NVIDIA Corporation (NVDA) Q4 2012 Earnings Report, Transcript and Summary

Good afternoon. My name is Tamara, and I will be your conference operator today. At this time, I'd like to welcome everyone to the NVIDIA Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Rob Csongor, Vice President of Investor Relations. Sir, you may begin.

Thank you. Good afternoon, and welcome to NVIDIA's conference call on annual and fourth quarter of fiscal 2012 results. With me on the call today from NVIDIA are Jen-Hsun Huang, President and Chief Executive Officer; and Karen Burns, Interim Chief Financial Officer. After our prepared remarks, we will open up the call to a question-and-answer session. [Operator Instructions]. Before we begin, I'd like to remind you that today's call is being webcast live on NVIDIA's Investor Relations website and is also being recorded. A replay of the conference call will be available via telephone until February 22, 2012, and the webcast will be available for replay until our conference call to discuss our financial results for our first quarter of fiscal 2013. The content of today's conference call is NVIDIA's property and cannot be reproduced or transcribed without our prior written consent. During the course of this 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, 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 Form 10-Q for the quarterly period ended October 30, 2011, and the reports we may file from time to time on Form 8-K filed with the Securities and Exchange Commission. All our statements are made as of today, February 15, 2012, based on information available to us as of today, and except as required by law, we assume no obligation to update any such statements. Unless or otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or Jon Peddie Research. During this call, we will discuss non-GAAP financial measures. You…

Thanks, Rob. For the fiscal year 2012, revenue was $4 billion, up 12.8% from the prior year. GAAP net interest -- net income grew 129.5%, resulting in earnings of $0.94 per diluted share, an increase of 118.6% over the prior fiscal year of $0.43. Non-GAAP net income grew 54.2%, resulting in earnings of $1.19 per diluted share, an increase of 46.9% over the prior fiscal year of $0.81. For the fourth quarter, revenue was $953.2 million, down 10.6% from the prior quarter. As Rob discussed, the hard disk drive shortage had more impact on our mainstream GPU segments than originally anticipated, and our Tegra 2 products declined more rapidly than expected. GAAP gross margin for the quarter was 51.4%, 0.8% lower than the prior quarter and our original expectations due to an additional charge in the quarter to settle a patent dispute with Rambus. Non-GAAP gross margin, which excluded this charge, was 52.5%, consistent with the record gross margins we achieved in Q3. These results contributed to a GAAP net income of $116 million for the quarter or $0.19 per diluted share, and non-GAAP net income worth $158.1 million or $0.26 per diluted share. Revenue results by business segment were as follows: Our GPU business was down 3.6% quarter on quarter, due to the impact of the disk drive shortage on our mainstream GPU desktop and notebook businesses. Our professional business was down 3.6% from the record level achieved in the third quarter. Our Consumer business was down 42.5% sequentially. As mentioned previously, this primarily related to the sharp decline in our Tegra 2 products ahead of the ramp of Tegra 3, as well as the seasonal decline in our game console revenues. For GAAP, our outlook for the first quarter is as follows: Revenue at $900 million to $930…

[Operator Instructions] And your first question comes from the line of JoAnne Feeney.

I just wish you could give us a little bit more clarity on the outlook, in particular which segments do you see driving the reduction quarter-over-quarter? And why are you expecting the decline in the gross margin? Is it purely volume or is it mix or some of both?

The top line decline for Q1 is expected to be due to the hard disk drive shortage continuing, as well as a shortage of 28-nanometer wafers. We're ramping our Kepler generation very hard, and we could use more wafers. The gross margin decline is contributed almost entirely to the yields of 28-nanometer being lower than expected. And that is, I guess, unsurprising at this point. And because we have -- we use wafer-based pricing now, when the yield is lower, our cost is higher. And so we've transitioned to a wafer-based pricing for some time. And our expectation, of course, is that the yields will improve as they have in the previous generation nodes, and as the yields improve, our output would increase and our costs will decline. And that's why we expect to exit the year at 52% or about.

