NVIDIA 2011 Annual Report Download - page 9

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Backlog
Our sales are primarily made pursuant to standard purchase orders. The quantity of products purchased by our customers as well as our shipment schedules
are subject to revisions that reflect changes in both the customers’ requirements and in manufacturing availability. The semiconductor industry is
characterized by short lead time orders and quick delivery schedules. In light of industry practice and experience, we believe that only a small portion of our
backlog is non-cancelable and that the dollar amount associated with the non-cancelable portion is not significant.
Seasonality
Our industry is largely focused on the consumer products market. Historically, we have seen stronger revenue in the second half of our fiscal year
than in the first half of our fiscal year, primarily due to back-to-school and holiday demand. While we anticipate that this historical seasonal trend will resume,
there can be no assurance of this trend. For example, revenue in the second half of fiscal year 2011 decreased by 5% compared with the first half of fiscal
year 2011 primarily due to weakness in end consumer markets, while revenue in the second half of fiscal year 2010 grew by 31% compared with the first half
of fiscal year 2010.
Manufacturing
Fabless Manufacturing Strategy
We do not directly manufacture semiconductor wafers used for our products. Instead, we utilize what is known as a fabless manufacturing strategy
for all of our product-line operating segments whereby we employ world-class suppliers for all phases of the manufacturing process, including wafer
fabrication, assembly, testing and packaging. This strategy uses the expertise of industry-leading suppliers that are certified by the International Organization
for Standardization, or ISO, in such areas as fabrication, assembly, quality control and assurance, reliability and testing. In addition, this strategy allows us to
avoid many of the significant costs and risks associated with owning and operating manufacturing operations. Our suppliers are also responsible for
procurement of most of the raw materials used in the production of our products. As a result, we can focus our resources on product design, additional quality
assurance, marketing and customer support.
We utilize industry-leading suppliers, such as Taiwan Semiconductor Manufacturing Company Limited, or TSMC, and United Microelectronics
Corporation, or UMC, to produce our semiconductor wafers. We then utilize independent subcontractors, such as Advanced Semiconductor Engineering, Inc.,
Amkor Technology, JSI Logistics Ltd., King Yuan Electronics Co., Ltd., Siliconware Precision Industries Company Ltd., and STATS ChipPAC Incorporated
to perform assembly, testing and packaging of most of our products. We purchase substrates from Nanya Technology Corporation, IbidenCo., Ltd. and
Unimicron Technology Corporation.
We typically receive semiconductor products from our subcontractors, perform incoming quality assurance and then ship the semiconductors to
CEMs, distributors, motherboard and add-in board manufacturer customers from our third-party warehouse in Hong Kong. Generally, these manufacturers
assemble and test the boards based on our design kit and test specifications, and then ship the products to retailers, system builders or OEMs as motherboard
and add-in board solutions.
Inventory and Working Capital
Our management focuses considerable attention on managing our inventories and other working-capital-related items. We manage inventories by
communicating with our customers and then using our industry experience to forecast demand on a product-by-product basis. We then place manufacturing
orders for our products that are based on forecasted demand. The quantity of products actually purchased by our customers as well as shipment schedules are
subject to revisions that reflect changes in both the customers’ requirements and in manufacturing availability. We generally maintain substantial inventories
of our products because the semiconductor industry is characterized by short lead time orders and quick delivery schedules.
Our existing cash and marketable securities balances increased by 44% at the end of fiscal year 2011 compared with the end of fiscal year 2010. We believe
that these balances and our anticipated cash flows from operations will be sufficient to meet our operating, acquisition and capital requirements for at least the
next twelve months.
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