Michael Hara - Investor Relations Jen-Hsun Huang - President, Chief Executive Officer and Director Marvin D. Burkett - Chief Financial Officer

Quinn Bolton - Needham & Company Arnab Chanda - Deutsche Bank Securities Gary Mobley - Piper Jaffray James Schneider - Goldman Sachs Analyst for Glen Yeung - Citigroup Tayyib Shah - Longbow Research Michael McConnell - Pacific Crest Securities Shawn Webster - J.P. Morgan Securities Heidi Poon - Thomas Weisel Partners Uche Orji - UBS Tim Luke - Lehman Brothers

Thank you, Operator. Good afternoon and welcome to NVIDIA's conference call for the first fiscal quarter ended April 27, 2008.

On the call today for NVIDIA are Jen-Hsun Huang, NVIDIA's President and Chief Executive Officer; and Marv Burkett, NVIDIA's Chief Financial Officer. Before we begin today’s call, I would like to take care of some general administrative items.

Your lines have been placed on a listen-only mode until the question-and-answer segment of today’s call. During this call, we will discuss some non-GAAP financial measures about net income, diluted net income per share, and gross margin when talking about our results.

You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our financial release, which is posted on the investor relations page of our website at www.nvidia.com. Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or John Petty Research.

This call is being recorded. If you have any objections, you may disconnect at this time.

Please be aware that if you decide to ask a question, it will be included in both our live transmission as well as any future use of the recording. Also, shareholders can listen to a live webcast of today’s call via the investor relations page of our website.

The webcast will be available for replay until the company’s conference call to discuss its financial results for its second quarter fiscal 2009. During the course of this conference call, we may make forward-looking statements based on current expectations.

These forward-looking statements are subject to a number of significant risks and uncertainties, including statements as to the importance of and uses for the GPU and CUDA, our financial outlook and projections, the impact, performance and availability of and demand for our products and technologies, the impact of PTL, our growth and strategies, and the future of computing. The company’s actual results may differ materially from results discussed in any forward-looking statements.

For a complete discussion of factors that could affect the company’s future financial results and business, please refer to the company’s Form 10-K for the period ended January 27, 2008, and the reports on Form 8-K filed with the Securities and Exchange Commission. All forward-looking statements are made as of the date hereof based on information available to us today and, except as required by law, the company assumes no obligation to update any such statements.

The content of the webcast contains time-sensitive information that is accurate only as of May 8, 2008. Consistent with the requirements under Regulation FD, we will be providing public guidance directly in the conference call and will be unable to provide significantly more information in offline conversations or during the quarter.

Therefore, questions around our financial expectations should be asked during this call. At the end of our remarks, there will be time for your questions.

In order to allow more people to ask questions, please limit yourself to one question. After our response, we will allow one follow-up question.

I will now hand the call over to Jen-Hsun.

Thanks, Mike. Good afternoon and thank you for joining us.

Today we reported revenue of $1.15 billion for our first quarter. Compared to last year, revenue grew 37% and GAAP net income increased 34%.

Year over year, our GPU revenue grew 55%, MCP revenue grew 31%, PSB revenue grew 44%. Our overall GPU units grew 42% while ASPs grew 10% year over year, a trend reflecting the growing importance of the GPU.

We gained share in virtually every graphics category year over year -- desktop GPU, notebook GPU, and notebook integrated graphics. For the performance segment, which is a reflection of technology leadership, we estimated our segment share is 90%.

Overall our graphics market share grew from 30% to 33% year over year. However, if we accounted for double attach, which happens when a PC has both integrated graphics and GPU, our market share is approximately 42%.

Double attach happens because integrated graphics chipsets are often the same price as discrete chipsets. The market buys an integrated graphics motherboard but then turns it off when a GPU is added.

Our first quarter reflects the growing importance of GPUs as our computing experience becomes increasingly visually rich. Let me turn the call over to Marv to discuss our financial results.

I will return in a moment to talk about how we will continue to lead the visual computing revolution and shape the computer industry.

Thanks, Jen-Hsun. Today we’ll be discussing both GAAP and non-GAAP results for the first quarter of fiscal year 2009.

The difference between GAAP and non-GAAP is stock-based compensation and its tax effect. As Jen-Hsun stated, revenue for the first quarter was $1.15 billion, which is up 37% year to year and down 4% quarter to quarter.

Our revenue was in line with our expectations. For the first quarter, GPU revenue, which includes desktop, notebook, and memory, grew 45% year to year but declined by 8% from the fourth quarter.

The components of GPU had significant growth year to year. Desktop GPUs grew 44% year to year.

Notebook grew 99% and memory declined 36%. Quarter to quarter, both desktop and notebook declined by about 8% and memory was down 22%.

MCP grew 31% year to year and declined 4% quarter to quarter. The star for the first quarter was the professional solutions business, which includes workstation products.

It grew 44% year to year and 21% quarter to quarter. The consumer business declined by 24% quarter to quarter and 37% year to year.

All in all, most of the revenue was in line with our expectations at the beginning of the quarter. ASPs held relatively flat quarter to quarter.

Gross margin was disappointing. We didn’t manage our product transitions as well as we would have liked and this resulted in a decline in gross margin to 44.6%.

We can do better. The issues in gross margin were focused primarily on product transition issues in the GPU business.

Therefore, margin for the GPU business segment declined by almost two full percentage points quarter to quarter. Again, it was not an ASP issues, as ASPs held relatively flat.

We had hoped and expected to make progress in improving the yields for the new products. This did not happen.

Margin in the professional solutions business remained very good. Margin in MCP were down because of the movement to the integrated chipsets, but that was expected.

GAAP operating expenses were $312 million, which is up 8.6% quarter to quarter and in line with our expectations. Most of the increase was in R&D as we absorbed several acquisitions that we made recently.

Headcount grew by 373 during the quarter and our ending headcount was 5,358. Year to year the headcount is up by 1,284.

