NVIDIA 2004 Annual Report Download - page 8

which has relationships with a broad range of major OEMs and/or strong brand name recognition in the retail channel. Currently, we
sell a significant majority of our digital media processors directly to stocking representatives, CEMs, ODMs, motherboard
manufacturers and add−in board manufacturers, which then sell boards and systems with our products to leading OEMs, retail outlets
and to a large number of system integrators. Although a small number of our customers represent the majority of our revenue, their
end customers include a large number of OEMs and system integrators throughout the world.
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Our GPUs are currently designed into products offered by virtually every leading branded PC OEM, including Acer, Apple, Dell,
eMachines, Fujitsu−Siemens, Gateway, HP, IBM, Micron, NEC, SGI and Sony, as well as leading CEMs, including Celestica Hong
Kong Ltd., Mitac International Corporation, Micro−Star International Co. Ltd., or Micro−Star, and Sanmina SCI Corporation, and
leading motherboard and add−in board manufacturers, including Abit Computer Corporation, ASUSTeK Computer Inc., Canopus
Corporation, Gainward Co. Ltd., Gigabyte Technology Co. Ltd., Guillemot Corporation, LeadTek Research, Inc. and PNY
Technologies.
As a result of our Channel strategy, our sales are focused on a small number of customers. Sales to Edom Technology Co., Ltd., or
Edom, accounted for 21%, sales to Microsoft accounted for 15%, sales to Atlantic Semiconductor, or Atlantic, accounted for 12% and
sales to Micro−Star accounted for 12% of our total revenue for fiscal 2004. Edom and Atlantic are independent stocking
representatives. Micro−Star is a CEM, and each of these companies purchases our products and resells these products to OEMs and
system integrators.
To encourage software title developers and publishers to develop games optimized for platforms utilizing our products, we seek to
establish and maintain strong relationships in the software development community. Engineering and marketing personnel interact
with and visit key software developers to promote and discuss our products, as well as to ascertain product requirements and solve
technical problems. Our developer program makes products available to developers prior to volume availability to encourage the
development of software titles that are optimized for our products.
Backlog
We do not believe that a backlog as of any particular date is indicative of future results. Our sales are primarily made pursuant to
standard purchase orders. The quantity of products 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. 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. Due to the seasonality in this market, we typically expect to see
stronger revenue growth in the second half of the calendar year related to the back−to−school and holiday seasons.
Manufacturing
We do not directly manufacture semiconductor wafers used for our products. Instead we utilize what is known as a "fabless"
manufacturing strategy whereby we employ world−class suppliers for all phases of the manufacturing process, including wafer
fabrication, assembly, testing and packaging. This strategy leverages 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 Taiwan Semiconductor Manufacturing Corporation, or TSMC, IBM and United Microelectronics Corporation, or UMC, to
produce our semiconductor wafers. We then utilize independent subcontractors to perform assembly, testing and packaging of our
products. Historically, our GPUs and MCPs were primarily fabricated by TSMC. However, on March 26, 2003, we announced that we
had formed a multi−year strategic alliance under which IBM will manufacture some of our GPUs. In July 2003, we began production
of the GeForce FX 5700 GPU at IBM’s plant in New York. In August 2003, we completed the acquisition of MediaQ, Inc., a leading
provider of graphics and multimedia technology for handheld devices. MediaQ’s products, now branded as our GoForce products, are
manufactured at UMC.
Our GPUs, MCPs and UMPs are assembled, tested and packaged by Advanced Semiconductor Engineering, Amkor Technology,
ChipPAC Incorporated and Siliconware Precision Industries Company Ltd. We receive semiconductor products from our
subcontractors, perform incoming quality assurance and then ship them to CEMs, stocking representatives, motherboard and add−in
board manufacturer customers from our Santa Clara, California warehouse and third−party warehouses in Singapore and Hong Kong.
Generally, these manufacturers assemble and test the boards based on our design kit and test specifications, then ship the products to