NVIDIA 2006 Annual Report Download - page 14

Manufacturing
We do not directly manufacture semiconductor wafers used for our products. Instead we utilize what is known as a “fabless”
manufacturing strategy for all product−line operating segments whereby we employ world−class suppliers for all phases of the
manufacturing process, including wafer fabrication, assembly, testing and packaging. This strategy uses 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 industry−leading suppliers, such as Chartered Semiconductor Manufacturing, or Chartered, Semiconductor
Manufacturing International Corporation, or SMIC, Taiwan Semiconductor Manufacturing Corporation, or TSMC, and United
Microelectronics Corporation, or UMC, to produce our semiconductor wafers. We then utilize independent subcontractors, such as
Advanced Semiconductor Engineering, or ASE, Amkor Technology, King Yuan Electronics Co., LTD, or KYEC, Siliconware
Precision Industries Company Ltd., or SPIL, and STATS ChipPAC Incorporated to perform assembly, testing and packaging of most
of our products.
We typically receive semiconductor products from our subcontractors, perform incoming quality assurance and then ship them to
CEMs, distributors, motherboard and add−in board manufacturer customers from our third−party warehouse in Hong Kong.
Generally, these manufacturers assemble and test the boards based on our design kit and test specifications, and then ship the products
to retailers, system integrators or OEMs as motherboard and add−in board solutions.
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, HD video,
audio, 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 Handheld GPUs
using independent design teams. Our research and development efforts are performed within specialized groups consisting of software
engineering, hardware engineering, very large scale integration 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 OEM and other manufacturers.
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