Depreciation in the quarter was $41.4 million, up by around $4.5 million from the previous quarter. Capital expenditures were $202.2 million, which included a purchase of property in Santa Clara for approximately $150 million.

Cash flow from operations was $143 million for the quarter. Stock-based compensation was $42 million for the quarter, up from $34 million in Q4, as we had stock options issued for the new hires and the semi-annual grants, and the volatility portion of the binomial calculation has increased based on what is happening in the stock market.

Other income dropped by $7 million quarter to quarter. This was a combination of several factors.

The impact of the continuing weakness of the dollar on our foreign currency denominated liabilities resulted in foreign exchange losses of approximately $4 million in the quarter. Also, the lower cash balance and the lower interest rates drove down the interest income.

As we expected, the tax rate was 17% for the quarter. The lack of a renewal of the R&D tax credit will cause our tax rate to remain at this level until the renewal is passed.

When it is passed, we would expect the tax rate to drop to the 13% to 14% level. The end result was that GAAP EPS was $0.30 per share and non-GAAP was $0.36 per share.

On the balance sheet, ending cash was $1.62 billion. We completed three acquisitions for cash during the quarter, as well as paying the $150 million for the property and $124 million for stock repurchases.

None of our marketable securities required any valuation adjustments. Our accounts receivable ended at $652 million, down $15 million from the prior quarter and DSO was 51 days, up from 50 days in the fourth quarter.

There are no issues of delinquent receivables. Inventories were $420 million, up $62 million from Q4, as we built inventory of new products, both announced and unannounced.

The older inventory declined as we had expected. The result is that day sales in inventory ended the quarter at 60 days, which is more than the last two quarters DSI of less than 50 days.

These inventory levels are in line with our DSI targets. Net property plant and equipment increased by $162 million, which included $150 million for the purchase, for the property purchase that I mentioned earlier.

Both accounts payable and accrued liabilities decreased for the quarter and the total decrease was $91 million. On the outlook, Q2’s revenue was historically the most difficult to forecast.

In the past, we’ve been surprised both favorably, as in last year, and unfavorably, as in five years ago. Having said that, we have no reason to believe that Q2 will be anything other than seasonal.

Seasonal to us means a decline of 5% plus or minus. As I stated previously, we were disappointed in our gross margin for Q1 and we intend to correct some of the issues.

Therefore, I would expect the gross margin will increase and while the exact magnitude may be difficult to predict, something in the 100 basis point range is not unreasonable. Operating expenses stepped up in Q1 as a consequence of the acquisitions, new hires, and other reasons.

As I’ve said before, we intend to moderate any increases going forward. Therefore, operating expenses for Q2 should be flat to very slightly up.

We will still be hiring but the rate will moderate and other expenses will decrease. The results should be flat to slightly up.

Other income should recover in Q2 unless the dollar continues to weaken. If it is stable, other income will be up in Q2.

The tax rate should stay at 17% until the R&D tax credit is renewed. I don’t expect that to happen in Q2.

With that, I will turn it back over to Jen-Hsun.

Thanks, Marv. The transition from G80 to G92 was challenging and dragged our margins.

Every few generations, because of how our new products are aligned with process nodes, a new GPU is both faster and cheaper. As a result, it is difficult to move the stack down to layer the new GPU on top of the stack.

This was the case in the G80 to G92 transition. G92 was both lower cost and higher performance than G80, so therefore repositioning G80 while ramping G92 aggressively forced us to sell out G80s at lower margins.

Going forward, although we still have some G80 inventory to work through, we believe we are in an excellent competitive position. We are also launching new exciting products in Q2 and the move across the board to 55-nanometer is expected to help margins.

At our analyst day in April, I outlined NVIDIA's basic strategies -- one, focus on visual computing and be the unambiguous world leader; two, continue to create GPU software or system architecture innovations that deliver the wonderful user experiences that we are famous for; and three, make the GPU evermore programmable and more useful for general purpose computing. Our strategy is driving growth in several ways.

Our innovations are growing TAM and driving share in the visual computing centric markets like gaming PCs and workstations. We are also seeing increasing ASPs as more of the total system spend is shifting to the GPU.

We are seeing this trend all over the world. We call this the optimized PC design movement, where OEMs are rebalancing the system spend to optimize performance for applications that are increasingly visual.

As GPUs become more programmable and general purpose and are now used to enhance photo and video processing, we are starting to see growth from broad adoption of GPUs in mainstream consumer PCs. Consumers now use their PCs to create and enjoy their home movies and photos.

They use their PCs to watch high-definition movies, gather with friends and hang out in an online virtual world, or enjoy some crazy videos on YouTube. And as the home base of your iPod, many are using the PC to convert movies into a format that can be played on their iPods.

This is called transcoding. We call this new generation of consumer PCs lifestyle PCs.

This segment of the PC market is one of the fastest growing, as we can see by the success of Apple and Adobe. This new PC segment is a growth segment for GPUs.

The GPU’s ability to manipulate images, video, and graphics dramatically enhances the computing experience and as we recently demonstrated at our analyst day, the GPU can speed up transcoding, one of the most processor intensive applications, by nearly 20 times. The marketplace is clearly bifurcating into generic PCs and those that are built for specific needs of the users.

PC manufacturers worldwide are no longer designing PCs based simply on the speeds and feeds, but with the total user experience in mind. As for large segments of the marketplace like CAD workstations, gaming PCs, video editing, video/photo editing workstations for creative professionals, media centers, and now lifestyle PCs, the visual experience is front and center and cannot be compromised.

Globally we see the movement towards usage optimized PC design taking hold and increasing momentum. Here are some quotes from the press around the world: here in the United States, Popular Science: “but in some cases the GPU makes a big difference.

3D video games are a given but intensive graphics are creeping into many other applications.” Computer Resellers News in India: “Are graphics chips the better CPUs?

