NVIDIA 2007 Annual Report Download - page 26

We are dependent on the PC market and the rate of its growth has and may in the future have a negative impact on our
business.
We derive the majority of our revenue from the sale of products for use in the desktop PC and notebook PC markets, including
professional workstations. We expect to continue to derive most of our revenue from the sale or license of products for use in the
desktop PC and notebook PC markets in the next several years. A reduction in sales of PCs, or a reduction in the growth rate of PC
sales, will reduce demand for our products. Moreover, changes in demand could be large and sudden. Since PC manufacturers often
build inventories during periods of anticipated growth, they may be left with excess inventories if growth slows or if they incorrectly
forecast product transitions. In these cases, PC manufacturers may abruptly suspend substantially all purchases of additional inventory
from suppliers like us until their excess inventory has been absorbed, which would have a negative impact on our business.
If our products do not continue to be adopted by the consumer and enterprise desktop PC, notebook PC, workstation, PDA,
cellular phone, and video game console markets or if the demand in these markets for new and innovative products decreases, our
business and operating results would suffer.
Our success depends in part upon continued broad adoption of our processors for 3D graphics and multimedia in consumer and
enterprise PC, notebook PC, workstation, PDA, cellular phone, and video game console applications. The market for processors has
been characterized by unpredictable and sometimes rapid shifts in the popularity of products, often caused by the publication of
competitive industry benchmark results, changes in pricing of dynamic random−access memory devices and other changes in the total
system cost of add−in boards, as well as by severe price competition and by frequent new technology and product introductions.
Broad market acceptance is difficult to achieve and such market acceptance, if achieved, is difficult to sustain due to intense
competition and frequent new technology and product introductions. Our GPU and MCP businesses comprised over 86.5% of fiscal
2007 revenue. As such, our financial results would suffer if for any reason our current or future GPUs or MCPs do not continue to
achieve widespread adoption by the PC market. If we are unable to complete the timely development of products or if we were unable
to successfully and cost−effectively manufacture and deliver products that meet the requirements of the consumer and enterprise PC,
notebook, workstation, PDA, cellular phone, and video game console markets, we may experience a decrease in revenue which could
negatively impact our operating results. Additionally, there can be no assurance that the industry will continue to demand new
products with improved standards, features or performance. If our customers, OEMs, ODMs, add−in−card and motherboard
manufacturers, system builders and consumer electronics companies, do not continue to design products that require more advanced or
efficient processors and/or the market does not continue to demand new products with increased performance, features, functionality
or standards, sales of our products could decline.
Our failure to comply with any applicable environmental regulations could result in a range of consequences, including fines,
suspension of production, excess inventory, sales limitations, and criminal and civil liabilities.
We may be subject to various state, federal and international laws and regulations governing the environment, including
restricting the presence of certain substances in electronic products and making producers of those products financially responsible for
the collection, treatment, recycling and disposal of those products. The European Union Directive on Restriction of Hazardous
Substances Directive, or RoHS Directive, is European legislation that restricts the use of a number of substances, including lead, and
other hazardous substances in electrical and electronic equipment in the market in the European Union which became effective on July
1, 2006. Similarly, the State of California has adopted certain restrictions, which go into effect in 2007, that restrict the use of certain
materials in electronic products, which are intended to harmonize with the RoHS directive and other states are contemplating similar
legislation. China has adopted similar legislation to the RoHS directive which began to go into effect on March 1, 2007.
Also, we could face significant costs and liabilities in connection with the European Union Directive on Waste Electrical and
Electronic Equipment, or WEEE. The WEEE directs members of the European Union to enact laws, regulations, and administrative
provisions to ensure that producers of electric and electronic equipment are financially responsible for the collection, recycling,
treatment and environmentally responsible disposal of certain products sold into the market after August 15, 2005. Implementation in
certain European Union member states has been delayed into 2007. Similar legislation has been or may be enacted in other
jurisdictions, including the United States, Canada, Mexico, China and Japan, the cumulative impact of which could be significant. We
continue to evaluate the impact of specific registration and compliance activities required by WEEE.
It is possible that unanticipated supply shortages, delays or excess non−compliant inventory may occur as a result of such
regulations. Failure to comply with any applicable environmental regulations could result in a range of consequences including costs,
fines, suspension of production, excess inventory, sales limitations, criminal and civil liabilities and could impact our ability to
conduct business in the countries that have adopted these types of regulations.
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Source: NVIDIA CORP, 10−K, March 16, 2007