NVIDIA 2005 Annual Report Download - page 13

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 this 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.
Research and Development
We believe that the continued introduction of new and enhanced products designed to deliver leading 3D graphics, high definition
video, audio, ultra−low power communications, storage, and secure networking performance and features is essential to our future
success. Our research and development strategy is to focus on concurrently developing multiple generations of GPUs, MCPs and
WMPs using independent design teams. Our research and development efforts are performed within specialized groups consisting of
software engineering, hardware engineering, very large scale integration, or VLSI, design engineering, process engineering,
architecture and algorithms. These groups act as a pipeline designed to allow the efficient simultaneous development of multiple
generations of products.
A critical component of our product development effort is our partnerships with leaders in the computer aided design, or CAD,
industry. We invest significant resources in the development of relationships with industry leaders, including Cadence Design
Systems, Inc., and Synopsys, Inc., often assisting these companies in the product definition of their new products. We believe that
forming these relationships and utilizing next−generation development tools to design, simulate and verify our products will help us
remain at the forefront of the 3D graphics market and develop products that utilize leading−edge technology on a rapid basis. We
believe this approach assists us in meeting the new design schedules of PC manufacturers.
We have substantially increased our engineering and technical resources from fiscal 2004, and have 1,231 full−time employees
engaged in research and development as of January 30, 2005, compared to 1,057 employees as of January 25, 2004. During fiscal
2005, 2004 and 2003, we incurred research and development expenditures of $335.1 million, $270.0 million and $224.9 million,
respectively.
Competition
The market for GPUs, MCPs and WMPs for PCs, handhelds and consumer electronics is intensely competitive and is characterized by
rapid technological change, evolving industry standards and declining average selling prices. We believe that the principal competitive
factors in this market are performance, breadth of product offerings, access to customers and distribution channels, backward−forward
software support, conformity to industry standard APIs, manufacturing capabilities, price of digital media processors and total system
costs of add−in boards or motherboards. We expect competition to increase both from existing competitors and new market entrants
with products that may be less costly than ours, or may provide better performance or additional features not provided by our
products. In addition, it is possible that new competitors or alliances among competitors could emerge and acquire significant market
share.
We expect substantial competition from Intel's publicized focus on moving to selling platform solutions dominated by Intel products,
such as the Centrino platform. An additional significant source of competition is from companies that provide or intend to provide
GPU, MCP and WMP solutions for the PC, consumer electronics and handheld segments. Our competitors include the following:
•suppliers of MCPs that incorporate a combination of 3D graphics, networking, audio, communications and Input/Output, or
I/O, functionality as part of their existing solutions, such as ATI Technologies, Inc., or ATI, Broadcom Corporation, or
Broadcom, Intel, Silicon Integrated Systems, Inc. and VIA Technologies, Inc., or VIA;
•suppliers of standalone desktop GPUs that incorporate 3D graphics functionality as part of their existing solutions, such as
ATI, Creative Technology, Matrox Electronics Systems Ltd. and XGI Technology, Inc.;
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