More and more experts support this thesis. Many system builders supposedly recognize the trend already and would assembly PCs with better GPUs because the CPU is losing its importance while the meaning of the GPU is increasing continuously.”

[Vlasadenta], Poland: “When creating optimal PC set, it is totally pointless to equip your computer with an expensive CPU and add integrated or slow graphics solutions. You should do the other way around -- install expensive dual-core CPU -- inexpensive dual-core CPU and support it with more expensive GPU.”

[Lorjenitor Individual] -- my daughter should be happy about me speaking French -- France: “It is true that since the PC has existed, only the processors seemed to be important, to the point of often giving its name to the computer. But we are now in the era of the visual PC.

All applications starting with Windows Vista and the Arrow interface exploit an intensive widening of graphics capabilities to the machines no longer using the CPU but the GPU.” The growth of GPUs reflect these market dynamics as the new conventional wisdom.

As I mentioned earlier, our desktop and notebook GPU units grew 42% year over year and our GPU ASPs increased 10% from a year ago. In additional to visual computing driving our GPU growth, we have a new growth driver with the invention of CUDA.

It is important to understand that CUDA is not in just any GPU. CUDA is a C programmable general purpose computing mode available only in our GPUs, from GeForce 8 and beyond.

In the CUDA mode, our GPUs transform and reconfigure its shader processors into a many core parallel computing processor. For example the GeForce 9800GT has 128 processor cores.

CUDA enables a new parallel computing model that the industry calls heterogeneous multi-core computing, where the vastly different architectures of the CPU and GPU are used in a collaborative way to achieve huge speed-ups in computing. CUDA has raised the attention of programmers and researchers all over the world.

Since its launch, over 60,000 downloads of the compiler, over 10,000 per month, have been downloaded by software developers, scientists, students, game developers and researchers around the world that have started programming with CUDA. We recently released a beta version of CUDA 2.0 and for the Mac.

We are constantly seeing reports of astounding application speed-ups. We are routinely seeing 20 to 200 times speed-up over multi-core CPU alone.

Chevron has shown excellent performance using GPUs for computing in oil and gas exploration. Jack Collins, from the National Cancer Instituted, recently reported excellent results on AutoDock, a key application in cancer drug discovery.

[Gouda] and [Navcentric] announced EDA tools using GPU for computing optical proximity correction, or OPC, and [inaudible] for design. CEA, the French Atomic Energy Authority, and Bull released news of a design win in super computing using NVIDIA GPUs.

Last week, we announced our sponsorship of Stanford University's new Pervasive Parallelism Lab, PPL. The PPL will develop new techniques, tools, and training materials to allow software engineers to harness the parallelism of the heterogeneous multi-core computing.

Stanford now joins the growing list of prestigious research programs, including the universal parallel computing research center, UPCRC, both at Berkeley and the University of Illinois Urbana-Champaign, each designed to accelerate developments in mainstream parallel computing. We see computer scientists all over the world jumping into heterogeneous multi-core computing research.

As the world’s leading supplier of GPUs, we are in truly exciting times. The new sensibility of OEMs optimizing PCs for visually rich applications is driving GPU adoption and spend.

And with CUDA, we have transformed our GPU into a general purpose parallel processor at precisely the time when the CPU performance improvement is slowing and the industry is moving full-force to parallel computing. We believe the GPU will be the most important process of this new era and will be a major driving force of visual computing and parallel computing revolution.

We are happy to take your questions now.

Just wondering on the gross margin, it sounds like it’s just some transitional issues but you mentioned some new products that you built up in inventory and as you look forward into July and future quarters, can you talk about as you roll out these new products, is the architecture similar, different -- what can we be expecting about gross margin with some of these new products that you are building up in inventory?

We’re not ready to announce the new products yet but the gross margins of the new products are better than the gross margins of existing products.

Okay, so think about it as more transitions as you introduce the new products, they tend to carry the higher gross -- higher than corporate gross margins?

Yes.

Okay, great. And then as you look into the second quarter, can you just talk about linearity of orders that you’ve seen over the past month or two that gives you sort of the sense that Q2 looks seasonal at this point?

I’m trying to figure out -- we haven’t seen Q2 yet. We are still going through Q2 and Q2 has a -- is a seasonal quarter for the industry on the one hand; on the other hand, this is also the quarter that we sometimes, as the last several years, we have many times announced new products during Q2 as we go into the back to school season.

And so you know the back to school season starts I guess around late May and June and ramps pretty hard into July. And our fiscal quarter ends at the end of July and so it includes July.

And so that tends to balance each other so it’s kind of hard to exactly tell how Q2 will turn out because it just happens to be a seasonal quarter but we have the benefit of new products and we have the benefit of back to school, typically. And so we’ll report on Q2 when we’re done with it.

Okay, and then just lastly, any comments on how you feel inventory in the channel is, especially on some of the older products ahead of these product transitions you just mentioned? Do you feel pretty comfortable with where inventory is?

The products that we are going to announce in Q2, there are no products -- we are done with our product transitions in Q1 and so the products in Q2 will layer into the existing product line.

Okay. Thank you.

Thank you. A question for either Jen-Hsun or Marv; when do you expect significant revenues from your TESLA product and the application processor product?

I would say significant I guess later this year but those design wins tend to be a lot longer. TESLA because they go into servers and super-computers and scientific computing applications, or [design] workstations.

So they tend to have a longer design cycle. We are seeing a lot of enthusiasm out there but it just takes a little longer.

And as you know, application processors definitely take longer. Their design cycles are consistent with the design of the device itself and so we are really enthusiastic about both of them and they’ve been wonderful investments for us, and I think they are going to pay off wonderfully.

So we just have to wait until the end of the year.

Thanks, Jen-Hsun. One other question about the CUDA platform -- could you help us understand what portion of the computing market, if you include both PC as well as high-performance computing, is open to the heterogeneous computing model that you are recommending and what -- maybe it’s difficult to give an exact number but how should we think about how big that market can be?

