NVIDIA 2011 Annual Report Download - page 37

Professional Solutions Business
During fiscal year 2011, our Quadro business benefitted from the strength of our Fermi architecture with the launch of the Quadro 2000 midrange GPU
and the Quadro 600 entry-level GPU. These professional graphics solutions put the computational and visualization benefits of our Fermi architecture within
reach of all engineers, designers and animators, with the Quadro 2000 delivering significantly higher performance across leading CAD applications and the
Quadro 600 positioned at a competitive price/performance point. The new Quadro GPUs deliver performance that is up to five times faster for 3D
applications and up to eight times faster for computational simulation than our previous Quadro generation products.
Our Tesla supercomputing business continued to make progress with key project wins not only in our core market segments, but also with traction in a
number of new focus areas.
Consumer Products Business
During fiscal year 2011, we saw promising signs in our Tegra business, helped by adoption to the Android operating system. Tegra shipment volumes
began to ramp up late in the fourth quarter of fiscal year 2011 and we expect the momentum to continue into the first quarter of fiscal year 2012, fueled by the
production release of Android-based smartphone and tablet products. During the fiscal year 2011, we had multiple Tegra 2 design wins in both tablets and
smartphones. Our customers, including Acer Inc., Dell Inc., LG Electronics Inc. and Motorola Solutions, Inc., announced a number of products incorporating
the Tegra 2 mobile processor. We also demonstrated our next-generation mobile processor, the world’s first quad-core mobile processor, at Mobile World
Congress.
During fiscal year 2011, we announced that Volkswagen AG and AUDI AG will use our next-generation Tegra starting in 2012. In addition, we
announced that BMW Group will use our GPUs for infotainment systems in next-generation cars worldwide. Tesla Motors will also incorporate Tegra
processors to power the infotainment, navigation and instrument cluster in its Roadster Model S.
Patent Cross License Agreement
On January 10, 2011, we entered into a new six-year patent cross licensing agreement, or the License Agreement, with Intel. Under the License
Agreement, Intel has granted to NVIDIA and its qualified subsidiaries, and NVIDIA has granted to Intel and Intel’s qualified subsidiaries, a non-exclusive,
non-transferable, worldwide license, without the right to sublicense to all patents that are either owned or controlled by the parties at any time that have a first
filing date on or before March 31, 2017, to make, have made (subject to certain limitations), use, sell, offer to sell, import and otherwise dispose of certain
semiconductor- and electronic-related products anywhere in the world. NVIDIA’s rights to Intel’s patents have certain specified limitations, including but not
limited to, NVIDIA was not granted a license to: (1) certain microprocessors, defined in the License Agreement as “Intel Processors” or “Intel Compatible
Processors;” (2) certain chipsets that connect to Intel Processors; or (3) certain flash memory products. In connection with the License Agreement, NVIDIA
and Intel mutually agreed to settle all outstanding legal disputes. Under the License Agreement, Intel will pay NVIDIA an aggregate amount of $1.5 billion,
payable in annual installments, as follows: a $300 million payment on each of January 18, 2011, January 13, 2012 and January 15, 2013 and a $200 million
payment on each of January 15, 2014, 2015 and 2016.
The License Agreement between NVIDIA and Intel includes multiple elements. As a result, we determined each element of the License Agreement,
their fair value and when they should be recognized. The elements of the License Agreement are accounted for as follows:
1. Legal settlement: In connection with the License Agreement, both parties agreed to settle all outstanding legal disputes. The fair value allocated to the
settlement of $57.0 million was recorded in the fourth quarter of fiscal year 2011, as a benefit to operating expense.
2..License to Intel: We will recognize $1,583.0 million in total, or $66.0 million per quarter, as revenue over the term of the agreement of six years, the
period over which Intel will have access to newly filed NVIDIA patents. We will commence recognition of the license revenue in April 2011 when our
performance obligation under the agreement begins. Consideration received in advance of the performance period will be classified as deferred
revenue.
3. License from Intel: We recognized $140.0 million as an intangible asset upon execution of the agreement. Amortization of $5.0 million per quarter will
be charged to cost of sales over the seven year estimated useful life of the technology beginning in April 2011.
Please refer to Note 4 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K for further information regarding this
cross license and the settlement.
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