NVIDIA 2003 Annual Report Download - page 15

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our consolidated financial
statements and notes thereto included elsewhere in this Annual Report.
Overview
We were incorporated in California in April 1993 and reincorporated in Delaware in April 1998.
We are one of the world’s largest “fabless” semiconductor companies, supplying graphics and media
communications processors and related software that are integral to personal computers, professional
workstations and digital entertainment platforms. We provide an architecturally compatible “top-to-bottom”
family of award-winning graphics processing units, or GPUs, which set the standard for performance, quality,
compatibility and features for a broad range personal computing platforms. Our graphics and communications
processors are used for a wide variety of applications, including games, digital content creation, personal digital
image editing, business productivity and product and industrial design. Our mission is to be the most important
visual computing company in the world.
Recent Developments
Microsoft Pricing Settlement
We were engaged with Microsoft in discussions related to pricing and volumes of the Xbox chipset. These
discussions and our agreement contemplated use of a third party to resolve matters and on April 23, 2002
Microsoft submitted the matter to binding arbitration. On February 6, 2003, NVIDIA and Microsoft announced
that the companies had settled all issues related to pricing of the Microsoft Xbox GPU and MCP chipset and have
ended the arbitration between them. In addition to resolving this pricing dispute, we have agreed to collaborate
with Microsoft on future cost reductions for the Xbox. As a result of the settlement, we recognized $40.4 million
in additional revenue in fiscal 2003.
Strategic Alliance with IBM
On March 26, 2003, we announced that we have formed a multi-year strategic alliance under which IBM
will manufacture our next-generation GeForce GPUs. As part of the agreement, we will gain access to IBM’s
suite of foundry services and manufacturing technologies, including power-efficient copper wiring, and a
roadmap that is designed to lead to 65nm (nanometer; a billionth of a meter) in the next several years, giving us
valuable tools to advance our GPUs. IBM plans to begin manufacturing the next-generation GeForce graphics
processor this summer at IBM’s plant in East Fishkill, New York.
Beyond the chip manufacturing technology, IBM also offers an automated management system that not only
controls production on the factory floor, but provides a connection for customer and supplier systems and
processes, allowing closer integration across the supply chain. IBM’s automated management system provides us
with opportunities ranging from improved operation to greater efficiency and competitive advantage, while using
e-business techniques to adapt to real-time, on-demand influences from the marketplace.
Securities & Exchange Commission
In April 2003, subsequent to receiving a Wells notice indicating the SEC staff intended to recommend to the
SEC that an enforcement action be initiated, we reached an agreement in principle with the SEC staff that would
resolve the SEC’s investigation of us in matters related to the restatement. The agreement is subject to final
approval of the SEC. Under the terms of the agreement in principle, NVIDIA, without admitting or denying
liability or wrongdoing, would agree to an administrative cease and desist order prohibiting any future violations
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