The next question comes from the line of Chris Caso with Susquehanna Financial.

With regard to the Tegra business, and you gave some outlook for fiscal '13 in general, could you give us some indication as to how that looks as you go through the year? When do the Tegra 3 wins come up? And then perhaps talk about the impact of Windows on ARM and you talked about that having some potential impact later this year. If you could expand on that.

We're expecting to -- Tegra 3 -- as you know, Tegra 3 tablets are starting to ramp in the marketplace. But this quarter, we are expecting to announce and ship Tegra 3-based superphones. And they -- rumors of them are starting to -- and excitement about it is starting to leak, but at Mobile World Congress is when we expect to announce these devices. And we expect to announce and ship them this quarter. And so we're expecting Q1 to be a sharp uptick in Tegra sales and shipments. Our expectation is Windows 8 is later in the year. And Microsoft has given their estimates about Windows 8, and our expectation is that there will be meaningful contributions from Windows 8 later in the year, starting probably in Q3.

All right. And just as a follow-up, with respect to kind of what you're seeing in the PC market and specifically, the impact of hard drives, maybe give a little more color that. Obviously, we've heard from some of your competitors on that and it sounded like that the hard drive availability is getting somewhat better depending on who you talk to. How do you see that playing out kind of over the next 2 quarters or so as it impacts your business?

Well, almost everybody has guided down. I think PC-centric semiconductor companies have guided down on average, I think about 8% Q1. And so I think everybody is expecting hard drive headwind to continue through Q1 and potentially through Q2. As far as what we see, Q4 started out with less shortage than we -- than people have predicted, and the reason for that was because there was a lot of channel inventory and people consumed the channel inventories. The channel inventory dried up. Prices of disk drives in the channels started to spike. And, as you know, channel business is a large part of the discrete GPU business. And China is particularly a large region for us, where a large amount of the PCs are built in channel, and they are built -- what we call DIY. And so design it yourself or build it yourself or design it for you. And so you spec the parts and you go to on IT mall and they build a PC right there for you. And so in those part of the regions where -- in countries, regions and countries where people build PCs like that, the spot price of disk drives have increased quite a bit. And so our sense is that that's going to continue through Q1 and potentially through Q2.

Your next question comes from the line of Vijay Rakesh with Sterne Agee. Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division: I was just wondering on the F'13 guide, what is your guide for Tegra? And also, I mean, look at Tegra 3, what is the ASP -- what are the ballpark ASPs for Tegra 3 versus Tegra 2?

We're -- we did about $360 million this year in Tegra 2 sales. We're expecting at least 50% growth year-over-year. The vast majority of that will be based on Tegra 3. ASPs of Tegra 3 is higher than Tegra 2, and our expectation is that it would stay that way through the year. Vijay R. Rakesh - Sterne Agee & Leach Inc., Research Division: Got it. And on the gross margin line, I think you guys mentioned 49% year, 49.5% year exiting at 52%. Where do you see the margin improvement coming? When do you see it coming?

Our margin drag is almost nearly entirely related to 28-nanometer. And so the margin improvement will come entirely from 28-nanometer. And TSMC is doing fabulously with 28, and this year, with 28 relative to 40, it's surely a huge improvement. But during transition years, because we have so much of our business tied to the leading edge nodes and because when we transition GPUs, we transition so much of it at once. And this year -- particularly unique this year is that the number of notebook design wins that we have and the number of 28-nanometer GPU design wins that we have is, at OEMs, is much, much higher than our previous generation. And so all of the transition of 28 is going to be very fast. And so we're just going to have to continue to work with TSMC and get the yields of 28-nanometer up as fast as possible. And we surely expect that by the end of the year, we're going to be in a pretty good place. We're in a pretty decent place now, but we just need to get the yields up.