I think that’s a good question. I happen to think that within the next five to 10 years, no longer than 10 years and probably around five years, the heterogeneous multi-core computing will be the way of computing for all computers, whether it is video processing or image processing or whether it’s in the area of games obviously for graphics, but more importantly in the future for simulation, physics simulation, artificial intelligence simulation.

You’ve been hearing about how the expense of creating content continues to go up and the reason for that is because these worlds are more and more expansive and it’s hard for artists to create the entire world. And so just like movies, they use -- movies uses a simulator for cloth simulation, otherwise they would have to animate all of the cloth, all of the clothes that the actors wear, or hair simulation or in large crowds, they use crowd simulators, which is basically a form of artificial intelligence.

And so we are going to see more and more simulations as a way of creating content in online games, in virtual worlds, in videogames, and of course in the area of mainstream users -- you know, it’s -- you know that videogames is really a mainstream application anymore but in the area of photos and videos, you are going to see a lot of computational techniques starting later this year from some very important applications. And so I ought not pre-announce some of their exciting products but consumer applications, lifestyle applications are going to start showing, using GPUs in some really, really exciting ways.

So I think heterogeneous computing is the future. I mean, it is as obvious as using the right tool to do the right job and there is no reason why heterogeneous computing can’t be available to everybody.

You know, we’ve shipped 60 million CUDA GPUs already and we are on track to ship 100 million, 150 million GPUs a year and in a couple, two, three years, that’s several hundred million PCs will have heterogeneous computing in it. So I think it’s a foregone conclusion that heterogeneous computing is here.

The question now is what are the exciting applications that are going to come. And just one more comment -- in the last 20 years that I’ve been in the computer industry, the CPU or the computer has improved in performance a staggering 1,000 times.

It’s a staggering 1,000 times. And that’s clearly one of the most aggressive improvements in performance of any technology or anything that humanity has ever seen.

And yet CUDA, in the hands of all these 60,000 software engineers around the world, and it’s easy for you to find applications and reports of CUDA applications written, people are seeing 20, 50, 100, 200, 300 times speed-up. In just one year, we’ve helped the computer improve its performance by 100 times.

That kind of a step-up and that kind of a discontinuity in computing performance has just never happened. And so that’s the reason why Stanford and Berkeley and UIUC and just about every supercomputing center on the planet and scientists all over the world and software engineers in all the major software companies that you and I both know are all looking into heterogeneous multi-core computing.

I think this is clearly the future.

Last question, Jen-Hsun; may be a little difficult to answer in a public forum but in the past you haven’t been too shy, so your best friends in Santa Clara, have any of their actions, public talk, et cetera, affected either pricing or any success or future potential of the chipset business? Thank you.

I think any dialog around GPUs is welcome for me. I would love to have Good Morning America cover GPUs.

If any city -- Santa Clara, Toronto, Austin -- any city who would like to have a dialog around the importance of heterogeneous computing, GPUs and what we could do as an industry to advance computing is a welcome conversation. So I think all of that conversation around GPUs and graphics is all good for us.

I welcome all of it.

Thanks, Jen-Hsun.

I have a couple of questions relating to balance sheet items. Are there any troubles in production lead times still out there?

And your inventory turns are still above the historical norm of five to six and I’m just curious whether we might see a continued rise in the NVIDIA held inventory.

Our day sales in inventory are 60 and that’s where I’d hope to get it because then it’s down at 50 or below, that’s too little inventory. Once you have it at 60, the real issue is what is in the inventory?

Is it old stuff that is moving slowly or is it new stuff where you don’t have enough of it? And I would say at this stage that I am very comfortable with the inventory, both the profile and the amount of it.

Are we going to build inventory? Yeah, I think we’ll build inventory as we go into Q3 and Q4 and with the expectation that revenue usually increases significantly in Q3 and Q4, so I wouldn’t have any trouble at all with building inventory in Q2, providing it’s the right inventory.

Okay, and production lead times? Are there any issues still there?

We’re still growing as a company so production lead times continue to be a challenge for us but you know, our fab partners are working hard for us and they are doing their best for us. But you heard me say that our GPUs, and GPUs, just so you know, are the most complex -- recognized now the most complex processors the world makes and we ship 100 million a year and so it may look easy but it is the largest pieces of silicon that anybody makes, period.

And so when I said that we grew our GPU units 50% year over year --

42.

42% year over year, that’s a very large number. I know that none of the foundries grew 42% year over year and I know that the PC industry didn’t grow 42% year over year, and so you can just imagine our wafer starts.

And so our fab partners are really working hard for us. I would like -- I would love to grow another 50% year over year and there is certainly every opportunity for us to do that, and our fab partners just have to -- you know, they have to all pitch in and help us get there.

Lastly, could you provide some comment on the consumer business, sort of the ebbs and flows going on there with the different components? Is that revenue and might we see some stabilization in this business going forward?

I think stabilization in consumer businesses, that’s probably a -- what do they call it, an oxymoron? Jumbo shrimp?

You know, that’s the nature of the consumer business and the thing that I do know is this -- that PS3s are doing great. The Blu-Ray/HD war is over.

The PS3 is benefiting from both second generation titles. They are benefiting from first party titles that are coming out in the near future.

That’s going to be pretty hot and they have Blu-Ray. And if you don’t know this, you should go get one.

It’s pretty affordable. PS3 is the world’s best Blu-Ray player, period, flat out.

It’s just a fabulous Blu-Ray player. So I think PS3s are going to do great.

They are in the process of transitioning to a new process node and so we are looking forward to how they ramp into the holiday season.

Thanks, guys.

Good afternoon. Could you maybe within the desktop GPU segment comment on your expectations for Q2 in terms of pricing, and whether or not you’ve seen any incremental pricing actions by some of your competitors there?

