NVIDIA 2004 Annual Report Download - page 14

visual computing company in the world.
Recent Developments
Convertible Subordinated Debenture Redemption
On October 24, 2003, we redeemed our 4¾% convertible subordinated debentures, or the Notes, due 2007. The aggregate principal
amount of the Notes outstanding was $300.0 million, which included $18.6 million of notes that we repurchased during the three
months ended October 26, 2003. The redemption price was equal to approximately 102.7% of the outstanding principal amount of the
Notes, plus accrued and unpaid interest up to, but excluding, the redemption date. In connection with the redemption of the Notes, we
recorded a one−time charge of approximately $13.1 million, which included a $7.6 million redemption premium and $5.5 million of
unamortized issuance costs.
SEC Investigation
On September 11, 2003, we announced that the Securities and Exchange Commission, or SEC, had concluded its investigation of us
and that we have reached a final agreement with the SEC resolving an investigation undertaken by the SEC’s staff. Under the terms of
the agreement, NVIDIA, without admitting or denying liability or wrongdoing, agreed to an administrative cease and desist order
prohibiting any future violations of certain non−fraud financial reporting, books and records, and internal control provisions. There is
no requirement to pay any fines or penalties.
Acquisition of MediaQ, Inc.
On August 19, 2003, we completed the acquisition of MediaQ, Inc., or MediaQ, a leading provider of graphics and multimedia
technology for wireless mobile devices, for an aggregate purchase price that consisted of cash consideration of approximately $71.3
million, including $1.3 million of direct acquisition costs. With the integration of MediaQ, w e see an opportunity to leverage
NVIDIA’s resources and expertise in digital media processing to offer innovative products and thereby increase our revenues by
entering into the multimedia handset market.
Microsoft Xbox
On August 14, 2003, Microsoft announced that it had entered into an agreement with one of our competitors to develop technology for
future Xbox products and services. The impact that this announcement may have on our future revenue from the sale of Xbox
processors to Microsoft is uncertain, but we do not believe that it will have a significant impact upon us for at least 18 – 24 months.
Revenue from Microsoft during fiscal 2004, fiscal 2003 and fiscal 2002 accounted for 15%, 23% and 9%, respectively, of our total
revenue.
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Future Objectives and Challenges
Peripheral Component Interconnect Express, or PCI−Express
PCI Express is expected to enable a new level of performance for high bandwidth applications like graphics and networking. The
transition to PCI Express, which is extremely complex, is central to our GPU and MCP objectives this year. We intend to lead this
transition using a PCI Express high−speed interconnect, or HSI. HSI is a complex piece of networking technology that performs
high−speed bi−directional interconnect protocol conversion. Using HSI, we expect to transform some of our GPUs into PCI Express
compatible GPUs. With our PCI Express compatible GPUs, we expect that our partners will be able to launch PCI Express compatible
solutions in April 2004. During fiscal 2005, we expect to launch and be in full production with a top−to−bottom product line of next
generation PCI Express GPUs based on our brand new NV4X architecture.
Gross Margin Improvement
We remain intensely focused on driving down cost and improving gross margins. With the scale of our business, we believe driving
gross margins to our historical levels can result in earnings improvements.
nForce3
Just as nForce2 was the driver for our platform processor business growth in fiscal 2004, nForce3 has the potential to achieve similar
results for fiscal 2005. Our MCP objective is to innovate in all areas of features, performance and compatibility. During the first
quarter of fiscal 2005, we intend to launch our next nForce3, which is expected to be the first single−chip MCP to offer gigabit
Ethernet, dual independent serial Advanced Technology Attachment, or ATA, controllers, industry leading Redundant Array of
Independent Disks, or RAID, features and hardware security processing.
Handsets