of the inventory, but we still see both the opportunities that we've created from the market for these.

To the long standing.

So our pro visualization business just in such a short time.

And your second question remind me again.

Okay.

They were in short supply and really trying to see.

Whether it's the broader enterprise.

It is going to be the verticals that can be affected by that.

<unk> so much of the industry's desire to both refresh and attracted to the new RPX.

So first of all we don't know.

Second of all unlike works like our workstation business, our <unk> business.

Workstations that were there we were appealing both.

Mobile as well as desktop for that market and growing quite nicely remember all of last year.

Theres no installed base most most of the <unk>.

Sales.

Tend to be tend to be upgrades or replacement from something that is.

<unk> doubled the size of programs in one year.

As our installed base of three or four or five years.

So right now the Oems are concentrating on their levels of inventory, we want to make sure that they can get through that inventory.

Whatever upgrade cycle they have in the house.

So so in the case of prove as the companies that are buying probe as our previous systems.

Keep in mind very similar to our discussion on gaming there is still solid demand they're installed solid demand.

Likely already have systems, but they have been using and so if they were to tighten up probe is for whatever reason.

We just have to correct some of the inventory, but we still see the opportunities that we have credits for the market for these.

Okay.

People can continue to use what they have.

In the case of in the case of our AI business Theres No real installed base. These are all brand new things that people are growing into.

To the long standing.

And your second question remind me again.

Yeah.

And the productivity benefits or the.

Whether the broader enterprise.

The cost savings benefits.

Our market is going to be the verticals are going to be affected by that I would I would say first of all we don't know.

Using autonomous systems, that's fairly fairly profound and it's.

It's not so much to the.

Second of all.

The demand isn't out there everybody, we'd like to be more productive everybody would like to save more money and like to move faster.

<unk> works like our workstation business, our <unk> business.

There is no installed base most most of the probe.

It's just that AI understanding <unk> use is still spreading and so we're delighted by by the rate of growth and the rate of adoption of enterprise My sense is that our AI business and our business have very different different characteristics for that reason.

Sales.

Tend to be tend to be upgrades or replacements from something as.

As our installed base of three or four or five years that.

People whatever upgrade cycle they happen to have.

And so so in the case of prove is the companies that are buying process, our <unk> systems.

Colette said earlier.

Is about our pages businesses last quarter is absolutely true, which is which is Oems realizing that the end market is.

Likely already have systems that they've been using and so.

Were to tighten up probe is if for whatever reason.

Okay.

Slowing and taking the opportunity to correct their inventory.

People can continue to use what they have.

In the case of in the case of our AI business. There is no real installed base. These are all brand new things that people are growing into.

Your final question will come from the line of Ross Seymore with Deutsche Bank. Your line is open.

And the productivity benefits or.

Hey, guys. Thanks for let me ask a question I just had a longer term question about once your gaming business normalizes with the absence of crypto.

The cost savings benefits.

Using autonomous systems is fairly fairly profound and it's.

The general sense and with the merge coming et cetera, how do you.

It's not so much that the <unk>.

<unk> is an out there everybody we'd like to be more productive everybody, we'd like to save more money and like to move faster.

View the pricing environment.

I know you guys really warrant raising prices like we saw in the MSRP premiums in the aftermarket, but generally your mix was quite rich over the last year or two.

It's just that AI understanding AI use is still spreading and so we're delighted by by the rate of growth in the rate of adoption of enterprise. My sense is that that our AI business and our <unk> business have very different different characteristics for that reason.

Youre going to have a lovely is coming in that will obviously help the mix sequentially versus the last couple of quarters, but how do you think about it normalizing its that $2 5 billion per quarter sell through rate as the ASP mix across your staff about the same or does it go down because of the absence of that crypto tightening dynamic.

But colette said earlier.

Is about our protein businesses last quarter is absolutely true which is.

Which is the Oems.

Realizing that the end market is.

Okay.

I would say that without crypto dynamic.

Slowing and taking the opportunity to correct their inventory.

The mix would go down.

However, the overall trend long term.

Your final question will come from the line of Ross Seymore with Deutsche Bank. Your line is open.

ASP is drifting up.

And and.

Hey, guys. Thanks for let me ask a question I just had a longer term question about once your gaming business normalizes with the absence of crypto.

The way to think about that is as a game console.

My first game consoles $90 million.

Lately game consoles are selling for about $590 million.

In a general sense and with the merge coming et cetera, how do you view.

And the reason for that is because it's more it's more useful than ever use your usual game console for.

The pricing environment I know you guys really warrant raising prices like we saw in the MSRP premiums in the aftermarket, but generally your mix was quite rich over the last year or two.

For your greatest form of entertainment and you use it for a very very long time and G force essentially as a game console inside your PC and we've always we've always believed that the ASP deogee four should drift towards the average selling price of a game console and so it should be something along the <unk>.

Youre going to have lovelace coming in that will obviously help the mix sequentially versus the last couple of quarters, but how do you think about it normalizing its that $2 5 billion per quarter sell through rate as the ASP mix across your stack about the same or does it go down because of the absence of that crypto tightening dynamic.

Wins of $500 or so roughly at this time.

We also have G force in the cloud and because Q4 is in the cloud is hosting.

But I would say that without crypto dynamic.

Many gamers simultaneously it tends to want to be a much more powerful G force and so our cloud gaming came in Q4 tends to be our cloud gaming graphics tends to be a much higher end.