It’s hard to exactly predict what happens in the short-term, but I know what the general trends are. The general trends are the GPU is benefiting from an industry-wide recognition that visual computing is important.

The GPU is doing more and more things because it is more and more programmable, and with CUDA, we’ve made the GPU a completely general purpose parallel processor. And so these things will cause it to be adopted more and therefore that will increase units.

It will increase its TAM, you know, places that you would have never thought a GPU would go would include a GPU. And it would also increase its ASP because it is more and more useful.

And so we are seeing all of those mega-trends, and so I think that with respect to Q2, we know we are announcing new products and so that’s always helpful but I can’t control what the competition does.

Okay, that’s helpful. And then secondly on the R&D spending, Mark, do you expect that you can hold that to roughly flattish levels from Q2 and then through the rest of the year, or do you expect that would tick up a little bit as we move to the back half?

I think if we continue to hire, it’s going to tick up in the back half. I mean, we have our very strong focus on trying to hold it as flat as possible in Q2.

I think at the analyst day I said the same thing. So our focus now is holding it flat for Q2.

We’ll see how successful we are. I would think it will tick up slightly.

As I said before, I think we’ll moderate the growth throughout the rest of the year.

Thanks very much.

This is Peter [Kirazaris] for Glen Yeung. In the guidance for gross margin being up 100 basis points next quarter, can you give me some sense of how much of that is your thinking on the improvement from manufacturing and how much of it would be coming from product mix?

Well, you know, 100 basis points should be -- we can do a lot better in terms of the manufacturing side, so I think that we don’t need significant uplift in other areas in order to achieve the 100 basis point increase. What we do need is really superb execution internally and we are going to have to work very hard for that to happen.

All right, so the 100 is really driven by -- it’s correct for me to say it’s driven primarily by the improvement in manufacturing, any mix would be upside to that, is that correct?

Yeah, probably. We’ll see.

And SG&A, should I assume that more closely tracks revenue? You’ve kind of given us some detail around R&D spend but should I be thinking that SG&A then next quarter could be down a bit with the revenue and then it comes up in the second half of the year?

Our OpEx is not closely tied to revenue. It is closely tied to the number of people we have and projects we have going on.

So if revenue goes up or declines, our SG&A doesn’t track right along with it. So no, I think they are independent movements, Peter.

All right, thanks.

Jen-Hsun, you are guiding to revenues in line with historical seasonality for the PC space. With the 9000 series ramping, it puts you in a strong competitive position in the desktop space.

Do you expect to gain some share in the back-to-school season and if so, shouldn’t you be guiding above historical seasonality?

Did I mention the -- we’ve got to treat Q2 with respect. I think you are right that we have a very strong, a very good competitive position.

We have fabulous products top to bottom and we are also announcing several new initiatives that you guys heard about at the analyst day. One of the things is the modern benchmark is out.

We’ve been using -- the benchmark that the industry has been using has been around since 2006 and in graphics years, that’s a long time, and so the new benchmark is out. It’s called 3D MarkVantage and it’s a modern benchmark and because its -- our GPUs, our modern GPUs are designed for modern applications.

You would think that our position on 3D MarkVantage should be extraordinary and it is. So that’s one thing and that’s in the process of rolling out.

The market doesn’t really know it yet and I think you could see some early websites, go see some -- and you might just be able to Google it and find some reviews and you’ll see that the reviews are really fabulous with GeForce 8 and GeForce 9, so that’s one. The second thing is we are going to announce this quarter probably the highest volume parallel computing application or software in the world and that’s physics processing.

It’s used in almost every modern game and it is one of the most computational intensive things that you can do in a game and it now runs on CUDA on GeForce GPUs. And then we are going to add on top of that -- hopefully we’ll go into production later on in the quarter -- transcoding.

It is probably the killer app today with the number of iPods that are being sold and iPhones that are being sold. People are downloading a lot of videos onto their portable media players and the transcoding of videos take forever.

You have to start it up at night and give up your PC and go to bed and hope that it’s done before you wake up. And so we are going to accelerate the transcoding of movies to what is called super real-time -- it’s much, much faster than it takes for you to watch is, and so I think transcoding is just going to -- people are going to be nuts over the work that we are doing in this area.

So not only are we -- do we have a fabulous position with our GPU lineup but we are adding three major things to it this quarter and I think that can’t but help. But having said all that, I think we’ve got to show Q2 its due respect.

Okay, and then the share shift in the notebook space, is that going to play out in the July quarter and then return the company to the normal seasonal trend in the October quarter, or are we likely to see a drag from notebook share shift in the October quarter as well?

It will certainly play out in Q2. You’ll see that share shift start to take place in Q2.

There will be a little bit of drag in Q3 but the major portion of it is in Q2.

But I think it’s all-important to keep it all in perspective. I think first of all, the notebook GPU business is a lot smaller than the desktop GPU business and the market share that we lost is mostly in the entry level segment and so it’s a small percentage of a small percentage, and so I -- I’d just put it in perspective.

I think in the final analysis, we’d like to have all the business in the world but sometimes the profitability doesn’t suggest it would be the most prudent thing to do. And so we’ve -- we’re going to keep fighting for our share but I’d urge you to keep that in perspective.

Thank you.

Thank you. Marv, I’m just a little surprised at the commentary on the margin guidance just with respect to the entire benefit being from manufacturing.

I guess if I look at your Q1, you did have some favorable mix in the sense that workstation being up 21%. That’s a 70% gross margin business, and then your memory was down 20%, yet you were kind of light on margins, as you’ve alluded to.

So as we move into July, is there going to be another element that is going to be really helping the margin? Because I can’t imagine that we are going to have the same favorable mix on those two product segments carrying into July.

And then, as we kind of -- is it just a matter of getting -- you know, you’ve gotten through the excess inventory in the GeForce 8X family and now you are going to have new products as well ramping, so the GPU margin should also improve on top of that manufacturing improvement? Any color there would be helpful.