Your next question comes from the line of Kevin Cassidy with Stifel, Nicolaus. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: Maybe along the lines of the 28-nanometer yield. Have you got categorized what the problem is and is there a fix in place? And also, I just -- if you got all the product you needed, do you know what kind of gross margins would have come in?

There's no particular problem. This is the first major quarter of 28-nanometer shipments. There have been some shipments. There've been some shipments in previous quarters but very, very small. And so for TSMC, this is probably the first large quarter of shipments, and we're going to continue to improve yields from here. So there's nothing particularly wrong. This is just early in the learning cycle of a new node. And so we'll improve it with every single outs [ph]. And also this isn't a problem that we can solve. Everybody's using the same 28-nanometer. And so this affects all of us, anybody who uses 28-nanometer. So I think with everybody ramping production, there's going to be a lot more learning cycles both from us and from other people. But TMSC is in a good place now and we just have to keep improving it. Kevin Cassidy - Stifel, Nicolaus & Co., Inc., Research Division: And just as follow-up. Over on the professional services group, can you say what the trend towards mobile workstations is and how does that affect your revenues for 2013?

The Professional Solutions group has -- includes notebook workstations. And so whether it's HP workstations or mobile workstations or Dell mobile workstations or Fujitsu mobile workstations, Lenovo mobile workstations, Quadro is a standard in all of those workstations. So we're delighted when people go mobile because oftentimes they have a mobile workstation as well as a desktop workstation. And so this is a good trend.

Your next question comes from the line of Craig Ellis with Caris & Company. Craig A. Ellis - Caris & Company, Inc., Research Division: There were a couple of mentions of notebook share gain. Can you give us a better understanding of how broadly those might exist across different OEMs? And when would we expect to see those more, mid-year or more towards the holiday selling season?

In the Ivy Bridge generation, also lined up with the 28-nanometer GPU generation, and this is really toe-to-toe competition between the best GPUs in the marketplace. And our Kepler generation, which we hope to tell you more about soon, won design wins at virtually every single PC OEM in the world. And so this is probably the best GPU we've ever built, and the performance and power efficiency is surely the best that we've ever created. And as a result, our notebook penetration -- our notebook design win this year is expected to be very, very high. Craig A. Ellis - Caris & Company, Inc., Research Division: And so you're saying that we should expect to see those right away as Ivy Bridge comes out. As a follow-up, on the mobile side of the business, with Tegra, you've mentioned a 50% growth for this year. How would the notebook side -- or the smartphone, superphone side of that business compare to the tablet side of the business? Are they both growing about equally or one significantly more than the other?

My guess is that this -- and of course, this is just an estimate and just a guess at this at this point, but my guess is that we'll ship more in phones this year as we did last year in terms of units. And in terms of ASPs, it'll probably be close. Craig A. Ellis - Caris & Company, Inc., Research Division: Okay. And then lastly from me, and this one might be more for Karen. When the target model was initially established, I think the gross margin was 52%. It looks like it will -- from the guidance that's been provided on where we start the year, it's going to come in, I think, closer to 50.5%. So what's changed since September? I doubt there's been much of a change in terms of the plan for 28-nanometer, but is it just volume? Or what's the delta as we look where the gross margin target was and where it is now?

It's yield. It's yields on 28-nanometer that have come in worse than we originally anticipated. Craig A. Ellis - Caris & Company, Inc., Research Division: And the yield improvement, do you think that is kind of steady through the year, or is that back-end loaded more in the back half of the fiscal year?

It will be stemmed through the year. And this -- yield improvement is a function of the number of cycles of learning. And now the cycles of learnings as we -- as we've ramped up at TSMC, the cycle of the learning has really gone up. And so my expectation is that the yield improvement will steadily improve through the year.

The next question comes from the line of Hans Mosesmann with Raymond James. Brian C. Peterson - Raymond James & Associates, Inc., Research Division: This is Brian Peterson stepping in for Hans. I just wanted to follow-up on this 28-nanometer issue. Just to be clear, this is specific to 28-nanometers for GPUs for NVIDIA? Or is this across the industry for TSMC?

