NVIDIA 2007 Annual Report Download - page 14

Research and Development
We believe that the continued introduction of new and enhanced products designed to deliver leading 3D graphics, HD 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 Handheld
GPUs application processors 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 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.
We substantially increased our engineering and technical resources in fiscal 2007, and have 2,668 full−time employees engaged
in research and development as of January 28, 2007, compared to 1,654 employees as of January 29, 2006. The majority of the
research and development employees added during fiscal 2007 are located in international locations, including India, China, Taiwan
and various locations in Europe. During fiscal years 2007, 2006 and 2005, we incurred research and development expenditures of
$553.5 million, $357.1 million and $348.2 million, respectively. Research and development expenses for fiscal 2007 included $70.1
million related to non−cash stock−based compensation, net of associated payroll taxes, which we began to record in fiscal 2007 as a
result of our adoption of Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R), Share−Based Payment.
Competition
The market for GPUs, MCPs and handheld GPUs application processors 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 processors and total system costs of
add−in boards or motherboards. We believe that our ability to remain competitive will depend on how well we are able to anticipate
the features and functions that customers will demand and whether we are able to deliver consistent volumes of our products at
acceptable levels of quality. 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.
An additional significant source of competition is from companies that provide or intend to provide GPU, MCP, and Handheld
GPU solutions. Some of our competitors may have greater marketing, financial, distribution and manufacturing resources than we do
and may be more able to adapt to customer or technological changes. Our current competitors include the following:
• suppliers of discrete MCPs that incorporate a combination of networking, audio, communications and input/output, or I/O,
functionality as part of their existing solutions, such as AMD, as a result of its acquisition of ATI Technologies, Inc., or ATI,
Broadcom Corporation, or Broadcom, Silicon Integrated Systems, Inc., or SIS, and VIA Technologies, Inc., or VIA, and Intel;
• suppliers of GPUs, including MCPs that incorporate 3D graphics functionality as part of their existing solutions, such as
AMD, Intel, Matrox Electronics Systems Ltd., XGI Technology, Inc., SIS, and VIA;
• suppliers of GPUs or GPU intellectual property for handheld and embedded devices that incorporate advanced graphics
functionality as part of their existing solutions, such as AMD, Broadcom, Fujitsu Limited, Imagination Technologies Ltd.,
ARM Holdings plc, Marvell Technology Group Ltd, or Marvell, NEC Corporation, Qualcomm Incorporated, Renesas
Technology, Seiko−Epson, Texas Instruments Incorporated, and Toshiba America, Inc.; and
• suppliers of application processors for handheld and embedded devices that incorporate multimedia processing as part of their
existing solutions such as Broadcom, Texas Instruments Inc., Qualcomm Incorporated, Marvell, Freescale Semiconductor Inc.,
Samsung and ST Microelectronics.
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Source: NVIDIA CORP, 10−K, March 16, 2007