The mix would go down.

However, the overall trend long term.

ASP is drifting up.

And and.

And so so.

The way to think about that is as a game console.

And then and then of course, there's the design aspect of it most designers.

My first game console was $99.

And most creators are are able to use <unk>. These days.

Lately game consoles are selling for about $590 million.

And the reason for that is because it's more it's more useful than ever use your use your game console for.

And they use their PC to to create content and much of that content goes into video games and.

For for your greatest form of entertainment and you use it for a very very long time and G force essentially as a game console inside your PC and we've always we've always believed that the ASP <unk> four should drift towards the average selling price of a game console and so it should be something along the.

And.

Or they are using video games to create their artistic artistic content and and so so the G force.

Is not just for gaming for them. The G forces essentially they are accretive workstation as well and so there are several dynamics that are that are causing the ASP PFG forced to go up and we've been seeing this trend for several years now.

Lines of $500 or so roughly at this time.

We also have G force in the cloud and because Q4 is in the cloud is hosting.

Thank you I will now turn the call back over to Jensen for closing remarks.

Many gamers simultaneously.

Thanks, everyone.

Navigating our supply chain transitions in a challenging macro environment.

Tends to want to be a much more powerful for us and so our cloud gaming came in Q4 tends to be our cloud gaming graphics tends to be much higher and.

In gaming our partners and ecosystem are responding to a sudden slowdown in consumer demand and correcting channel inventory.

So.

And then and then of course, there's the design aspect of it most designers.

Still the fundamentals of game gaming are strong.

And most creators.

We'll get through this over the next few months and go into next year with our new architecture.

<unk> are able to use G force these days.

And they use their PC to to create content and much of that content goes into video games.

I look forward to telling you more about it at GTC next month.

In data center.

AI, where computers are helping us write software that was impossible before is driving a computing revolution and transforming every industry.

And Oh.

Or they are using video games to create their artistic artistic content and and so so the G force.

Is not just for gaming for them. The G forces essentially their creative workstation as well and so there are several dynamics that are that are causing the asps are forced to go up and we've been seeing this trend several years now.

Nvidia is leadership and full stack.

Data center scale accelerated computing has made us the ideal partner for companies racing to leverage the power of AI.

Even with the current macroeconomic headwinds.

Thank you I will now turn the call back over to Jensen for closing remarks.

And for our data center products.

Never been stronger.

Thanks, everyone.

Okay.

The next wave of computing is coming.

Navigating our supply chain transitions in a challenging macro environment.

With AI and three D graphics advances developers will extend the internet with virtual world overlays.

In gaming our partners and ecosystem are responding to a sudden slowdown in consumer demand.

<unk> to the physical world.

And correcting channel inventory.

This next evolution of the Internet is called <unk>.

Still the fundamentals of game gaming are strong.

We created omnivores.

We will get through this over the next few months and go into next year with our new architecture.

To connect the digital and physical world.

Being an open platform for creating an operating net averse applications.

I look forward to telling you more about it at GTC next month.

In data center.

The immediate application support diverse spanned product design manufacturing and operations.

AI, where computers are helping us write software that was impossible before it's.

It's driving a computing revolution and transforming every industry.

<unk> is off to a great start.

Our automotive revenue is inflicting we expect it to be our next billion dollar business.

Nvidia is leadership and full stack <unk>.

Data center scale accelerated computing has made us the ideal partner for companies racing to leverage the power of AI.

Economists driving is one of the biggest challenges AI can solve and computing opportunity for us spans the data center to the car.

Even with the current macroeconomic headwinds demand for our data center products.

Economists driving will transform the auto industry into a tech industry.

Never been stronger.

Automotive.

Okay.

As one of the first to transform into a software defined tech industry.

The next wave of computing is coming.

With AI and three D graphics advances developers will extend the internet with virtual world overlays.

All industries will be.

We're building Nvidia AI Nvidia <unk> to be the engines for the world's enterprise to become software declined AI powered technology companies.

That connect to the physical world.

This next evolution of the Internet is called <unk>.

We created omnivores.

To connect the digital and physical world.

I look forward to next month's GTC conference, where we will share new advances of Rts reinventing three D graphics and gaming.

An open platform for creating and operating net averse applications.

The immediate applications for <unk> diverse spanned product design manufacturing and operations.

Is continuing breakthroughs.

In building <unk>.

The next evolution of the Internet.

<unk> is off to a great start.

So join US we look forward to updating you on our progress next quarter. Thank you.

Our automotive revenue is inflicting and we expect it to be our next billion dollar business.

This concludes today's conference call you may now disconnect.

Autonomy driving is one of the biggest challenges AI can solve.

And computing opportunity for us spans the datacenter to the car.

Economists driving will transform the auto industry into a tech industry.

Automotive.

As one of the first to transform into a software defined tech industry.

That all industries will be.

We're building Nvidia AI Nvidia <unk> two.

B the engines for the world's enterprise to become software declined.

AI powered technology companies.

I look forward to next month's GTC conference, where we will share new advances of Rts reinventing three D graphics and gaming.

AI is continuing breakthroughs and building the meta versus.

The next evolution of the Internet.

So join us well.

We look forward to updating you on our progress next quarter. Thank you.

This concludes today's conference call you may now disconnect.

[music].