Jen-Hsun outlined this -- the G80 to G92 transition has been difficult for us and it has certainly impacted the GPU margins. As I mentioned, the overall GPU margins were down 2 percentage points quarter to quarter.

Now, that’s a combination of both of those factors but what I was referring to is that you are going to get the benefit of one of those because you don’t have to repeat them. The other one of the manufacturing improvements that we have to do is going to drive the other portion of it.

So yeah, I anticipate that we won’t get the lift that we got from the PSB business unit in Q1 and we won’t get perhaps the lift in some other areas. But even taking that into consideration, we still believe that 100 basis points is reasonable.

I think just to help amplify that and Marv and I have both talked about it but let me just add a fine point to it -- typically when you introduce a new product, it’s either more expensive but it’s much higher performance, or another way of saying it’s much higher performance but it typically is higher cost. Or you introduce a product that goes into the mid-range or the entry segment and it is lower performance but it is definitely lower cost.

So those are the typical product transitions. I mean, typical as in out of every nine product transitions, out of every 10 transitions, nine will be that way.

But every so often, the moon and the stars and everything kind of align and you get a situation like the G80 to G92 where G92 is both faster and cheaper. And it’s a combination of both process improvement and also kind of the midlife kicker syndrome, in the sense that G80 was the first implementation of our CUDA architecture, and so G92 had the benefit of learning from big brother and we fixed a lot of the architectural things that we left on the table.

And so G92 has that added kicker. So when you are presented with a situation where something is cheaper and it is much more higher performance, it is really tough to manage through the transition.

And I guess how much of what occurred with the G92, I mean, was this more of a function -- you know, we had obviously some manufacturing constraints in late fiscal 2008. I mean, were the forecasts just overly optimistic or was there maybe an air pocket of soft demand as we kind of went through April -- any comments there, please?

You know, we were in allocation on G80 and -- holy cow, until the day we had a bunch of inventory to sell at a lower margin, so it’s -- part of it is the cycle times aggravate that. Part of it is seasonality and a large part of it is G92.

G92 was such a good product, and you probably remember the reviews. I mean, G92 when it came out, the reviews were this is the perfect product because it was affordable and it was so high performance.

And so it’s tough for G80 to compete against that and especially when the manufacturing was running full steam right when G92 came out. It’s just hard to manage those kind of transitions.

And last thing, Jen-Hsun, just with respect to these low-end notebooks that are coming into the market, if you kind of talk to the channel they are somewhat concerned about potentially desktop cannibalization accelerating this year. Intel has talked about actually their crossover occurring this year as opposed to next year.

What does that mean for the GPU industry and how -- is that even a threat at all or do you feel comfortable with what you are doing with the hybrid graphics technology that over time, your attach rate, the GPU attach rate in notebooks will continue to increase and this really isn’t that much of a threat as some of the channel is making out to be with their own business?

First of all, the crossover, be sure to understand what it actually says. As far as all the data shows, and certainly we did sell 40%-plus more GPUs this year than last, so they are going somewhere.

What the data shows is that desktop PC growth is small but notebook PC growth is fast. And most notebook PC growth is mostly an extremely low cost notebook growth.

And so what it basically tells me, and my family is probably similar as other families, where people buy one or two desktop PCs but everybody has their own laptop. And so I think that increasingly, more and more families are that way, and so we are seeing that basic trend, that for every desktop PC, you might see one plus notebooks and that those notebooks will tend to be for personal use.

But I think the mega-trend though that we are seeing -- that is one trend that you are recognizing, and that’s the notebooks, there are just more and more notebooks sold, but the second thing that you are noticing is that in the markets that we serve, there increasingly increased ASP and increased adoption of GPUs. We are not in the vast majority of the world’s PCs yet.

We still have a pretty large TAM to grow into And so within that TAM, I expect that ASPs of GPUs will continue to grow as the usefulness of GPUs continue to grow and as people recognize that their PCs are more visual than ever, they will use more GPUs. So I think the growth opportunity is still pretty healthy out there.

Thank you.

Good afternoon. Thanks for taking my questions.

A couple on inventory -- did you guys write down inventory in Q1?

Well, we always write down inventory but --

Beyond normal?

No.

Okay, and then for --

It was normal.

Okay, thank you. And on the channel inventories, can you describe how the inventory that your OEM and channel partners are looking right now -- is it normal, a little higher than normal and maybe give some color on trends there?

It’s higher than normal but I think that during this time of the year, it tends to be higher than normal and it’s sort of the opposite of saying -- corollary of saying seasonality. But don’t forget that this is also the time right before back-to-school season, so as you’ll recall last year about this time, inventory grew in the channel and then shortly after that, back-to-school ramps up and it also went into June and July and back-to-school and before you know it, it’s fall.

Right, so higher than last quarter but not higher than what you would normally expect this time of year?

I don’t think so.

Okay and then as far as the guidance for Q2, the down 5% -- if I’m reading my notes correctly, it looks like you’ve guided over the last three years for a flattish to slightly up for Q2. Is the visibility you have now less than normal?

Are you trying to predict what’s going on in notebook? What’s making this year a little bit different from the last several years?

First of all, notebook is -- the share loss we’ve talked about in notebooks doesn’t represent 5% of our top line, and so -- as I’ve already explained. I don’t think there is -- I feel like I’m the only person that is maybe watching CNBC but there is no harm in a little caution into this Q2.

We’re just nervous. It’s the stock market.

I feel like maybe I just landed on another planet, but we have a great product position. We have a great product position and we have really exciting products coming out and there’s two major trends that are happening that’s going to drive GPU growth.

One of them is visual computing and the other one is parallel computing. They are not related.

They are completely different things that are happening and we find ourselves at the epicenter of both. And so I’m excited about our growth prospects, but Q2 is Q2 and we ought to just -- if we come out the other end of it and surprised ourselves, so be it.

