NVIDIA 2007 Annual Report Download - page 24

We sell our products to a small number of customers and our business could suffer by the loss of any of these customers.
We have only a limited number of customers and our sales are highly concentrated. Sales to one significant customer accounted
for approximately 12% of our total revenue during fiscal 2007. Sales to two significant customers during fiscal 2006 accounted for
approximately 26% of our total revenue. In addition, one customer has historically comprised a significant portion of our Handheld
GPU business revenue. Although a small number of our other customers represents the majority of our revenue, their end customers
include a large number of OEMs and system integrators throughout the world who, in many cases, specify the graphics supplier. Our
sales process involves achieving key design wins with leading PC OEMs and major system builders and supporting the product design
into high volume production with key CEMs, ODMs, add−in board and motherboard manufacturers. These design wins in turn
influence the retail and system builder channel that is serviced by CEMs, ODMs, add−in board and motherboard manufacturers. Our
distribution strategy is to work with a small number of leading independent CEMs, ODMs, add−in board and motherboard
manufacturers, and distributors, each of which has relationships with a broad range of system builders and leading PC OEMs. If we
were to lose sales to our PC OEMs, CEMs, ODMs, add−in board and motherboard manufacturers and were unable to replace the lost
sales with sales to different customers, or if they were to significantly reduce the number of products they order from us, our revenue
may not reach or exceed the expected level in any period, which could harm our financial condition and our results of operations.
Risks Related to Our Competition
As Intel and AMD continue to pursue platform solutions, we may not be able to successfully compete and our business would
be negatively impacted.
We expect substantial competition from both Intel's and AMD's strategy of selling platform solutions, such as the success Intel
achieved with its Centrino platform solution. In addition to the Centrino notebook platform solution, Intel has announced a desktop
initiative branded as VIIV. Shortly after its acquisition of ATI, AMD also announced a platform solution. Such platform solutions do
not require a discrete GPU from a third−party supplier such as NVIDIA. Prior to its acquisition of ATI, AMD did not sell their own
GPUs but instead relied on companies such as ATI or NVIDIA to supply graphics technology. If AMD and Intel continue to pursue
platform solutions in desktop and notebook PCs, we may be unable to sell GPUs to either company. Additionally, we expect that Intel
and AMD will extend this strategy to other segments including professional workstations and servers. To the extent Intel and AMD
are successful with the platform strategy, they would no longer need our discrete GPU solutions which would negatively impact our
business.
The market for GPU, MCP, Handheld GPUs and application processors is highly competitive and we may be unable to
compete.
The market for GPUs, MCPs and Handheld GPUs 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 application programming interfaces, manufacturing capabilities, price of processors and total system
costs of add−in boards and 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,
which could harm our business.
For example, we are the largest supplier of AMD 64 chipsets with 53% segment share. NVIDIA nForce MCP unit shipments for
AMD64−based CPUs increased over 113% calendar year−over−calendar year, based on the Mercury Research Fourth Quarter 2006
PC Processor Forecast Report. Decline in demand in the AMD segment would harm our business.
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 or be able to obtain 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, Broadcom, SIS, 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;
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Source: NVIDIA CORP, 10−K, March 16, 2007