I think this is -- I guess, the rest of the industry will have to speak for themselves. Well, my guess is that this is across the industry. This 28-nanometer is still early and it's maturing. There aren't that many 28-nanometer products in the marketplace as of now, and the number of cycles of learning is not very significant and the amount of volume is surely not very significant. At this point, we've -- we're ramping very hard all of our 28-nanometer products. And the yield is much better than 40-nanometer when it first came up, but it's not as good as we had expected in our previous projections. And so we're going to have to work hard with TSMC and support them and encourage them and wish them well and to get the 28-nanometer yield up as fast as possible. Brian C. Peterson - Raymond James & Associates, Inc., Research Division: And just a follow-up. You indicated that you expected tax rates to remain stable going forward. How do they trend in the January quarter?

We gave that guidance at 20% for Q1, if that's what you're asking.

Your next question comes from the line of Shawn Webster with Macquarie.

This is Deepon for Shawn. I had a question about pricing going into this quarter and then maybe into the next if you tie with desktops, notebook GPU in particular.

Pricing is expected to be stable and healthy this year. The amount of 28-nanometer capacity in the world is not enough. And so I think we're expecting 28-nanometer to be constrained through the entire year. New generations of smartphones, new generations of GPUs are going to drive the demand for 28-nanometer capacity -- or drive the demand for 28-nanometer devices. And so I think you're going to find that this year is going to continue to be tight. We could use more 28-nanometer wafers, and TSMC's management team is working very hard on [indiscernible] us with our demand and they're driving cycle times hard and trying to improve yield. And so all of that is going to improve throughout the year and very steadily throughout the year. And if previous generations have been an indication, TSMC will improve their performance incredibly fast.

And also, if you talk about channel inventories going into this quarter. Do you think this a lot of buildup maybe at the low end because of the HD [ph] issue and maybe about channel inventory in Tegra as well?

Channel inventory is actually okay, and there's no -- the channel is being very cautious in loading up, as you can imagine. And whether it's because of currency volatility in Europe or because of shortage of disk drives, nobody in the channel is being too heroic with respect to loading up inventory. So I think you're going to find that channel inventory is relatively lean across the board. And on the high ends, extremely short.

Your next question comes from the line of Jim Schneider with Goldman Sachs.

With respect to the attach rates. I think you talked about that being driven lower by the hard drive shortages, so the upward price in hard drives being compensated by finding bill [ph] materials share someplace else. Can you talk about, as the hard drive shortage mitigates and those prices come back down, whether you expect the attach rate to go back up?

Well, the attach rate of GPUs is driven not by anything but consumer demand. And I think that there are fewer PCs sold in Q4 than there was -- that we -- that the industry had expected. The attach rate of those PCs that were sold were stable and relatively consistent with our model. And so your premise is -- it's -- I don't think it's correct. And attach rates seems to be stable. The number of PCs sold has reduced. Some people think it's cannibalization from smartphone and tablets and other devices, but disk drive has surely played a role in that as well. And so when the disk drive supply resumes, my sense is that consumers' demand will return to what they were and GPU attach will remain stable.

Understand. And then as a follow-up. In terms of the OpEx, I think the $1.56 billion you guided to for the year implies a little bit of an uptick as we move throughout the year. Can you talk about where the incremental spending is being allocated towards?

Just one clarification. That's on a GAAP basis, the $1.56 billion. It's $1.4 billion on a non-GAAP.

