NVIDIA's quarterly earnings call was largely a good news show that focused on the company's achievements in the gaming, datacenter and AI markets. Not a word was said about an upcoming consumer graphics card refresh but we did hear an interesting snippet from CFO Colette Kress.
Rumors have circulated for a couple of months now about the GPU patent license deal with Intel. This multi-year agreement ends in March 2017 and word on the street is that Intel closed a new deal with AMD to cover all the legal bases because NVIDIA charged too much money. Yesterday, Kress confirmed Intel has not renewed its deal with NVIDIA:
Toshiya Hari - Goldman Sachs & Co.
Hi. This is Toshiya from Goldman. Thanks for taking the question, and congrats on the results. I had a question on gross margins. I think you're guiding Q1 gross margins only mildly below levels you saw in fiscal Q4, despite the royalty stream from Intel rolling over. And I'm guessing improvement of mix in Datacenter and parts of Gaming are driving this. But A, is that kind of the right way to think about the puts and takes going into Q1? And B, if that is indeed the case, should we expect gross margins to edge higher in future quarters and future years as data center becomes a bigger percentage of your business?
Colette M. Kress - NVIDIA Corp.
Yeah, this is Colette. Let me see if I can help answer that. So you're correct in terms of how to look at that in Q1. The delta from Q4 to Q1 is, we only have a partial part of recognition from the Intel, and that stops in the middle of March. So as we move forward as well, going into Q2, we will also have the absence of what we had in Q1 moving to Q2. I'm not here to give guidance on Q2 because we just give guidance out one quarter, but keep that in mind, there's a partial amount of Intel still left in Q1 and then it depletes in Q2. If you think about our overall model, our overall business model, it has moved to higher and value-added platforms, and that's what we're selling. So our goal is absolutely to continue to concentrate on providing those higher-value platforms, that gives us the opportunity for gross margin as we make those investments in terms of an OpEx. We'll see what that kind of mix looks like as we go into Q2, but just to leave you with a understanding of Intel is probably what we can do here. Okay?
Intel paid NVIDIA $264 million per year in licensing revenue. At the moment, there's no official confirmation about the deal Intel closed with AMD, we do not know the financial specifics nor how far Intel plans to take this. There are some rumors that Intel is preparing a consumer processor with a Radeon GPU module. If this rumor is accurate, it will not be a tightly integrated solution but a multi-chip module. So basically, an Intel processor and a Radeon GPU on the same board.