Nvidia's CFO: Notebooks Are Now a Big Part of Our Gaming Business

Nvidia's sales to both cloud giants and traditional enterprises are faring well, CFO Colette Kress said during a talk with TheStreet.
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Though earnings expectations were high following a big run-up, Nvidia’s  (NVDA) - Get Report stock is up about 2.5% in Friday trading, as markets give a thumbs-up to an April quarter beat and solid July quarter guidance.

Nvidia’s Gaming segment revenue rose 27% annually last quarter to $1.34 billion, aided by strong demand for notebook GPUs and the Nvidia-powered Nintendo Switch console. Data Center segment revenue rose 80% to $1.14 billion, with assists from strong cloud capital spending and initial shipments of Nvidia’s new flagship server GPU, the A100.

Following Nvidia’s earnings call, I once again had a chance to talk with CFO Colette Kress about her company’s results and near-term sales expectations (an article going over February's earning call can be found here). Here’s a look at comments that Kress shared on a few subjects of interest, slightly edited for clarity.

How Nvidia’s sales to traditional enterprises (referred to by the company as “vertical industries” clients) are trending amid the COVID-19 pandemic.

“In our data center business, [hyperscalers were] very strong, but also our vertical industries. Both of them rose in the quarter. Our industries [business] still remains...solidly in the double digits [as a percentage of] our overall Data Center business.

There are definitely some areas where we are helping solve some of the things [caused by] COVID-19. But given where the economy [is], there are some businesses that may be a little slower in terms of [how fast they buy] our new data center products just due to COVID-19. An example would be the automotive industry.”

Nvidia's April quarter Data Center segment performance. Source: Nvidia.

Nvidia's April quarter Data Center segment performance. Source: Nvidia.

On whether Nvidia’s sales to internet/cloud giants (i.e., hyperscalers) benefited from orders that were placed to help deal with traffic spikes caused by COVID-19.

“We don’t have any signals that there were any pull-ins or any special overall purchasing. As we have discussed, we had visibility going into the quarter in terms of what people were purchasing and what they were needing.

We had started to discuss with [hyperscalers] our next architecture which came out during the quarter. But no, we don’t have any knowledge of any material...pull-ins within the quarter.”

Nvidia’s near-term sales expectations for its recently-announced DGX A100 server, which contains eight A100 GPUs.

“We have always had certain quarters where we have large DGX sales as a percentage of [Data Center revenue], and other quarters where it is not as large. It’s still a little bit too early...we’re just going to have to see what [demand] looks like for the full quarter.

We expect more [sales] of our A100 boards...within the quarter, and we’re just going to start selling our [DGX A100 server].”

How Nvidia’s notebook GPU sales are trending as a portion of its total Gaming segment revenue, and -- given that Nvidia said it saw a favorable gaming GPU mix last quarter -- whether it saw a mix shift towards its more powerful RTX-series GPUs relative to its less powerful GTX-series GPUs.

“During the quarter, our notebook business finished [its] ninth quarter of year-on-year growth...Our notebook business was aided by COVID-19, by people moving to e-tail [purchases]. Our notebook business...now represents almost 30% of our overall Gaming business.

We sold almost the full stack in terms of [our notebook GPU sales]. We had some notebooks that [featured] our RTX and higher-end [GPUs], and we were very pleased with their performance within the quarter. [We introduced] the Super 2080 as well as the Super 2070. We also brought the [RTX] 2060 to...a retail price point of $999.

We are continuing to see an uplift in RTX as a percentage of our overall business as a result of these actions.”

Nvidia's April quarter Gaming segment performance. Source: Nvidia.

Nvidia's April quarter Gaming segment performance. Source: Nvidia.

On the order growth Nvidia has seen from Nintendo, whose Switch console has been sold out at major retailers, and its expectations for July quarter (fiscal Q2) sales to Nintendo.

“Nintendo has indicated that they were seeing a pickup...associated with COVID-19. We are working with them diligently to make sure that they can meet their overall demand, so we will expect an increase in [console-related shipments] between Q1 and Q2. We’re here to support Nintendo...and they’re helping us understand what their forecast will look like.”

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