It's unchanged from our previous guidance. And what we've told you guys before, the increase in investment relative to last year on an absolute basis has to do with the fact that we're investing a lot more in mobile devices. This last year was a big year for us. It was a big year because GPUs grew quite significantly despite the shortage of disk drives and softness in the market towards the end of the year. But it was a particularly big year for us because this was the first year that we really engaged the mobile market and our mobile position really became established. At this time this last year, no one thought that we would really be as successful in the mobile market as we ended up being. And so I think that today, we have now 3 generations of Android operating systems and devices behind us. We have tens and tens of smartphones and tens of tablets. We have engagements with nearly every single Tier 1 OEM in the world on the mobile side, as well as on the computing side. And so I think that this was a pretty big year from that perspective. And because of that traction and because of that -- the success we've seen, we think it's really -- it makes sense for us to double down on mobile computing and go after it in a big way. And so we're going to have a lot more products this year than last, and you're going to see that we're going to have tablet devices, as well as tablet processors, as well as integrated processors with modems. And so this is an aggressive investment surely but it's a very big, big market opportunity, as you know.

Your next question comes from the line of Alex Gauna with JMP Securities.

I was wondering within the 50% growth you're expecting for Tegra, are you factoring in contribution from Windows 8, or -- and if so, how big a contribution might that be?

We are expecting at least 50% growth, and we are expecting Windows 8 contribution but not nearly the vast majority of it.

And then I was wondering, if you're going to be seeing Tegra 3 ramping in your July quarter, is the early ramp going to be enough to, perhaps, help the gross margin line given that it's not going to be, if I'm understanding correctly, on the 28-nanometer node?

We are going to be ramping Tegra 3 -- we're ramping Tegra 3 now. And so this quarter, Tegra 3 will make a large contribution. We're expecting Tegra to be up quarter-to-quarter about 50% as well. And so Tegra 3 is ramping significantly even into the April quarter. And you're right that the gross margins for Tegra 3 is better than our 28-nanometer gross margins in the first quarter. And hopefully, 28-nanometer yields will improve and by second or third quarter time frame, it won't make any difference.

Okay. And last one if I could on the GPU business, excluding the professionals set, you gave a mix of expecting a down PC market because of the hard disk drive constraints but market share gains. Any ballparking on the net of that? Do you expect on a revenue basis, the year to be down, flat, up? Can you say at this juncture?

Our expectation is that on the net, our discrete GPU business will be up. And in Q3 time frame, we were expecting, using industry analyst models of PC industry growth of 4% to 5%. I think the -- our estimates now are much lower than that and so we assume something lower than that. And so we'll see how it turns out in the final analysis, but we're assuming relatively no growth in the overall PC market. But because we’re gaining share, because of continue to grow our professionals business, our discrete GPU business year-over-year will grow.

Your next question comes from the line of Patrick Wang with Evercore.

Jen-Hsun, can you talk a little bit about the competitive dynamics you see as you go in and compete for Tegra 3 wins? I mean, we're hearing about a lot of competition on pricing and a lot of a guerrilla tactics out there. Can you talk about what you're seeing?

We haven't met too many gorillas yet, but elephants maybe. Let's see, we compete primarily today with Qualcomm. And the reason for that is because -- there are 3 major opportunities in the smartphone marketplace this year that are really exciting. In the United States, of course, LTE is very important. Outside of United -- and they have a very -- they have the only real integrated solution today and, in fact, they have the only shipping solution today. And so they have a very good position on LTE in the United States. Outside of United States, where LTE adoption is much further behind, the next major upgrade is quad-core. Today's dual-core phones needs to be upgraded. And so the next major upgrade, the next major superphone, the next major big thing is quad-core. And so Tegra 3 is incredibly well positioned there. So outside the United States, in Europe particularly, in China, you're going to see quad-core Tegra 3 phones coming on throughout the year. The third growth opportunity is the 999 or what some people call 1000RMB phone. And this is an affordable, very affordable smartphone with dual-core capability and the way that they describe it, the way the marketplace internalized it is it's a phone that has the capability of an iPhone 4 but is extremely affordable. That's a great opportunity for us because Tegra 2 is a fabulous dual core and with a 3G modem, you could achieve RMB 1,000 in China in the near future. And so that's a pretty exciting opportunity for us, and we're just about to enter into that market opportunity. And so those are kind of the market opportunities and the competitive dynamics. It's really primarily the 2 of us. I think the highest level -- the reason for that has to do with the fact that in order to be successful in the leading edge in the Tier 1 phones, you need to have a great application processor and a great application processor road map. You need to have a world-class software stack because the software part of these phones has become the most complicated part. And the third, going forward, is the ability to integrate a modem. And we were fortunate to have purchased Icera last year and our integrated road map is going to be pretty exciting.