But a little conservatism going into it is not a terrible thing.

Thank you very much.

I’m wondering if you could give us an update about the motherboard GPU business in terms of where you see pricing going to in the second half. And also, you announced a VIA platform on the analyst day, so could you give us an update on the design activities?

Let’s see -- Marv, you already mentioned about MCP business, where we grew MCP business over 30% year over year.

And it went down 4% quarter to quarter.

I don’t know of any major reasons why the MCP business would change in terms of its characteristics, and let me tell you why. I think the DX10 -- in order for you to be Vista Premium certified by Microsoft, you have to have DX10 capability I think it’s by August or something like that, either July or August.

And so DX10 -- and the second thing is that the new benchmark is out. It is the benchmark that the entire PC industry, the entire supply chain uses to determine the worthiness of the product.

And so you need to have DX10 to have any meaningful capability on that benchmark, and so you have to put DX10 onto every GPU. My sense is that our leadership in DX10 is going to be pretty substantial and so I -- we expect to bring that on to the motherboard in the near future and so we are excited about that.

I don’t anticipate anything except that graphics will be harder and harder to do, and our separation relative to the rest of the industry in terms of graphics leadership, as you’ve been tracking and others have been tracking is diverging, or our lead is increasing, the rate of our lead increase is increasing, I think. And so I’m enthusiastic about the work that we are doing there.

The VIA platform, we are still in the design and so it’s a little bit too early to make any significant announcements. We are not planning to have production until spring of next year.

I think it highlights that the VIA processor is very good and it is -- and it runs Vista Premium. It tells you that if you want a Vista Premium platform, a processor less than $20 certainly and soon, in another year or so, less than $10, with a sufficient GPU will give you a great experience on Vista Premium.

And so that tells you something about the future of computing. This is just the first signs of it, that visual computing and computing can be done quite nicely in even very cost effective solutions.

Great, and lastly just a little bit more on mobile -- when you talk about having more substantial revenue in mobile by the end of the year, is that mostly related to the portable navigation device platform, or one that you discussed at the analyst day or are there more things to explain?

We have some interesting announcements that we’d like to make and give me an opportunity to make those announcements properly, so just watch this spot. I think mobile computing, and you’ve seen the demonstrations of APX2500.

I mean, everybody I’ve shown it to, everybody who has seen it is just amazed at what capability you could put into a chip, a full computer that can fit on a chip that is smaller than the size of a dime. The entire computer, including the CPU and the GPU and the video encoder and decoder and high definition video and -- the whole computer can fit on a surface smaller than a dime and draw [inaudible].

So imagine what you could build with something like that and give us an opportunity announce it properly and it will get you excited about it.

Thanks.

Thank you very much. A question for you, Marv; if I look at PSB, how much of the revenue this quarter was already TESLA that was recognized for the quarter?

Well, first of all the PSB revenue does not include TESLA.

Okay, the second question, if I may just follow-up on that, if I look at PSB, one would think that given all the issues associated with financial service fees and upsizing, that that may affect that revenue, but obviously that hasn’t. Can you just talk me through a little bit more what is driving the resilience of this business?

Obviously this has been a great business for you, both top line and margins. And also on the competitive front, are you seeing anything, given that AMD talked about reviving or driving Fire GL of its brand?

I mean, I don’t think it’s that significant, but if you can just say anything on the competitive front, Jen-Hsun, that would be helpful. Thanks.

At the highest level, the most important thing to recognize is that in every single industry, they are going digital. So where people used to use drafting boards and paper and pencil, they are doing digital, whether you are making comic books or designing buildings in China or designing the next airplane or car or whatever it is, everything is going digital.

And so I think that that’s a perfectly conventional wisdom and observation. And as more and more of the -- but the pipeline can go digital because technology affords it to.

We have to make the technology good enough so that you could do more things in digital. Let me give you one example.

We have to create amazing technologies in order to replace clay modeling of cars, because it has to be so realistic that you no longer have to build the entire model. That saves millions of dollars, it cuts an enormous amount of time off the design cycle for these car designers, but it requires an enormous amount of technology.

And so those kind of -- whenever we reach those plateaus with technologies like Quadro Plex or some of the work that we are doing with our Scene Graph work, a lot of it has to do with software and multi-GPU scaling and just -- they are all systems or system architecture or software solutions. When we can reach these new plateaus, all of a sudden we convert an entire pipeline, work pipeline that an industry has into digital and that increases the TAM of workstations.

I think we are still very well into the early days of it and the reason for that is because what all of these companies want to do, they want to visualize, they want to design, they want to simulate -- you know, to simulate the dropping of a cup or a toaster or a cell phone, simulate the electromagnetic emissions of a cell phone. Simulate a car crashing and doing all of that from the comforts of an engineer’s desk and not have to share a super-computer with people.

You know, styling, showrooms -- we’re starting to see Quadro showing up in showrooms so you can pick your own color and choose your car. This is a new application.

I have no idea how many showrooms are all over the world but every car company wants to do this now, put digital displays into showrooms. And they are power-walls -- enormous, enormous amounts of technology.

And I’ve just talked about the car industry. And then further, they want to do inventory management.

They want to do training, so that the mechanic can have interactive displays of the manuals instead of out-of-date prints. There’s so many different ways that visual computing can still transform the industrial workflow, and so we are really just seeing the beginning of it.

And then once you are done transforming the workflow, then you have to duplicate it. Don’t forget outsourcing.

Whenever you -- if a German company, auto company has a manufacturing plant in Asia and then they put one in India, guess what? They’ve got to install the same workflow in those two countries.

You could make the data virtual but you can’t make a computer virtual, yet. And so there is still that globalization factor.

And so there is quite a bit of growth yet I think in PSB and I am enthusiastic about our position within it. With respect to Fire GL, our workstation business is not called a GPU business, as you probably noticed.

