Responding to the recent foundry price hikes (by both Samsung and TSMC), NVIDIA has indicated that these are unlikely to affect end prices or profit margins. Speaking at the Annual Citi 2020 Global Tech Conference, NVIDIA CFO Colette Kress explained that production (manufacturing) costs have been on the rise from the very beginning, and the chipmaker is used to offsetting them by providing a more diverse mix of products (read: high-end SKUs with fatter profit margins).
According to Kress, MIGs (A100 and other accelerators) and software are the primary sources of revenue for NVIDIA, as well as being drivers for long-term growth. I reckon this includes the (in the future) Metaverse and other AI-based platforms the chipmaker presently offers. The Quadro and the higher-end GeForce GPUs are also an important part of this segment, even though Kress didn’t directly mention them.
NVIDIA as a whole is not accustomed to some of the things that are occurring because our focus is in terms of innovation and continuing to build better and better platforms to meet the customers’ needs. Better and better platforms generally mean some of the best and high-end types of solutions out there. So, costs have been continued to rise from the beginning of time for us.
But today, we’re able to offset most of that with the overall mix that we’re doing. When we continue to take those platforms and build stronger and stronger systems with our MIGs, we’re able to offset good amounts of those cost increases.
MIGs and software are probably the largest drivers of our margins both today, as well as in the long-term in terms of what we expect our margins to do. So, we’ll continue to keep an eye on it, but right now, these costs are nothing new to us.Kolette Kress, NVIDIA CFO
Talking about the tightness in the supply chain, Kress stated that demand in the game space (along with growth) is strong but limited by lean inventory across the global markets. The company is supposedly working to improve availability but refrained from providing a possible timeframe.
Our gaming demand is strong. Our gaming demand is strong, but our growth is continuing to be gated by supply. Channel inventory in the market is still low and we continue to work on providing more supply into the channel to improve those scenarios.Kolette Kress, NVIDIA CFO
She again reaffirmed that only about 20% of the overall GeForce userbase leverage the newer RTX cards, with the vast majority relying on older Pascal and Maxwell-based solutions. This provides NVIDIA with a massive market, but at the same time, only a small of the target audience will upgrade their hardware even with ample availability, as we’ve seen in the past. Additionally, this factor doesn’t dictate when and how the company plans its future launches.
So, that is correct. RTX is an important movement right now that are moving people to both upgrade and/or entering into gaming. And so 20% or less are upgraded either to Ampere or are able to work on RTX types of cards. So, you’re right, we have a big opportunity in front of us.
It’s common that we may change into a new architecture and not have reached a large percentage of our installed base on the most current architecture. As you know, we’re always working every day on new architecture as well as architecture next as well.
So, we’re going to make sure that whenever that time comes, we’ll be ready to go. But it won’t change anything. Our plans are our plans, if the architecture is ready, we’re happy to bring that to market.