Got you. That's helpful. So it sounds like your quad-core features are compelling enough that pricing is -- you're able to maintain kind of strict pricing with your customers.

Yes, we're able to get fair pricing on our Tegra 3.

Your next question comes from the line of Vivek Arya with Bank of America.

Jen-Hsun, I wanted to address this competitive issue from a different angle, which is from the handset vendor side. So increasingly, Apple and Samsung are taking more share in the market versus say, HTC, Motorola and others. So even though Tegra 3 could be a great product, how are new ensuring that you're engaging with the right set of customers? And what real underlying drivers are going into this expectation of 50% growth for this year?

We're expecting to grow at least 50% this year, and it comes from 3 different -- maybe 4 different sources, if I can break it down. One is Tegra 3 phones. One is Tegra 2 phones for the 1000RMB market, which is the fastest-growing segment in smartphones today. The third is Android tablets. And as you know, we finally were able to put together a tablet that is both exciting, as well -- tablet architecture that's both exciting with Tegra 3 and Ice Cream Sandwich, as well as affordable. We've been able to reach the $249 price level for retail. And the fourth is Windows 8 on ARM. And so these 4 growth drivers, frankly, this last year, what really -- the only thing that really worked super-well for us, in even on Tegra 2, was smartphones, and that contributed to $360 million in revenues. And so this year, we're expecting smartphones from Tegra 3, from Tegra 2, from Tegra 3 Ice Cream Sandwich tablets and as well as Tegra 3 Windows on ARM tablets. And so there's a lot more opportunities for us. But you're right that Samsung and Apple are very, very strong. And so our strategy is actually very simple. By teaming up with the best partners in the world, we would like to bring great technology to them and partner with them to build exquisite devices. And also to move faster. I mean, we, as an industry, have to move a lot faster in bringing competitive solutions to the marketplace more rapidly. And so by partnering with HTC -- and they are a fantastic company. I'm not suggesting we announce any products here, but surely, a partner like HTC would be fabulous for NVIDIA to partner with.

Got it. And if I could just perhaps push back on some of those drivers. So for instance, the 1000RMB market. There, we have seen integration with base land and connectivity being an attractive feature. So how do you address that? And then on Android tablets, you have some things are getting better but outside of the Kindle Fire, we have not seen sales pick up as much, or perhaps that's just my perception of the market. So if you could address those 2 issues also.

Well, the 1000RMB market has a lot of segments underneath that. And at RMB 1,000, you really need to have a world-class phone. And right now there just isn't a very good solution for a world-class, high-performance dual-core processor with integrated 3G modem. And surely, there's RMB 500 phones and they have low-end integrated solutions with 3G. But nothing sufficiently good at the RMB 1,000 to be able to claim that it's as good as an iPhone 4 but at a much affordable price. And so that segment, where you need to have a world-class high-performance dual-core processor like Tegra 2 and a great software stack, along with 3G modems are, as you know, quite affordable and quite abundant and they've been around for many years. Integrating those together on a bill [ph] material is not too difficult. And so that's one. With respect to the tablets, Amazon Fire is a really interesting product and it's great e-reader. But our belief is that there's a marketplace for tablets that are much more general-purpose. I think the ASUS Transformer Prime is a first example of a tablet that can really demonstrate differentiation, and people love it, and it's, frankly, my favorite computer now and it's a lot of other people's favorite computers. It is a tablet sometimes, it's a full Notebook PC sometimes and the performance is really terrific. And so I think Ice Cream Sandwich addressed a lot of the challenges that the tablet industry had, Android had last year with fragmentation. But now with Ice Cream Sandwich, your phone is Ice Cream Sandwich, your tablet is Ice Cream Sandwich, all the applications that come off at the marketplace can work on both. And so I think that unification, it is the only operating system that allows that today. And so that's -- that, I think, is a great advance for the tablet market. And then lastly, at $249, if we can bring a quad-core -- if we can bring Tegra 3 to $249, and for those people who have seen and touched it, that tablet's going -- it's going to sell like hot cakes, we believe. Because it's the right price point, it's completely general-purpose and it's state-of-the-art. So we have reasons to believe that this tablet market is far from over, and there's a lot of interesting opportunities and differentiation to be brought to this market yet.