You called it PSB. It’s a solutions business and a solutions business entails a lot more than building a chip.

It’s about understanding the processor, having an extraordinarily deep understanding of the software and the workflow and the pipeline, having experts all over our company and all over the world for our company who are assisting these designers work through their design pipelines or their design problems. So it’s a -- and our entire ecosystem of partners where Quadro certification and being Quadro compatible is now the way people talk -- I want Quadro compatible workstations or my software is Quadro compatible, or this workflow is Quadro compatible.

And so these kind of investments took us 10 years to get here and it is just not about a graphics chip. It’s not about an adding card and it’s not about how big your frame buffer is.

All of that just shows that people don’t understand how these designers think.

That’s helpful, Jen-Hsun. I mean, it’s amazing [this business can continue to apply] and [inaudible] stronger than equal.

In terms of your ability to allocate capacity to keep driving this business, do you think there’s any constraint in the future that, from a capacity standpoint, that could become an issue? Especially if you had to balance this against your G92 series that’s ramping as well.

So are there any capacity constraint issues to think about for the near term?

I’m not sure I understood the question.

Capacity constraint to the PSB business, is that what you are asking?

I’m asking because given the strength of the underlying growth in this business, are there -- because I remember a couple of quarters ago where you had to make some decisions in terms of allocating resources through capacity to PSB and that bounced back. If I look forward in the future, do you think that there is enough foundry capacity to keep driving the underlying growth in this business, along with your other businesses also, especially on the G92 that’s ramping?

I see. You know, the PSB business is not a -- when I heard capacity, I was surprised by that because in terms of total units, it’s not insignificant.

It’s very large. We ship more Quadro solutions in one year than all of the other workstation companies in the history of workstations ever shipped.

So it is a large number. However, in the totality of all of our units shipped, it’s not -- it would never get in the way.

The only thing that when you said capacity that comes to mind for me was intellectual capacity. This is an intellectual capacity business.

And I would love to have 100% more people who understands this business and has the skillsets of the people that are in that business instantaneously tomorrow. So if you find those people, let me know right away.

That’s great. Thank you very much, Jen-Hsun.

Thanks for the time.

Just in the April quarter, you obviously had some very sort of robust sequential strength in workstations and I was wondering if you could give any color on how -- what would have driven that sequential up-tick. And then, as you go into the July quarter, do you have any color on how you would expect some of the different segments to look, or do you think it is going to be fairly even in terms of the 5% seasonal decline between the core units?

And then lastly for Marv, I was wondering if you could just remind us how you perceived normal seasonality for the back half of the year and how you think that may shape within the current macro context. Thank you.

Well, I don’t think there was any one particular segment of the workstation business that drove the growth quarter to quarter. I think it was across the board.

They did well in all kinds of areas in Q1. Jen-Hsun, do you have any comment about that?

The only thing that I would say about our workstation and our professional solutions business is it has exceeded everybody’s expectations and it is still growing. And I think that we are not following any market research in terms of the size of the market.

We are beyond market research. I think that there’s a -- when you are the market leader and you have grown the market as large as it has ever been, and yet you still see -- you still see headroom for growth, you just never know how big it’s going to be.

Our customers don’t know how bit it’s going to be. Many of our sales people don’t know how big it’s going to be and you just have to go back to first principles, I think, to figure out how big it’s going to be.

I think it’s not really that easy to predict what PSB will do this year or next quarter but you just have to look at the underlying foundations of what makes the PSB business grow and what that business is all about and you will see the significant opportunities ahead of it.

Any other segment color for July? It sounds like you are saying notebooks will be slightly towards the lower end of -- any guidance on desktop, or any color on notebooks or workstations for July?

I think that notebook, as it makes the transition to Montevina will be -- probably decline more than corporate. We outlined a 5%.

It’s probably going to decline more than that. I think the --

But just to make sure that that’s not because of share. That’s just a transition thing.

Everybody’s notebook business is, in this transition, going to be slightly down but in terms of stabilized share, you don’t want to communicate that it’s going to be off by so much.

No, it’s a transition quarter. I think that’s the color for notebook.

I think the big swing factor that you had no idea on or great difficult in projecting is what happens in desktop. We have some new product in there which could surprise us, both in strength and we’ll see as we go through the quarter.

I don’t think that in our projections we are expecting huge growth in anything but also not huge declines. I would guess it’s more what we’d call seasonal.

And what about second half seasonality?

Well, the normal seasonality that we see after I’ll call it the 5% decline in Q2 is 10% plus growth in Q3. That’s what normally happens.

We’ve had many years at 20% quarter to quarter, so it’s 10% plus. And then you go into Q4 and it’s slightly up from Q3, single digits.

And you feel you wouldn’t get that this time, Marv?

You know, you tell me what’s going to happen to consumer worldwide.

Fine, but as of now, you are planning for that kind of fairly broad but normal seasonal range, or how should we think about framing expectations?

We have no reason to have any different plans this year.

And margins, gross margin for the continuation of the year, how should we think about framing expectations for that after this weakness in the first quarter? Do you think you’ll see steady improvement through the calendar year?

We’ll talk to you in mid-August about Q3 margins.

And lastly if I may, so you are saying channel inventory is slightly higher, and your inventories, you would look to build some further inventory for the sequential improvement in the calendar third quarter -- that’s correct?

Correct.

And then, excuse me, lastly if I may, the ASPs in general, they seemed to be solid this quarter. How do you generally see the framework for ASP through the calendar year, i.e.

through this second quarter with the lower revenue and how should we think about it? Should we think about it being stable from here?

You know, ASPs have been stable to slightly up for years now, so if you look back over what’s Jen-Hsun has talked about, 10% growth in ASP year to year. I don’t know why it would change.

Right. That’s excellent.

Thank you very much, guys. Good luck.

Thank you all for joining us today and we look forward to reporting on our progress for Q2.