NVIDIA 2005 Annual Report Download - page 21

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected
Financial Data”, our consolidated financial statements and related notes thereto, and the “Business Risks” Section at the end of this
Item 7, as well as other cautionary statements and risks described elsewhere in this Annual Report, before deciding to purchase, hold
or sell shares of our common stock.
Overview
Our Company
NVIDIA Corporation is a worldwide leader in graphics and digital media processors dedicated to creating products that enhance the
interactive experience on consumer and professional computing platforms. We design, develop and market graphics processing units,
or GPUs, media and communications processors, or MCPs, wireless media processors, or WMPs, and related software. Our products
are integral to a wide variety of visual computing platforms, including enterprise personal computers, or PCs, consumer PCs,
professional workstations, notebook PCs, personal digital assistants, cellular phones, game consoles and digital media centers. We
were incorporated in California in April 1993 and reincorporated in Delaware in April 1998. Our objective is to be one of the most
important and influential technology companies in the world.
Recent Developments
Sony Computer Entertainment Inc.
In December 2004, we announced that Sony Computer Entertainment Inc., or SCEI, and NVIDIA are jointly developing a custom
GPU incorporating our next−generation GeForce GPU and SCEI's system solutions for SCEI's next generation PlayStation. The
collaboration includes licensing and royalties for the next generation PlayStation as well as all derivatives, including next generation
digital consumer electronics devices. In addition, we are licensing to SCEI software development tools for creating shaders and
advanced graphics capabilities. For fiscal 2006, we expect to recognize revenue of approximately $30 million from development and
software license fees associated with this collaboration. Depending on the ultimate success of this next generation platform, we expect
to generate, starting in fiscal 2007, revenue ranging from $50 million to $100 million annually from technology license fees and
royalties over a four year period, with the possibility of additional royalties for several years thereafter. The additional royalty stream
will depend on the use and success of our technology in future digital consumer electronics devices such as digital televisions and
media servers.
Intel Cross−license Agreement
On November 19, 2004, NVIDIA and Intel announced that the companies signed a broad, multi−year patent cross−license agreement
spanning multiple product lines and product generations. Additionally, the companies signed a multi−year chipset agreement granting
NVIDIA a license to implement Intel's front−side bus technology. We believe that this agreement opens a significant opportunity for
us to bring our NVIDIA nForce brand to the Intel segment. We expect to commence shipments of our first Intel−based MCP product
during the first quarter of fiscal 2006.
GeForce 6 Series
In April 2004, we announced our latest flagship GPU architecture, the GeForce 6 series. The GeForce 6 series offers a number of new
features, including a faster architecture than our GeForce FX series, compliance with many of the latest software standards and
on−chip video processors for high−definition encoding and decoding and direct−to−television playback. The GeForce 6 series offers
more flexibility for game designers and graphic artists, while increasing performance over our previous top−end product, the GeForce
FX 5950. During the second quarter of fiscal 2005, we launched the production shipment of the GeForce 6800 Ultra, 6800 GT and
6800, the industry's first GPUs to support Microsoft's DirectX 9 Shader Model 3.0. During the third quarter of fiscal 2005, we
launched the production shipment of the GeForce 6600 GT and 6600, which are intended for the mainstream market, and the GeForce
6200, which delivers the GeForce 6 Series architecture and performance to the value PC segment. In December 2004, we introduced a
version of the GeForce 6200 with TurboCache technology. NVIDIA TurboCache technology is a new, patent pending hardware and
software technology, which allows a GPU to render directly to system memory instead of using local memory on the graphics card.
Many of the world's leading PC OEMs, system builders, and add−in card partners have announced plans to build systems and graphics
cards utilizing the GeForce 6200 with TurboCache technology.
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