Your next question comes from the line of Glen Yeung with Citi.

Two questions. The first one is maybe just some clarification from you, Jen-Hsun. I think I'm hearing that GPU demand is being impacted by a combination of lower PC demand from hard drive shortages, hard drive ASPs squeezing out GPUs for the bill of materials and then a shortage of capacity from 28-nanometer. Can you just give us a sense -- maybe rank those in terms of what's most impactful to sales and diverse lease [ph]?

28-nanometer shortage. I could use more 28-nanometer wafers today.

So that's the most impactful?

My estimate for the year for top line and gross margins would be 28-nanometer. That's where all of our new GPUs are going.

Well, I'm asking just specifically for first quarter, for the April quarter, though, where you think the impact is greater. From that shortage, from ASPs and hard drives or from shortages of PCs because of hard drives?

About the same. I mean, it's -- I haven't thought of it that way but it's about the same. But from a gross margin perspective, obviously, much more from 28-nanometer. Those are problems that are going to get solved for the whole industry. I think as the industry -- as TSMC ramps more and more 28-nanometers, their capacity would increase and their yields would increase and their cycle times will reduce. And this is a world-class company. And Morris and the management team are all over it, and they're doing everything in their power, and if history is any indication and it tends to be, they're going to work their way into a fabulous node here any time. And so we have just started ramping in the last several months. And so the Q1 is kind of a bit of a transition quarter for us. But I'm very confident that we'll work through the 28-nanometer yield issues.

Okay. And as a follow up, I hear you when you say at least 50% growth in Tegra. But your guidance there is nonetheless substantially lower than what your original guidance was. Can you just kind of walk through the delta here? Is it that you're pushing forward your expectation? Or do you think there's some lost business that you simply can't gain back?

There is one major delta. I'm glad you asked. There's one major delta from last - from our previous guidance. About, I would say, a couple of quarters ago, I would have thought that on balance, that Samsung was one of our largest customers as they were last year. But looking forward, my sense is on balance, Samsung will use their own application processors. They'll dabble outside probably and they'll use outside application processors like ours whenever their own can't serve their needs. But on balance, they're going to try to use their own. And so that's the big delta that I've taken off of my guidance.

Your next question comes from the line of Craig Berger with FBR Capital Markets. Craig Berger - FBR Capital Markets & Co., Research Division: Jen-Hsun, so with the hard drive impacting GPU shipments now, what do you think revenues would be in the first quarter if there were no shortages? And do you expect that to come back as good news and met pent-up demand later this year?

Gosh, we just didn't really do that analysis. But if you think along the lines of where we currently guided versus a typical Q1 -- and some of that, we call it -- we're $100 million-plus short and call some of that -- some of that resulted from 28-nanometer yield and shortage, and some of that resulting from disk drives shortage. And call it half-and-half. So if you were just to take a swag at it, about $50 million. Craig Berger - FBR Capital Markets & Co., Research Division: Okay. And then just as a follow-up, can you update us on the CFO search? And can you also update us on Icera? You talked about it briefly with the roadmap. When might we expect an integrated product and also, do you expect to ship base bands in the phones in calendar '12?

