NVIDIA 2007 Annual Report Download - page 13

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As a result of our channel strategy, our sales are focused on a small number of customers. Sales to Asustek Computer Inc., or
Asustek, a CEM, accounted for 12% of our total revenue for fiscal 2007.
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 in order to encourage
the development of software titles that are optimized for our products.
Backlog
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. We do not believe that a backlog as of any particular date is indicative of future
results.
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 performance 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 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, United
Microelectronics Corporation, or UMC, and American MicroSemiconductor, or AMS, to produce our semiconductor wafers. We then
utilize independent subcontractors, such as Advanced Semiconductor Engineering, or ASE, Amkor Technology, or Amkor, King
Yuan Electronics Co., LTD, or KYEC, Siliconware Precision Industries Company Ltd., or SPIL, and STATS ChipPAC Incorporated,
or ChipPAC, 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 the
semiconductors 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.
7
Source: NVIDIA CORP, 10−K, March 16, 2007