NVIDIA 2003 Annual Report Download - page 31

boards they sell to PC OEMs and system builders. Sales to add-in board and motherboard manufacturers and
CEMs are primarily dependent on achieving design wins with leading PC OEMs. The number of add-in board
and motherboard manufacturers, CEMs and leading PC OEMs is limited. We expect that a small number of
add-in board and motherboard manufacturers and CEMs directly, and a small number of PC OEMs indirectly,
will continue to account for a substantial portion of our revenue for the foreseeable future. As a result, our
business could be harmed by the loss of business from PC OEMs or add-in board and motherboard manufacturers
and CEMs. In addition, revenue from add-in board and motherboard manufacturers, CEMs and PC OEMs that
have directly or indirectly accounted for significant revenue in past periods, individually or as a group, may not
continue, or may not reach or exceed historical levels in any future period.
Our business may be harmed by instability in Asia due to the concentration of customers who are located or
have substantial operations in Asia, including Taiwan. The People’s Republic of China and Taiwan have in the
past experienced strained relations. A worsening of these relationships or the development of hostilities between
the two could result in disruptions in Taiwan and possibly other areas of Asia, which could harm our business. In
addition, if relations between the U.S. and The People’s Republic of China become strained, our business could
be harmed. While we believe political instability in Asia has not harmed our business, because of our reliance on
companies with operations in Asia, continued economic and political instability in Asia might harm it.
Difficulties in collecting accounts receivable could result in significant charges against income, which
could harm our business.
Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our
customers’ businesses and to downturns in the economy and the industry. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments. This
allowance consists of an amount identified for specific customers and an amount based on overall estimated
exposure, excluding the amounts covered by credit insurance. If the financial condition of our customers or
insurance carrier were to deteriorate, resulting in an impairment of their ability to make payments, additional
allowances may be required which could adversely affect our operating results. Furthermore, there can be no
assurance that we will be able to attain credit insurance in the future. We may have to record additional reserves
or write-offs in the future, which could harm our business.
We rely on third-party vendors to supply us tools for the development of our new products and we may be
unable to obtain the tools necessary to develop these products.
In the design and development of new products and product enhancements, we rely on third-party software
development tools. While we currently are not dependent on any one vendor for the supply of these tools, some
or all of these tools may not be readily available in the future. For example, we have experienced delays in the
introduction of products in the past as a result of the inability of then available software development tools to
fully simulate the complex features and functionalities of our products. The design requirements necessary to
meet consumer demands for more features and greater functionality from 3D graphics products in the future may
exceed the capabilities of the software development tools available to us. If the software development tools we
use become unavailable or fail to produce designs that meet consumer demands, our business could suffer.
There can be no assurance that the Xbox program will achieve long term commercial success.
There can be no assurance that the Xbox program will achieve long term commercial success, given the
high level of competition in the game console product line. During fiscal 2003, sales of Xbox processors
comprised 23% of our overall revenue. If the Xbox program is not successful, our business may be harmed.
We depend on foreign foundries and independent contractors to manufacture our products and these
third parties may not be able to satisfy our manufacturing requirements, which would harm our business.
We do not manufacture the semiconductor wafers used for our products and do not own or operate a wafer
fabrication facility. Our products require wafers manufactured with state-of-the-art fabrication equipment and
techniques. We primarily utilize TSMC to produce our semiconductor wafers and utilize independent
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