Sure. We are doing a CFO search. We have many interesting candidates. I haven't decided on one yet and the reason for that is because I think Karen and the financial team are doing a fabulous job and I have a very -- it allows me to be very choosy and to set a very, very high bar. And so if you do know of someone, ask them to call me, but we have a lot of very interesting candidates. Icera. Icera is going to prove to be one of the smartest and one of the best acquisitions in our history. We are -- we will have shipping modems this year for sure. And hopefully sooner than later. And then our plan is to integrate our application processor, which, as you know, is already one of best in the world, and the Icera modem into an integrated product for the mainstream LTE market. And so we're doing that as quickly as can. And that's one of the reasons why we're investing heavily in OpEx is so that we could build this class of products for a much larger marketplace and a much larger market opportunity for us.

The next question comes from the line of Raji Gill with Needham & Company. Rajvindra S. Gill - Needham & Company, LLC, Research Division: Sorry if I missed it, but did you actually provide a revised annual guidance in terms of the number, in actual number range?

We did provide new guidance. We did not give you a specific number. And the reason for that is because it ultimately depends on your estimates of the PC market and the disk drive -- how long the disk drive shortages is going to the last. We're not better predictors at that than other analysts, and we've taken it to a more conservative range ourselves. But if you applied that, your estimates of that, to some of the comments that Karen made earlier, you can come up with some estimates. Okay? Thank you. Rajvindra S. Gill - Needham & Company, LLC, Research Division: I guess, last question, real quick. In terms of the percentage of your GPU portfolio that's on kind of 28-nanometer, any guesstimation there? And then kind of what are the projections to go -- going forward?

It depends on the capacity that gets freed up. We would like to put as much of it as possible to 28-nanometer. But if we don't have enough capacity as we currently do not have, we would keep some of our GPUs in 40-nanometer. So it just depends on capacity.

Your next question, your final question comes from the line of Raj Seth with Cowen & Company.

This is Simran Brar calling in for Raj Seth. I have a couple of quick ones. Firstly, given that your Tegra business has some scale now, how are you thinking about margins in that business going forward? And secondly, what are the key growth opportunities for your professional services -- workstation business in 2012? And is 10% to 15% sort of still the right range to think about annual growth for that business?

Thank you, Simran. Let's see. The first question with respect to Tegra. We expect our gross margins to be in the range of the corporate average. And our estimates are that it would be around that area, plus or minus, okay? Nothing dramatically different. Second is growth opportunities for PSG. In the area of workstations, we introduced a concept called Maximus -- not a concept, a platform technology called Maximus. And it allows for the workstation to not only visualize but it also allows it to compute. So you could do simultaneous simulation of fluid dynamics while seeing the fluid flow over a structure like a car or motorcycle or whatever in real time. And so Maximus has been received fantastically, and our hope is that more and more workstations will have not just 1 GPU inside for visualization but 2 GPUs, 1 for visualization and 1 for simulation. Next year -- this year is also the year of Kepler. It's been 2.5 years since firming and supercomputers and supercomputing centers around the world are waiting anxiously for Kepler to launch so that they can upgrade their supercomputers. So that's a growth opportunity for us. In the area of high performance computing as well, we're hoping that the work that we've done to make Tesla much easier to program for -- it's called OpenACC. It's a technique called directives, making it super easy for software programmers to take advantage of GPU computing and we've worked with industry on that. It's an open standard. So we're excited about the developments of that. The response has been fabulous. And hopefully that making GPUs easier to program will also increase its adoption. And so those are some of the growth initiatives that we have going in. And our expectation is that Quadro and Tesla in combination would PSG, will deliver a record year again this year.

Okay. Thank you, Simran. I think we're out of time for today. Thank you, everyone. We look forward to talking to you next time about our Q1 results.

This concludes today's teleconference. You may now disconnect at this time.