NVIDIA 2008 Annual Report Download - page 18

ITEM 1A. RISK FACTORS
In evaluating NVIDIA and our business, the following factors should be considered in addition to the other information in this Annual Report on Form 10
-
K. Before you buy our common stock, you should know that making such an investment involves some risks including, but not limited to, the risks described
below. Additionally, any one of the following risks could seriously harm our business, financial condition and results of operations, which could cause our stock
price to decline. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.
Risks Related to Our Business and Industry
Global economic conditions have reduced demand for our products, adversely impacted our customers and suppliers and harmed our business.
Our operations and performance depend significantly on worldwide economic conditions. Uncertainty about current global economic conditions poses a
continuing risk to our business as consumers and businesses have postponed spending in response to tighter credit, negative financial news and/or declines in
income or asset values, which have reduced the demand for our products. Other factors that could depress demand for our products in the future include
conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors
affecting consumer spending behavior. These and other economic factors have reduced demand for our products and could further harm our business, financial
condition and operating results.
The current financial turmoil affecting the banking system and financial markets and the possibility that financial institutions may consolidate or go out of
business have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in fixed income, credit, currency
and equity markets. There could be a number of follow
- on effects from the credit crisis on our business, including insolvency of key suppliers resulting in product
delays; inability of customers, including channel partners, to obtain credit to finance purchases of our products and/or customer, including channel partner,
insolvencies; and failure of financial institutions, which may negatively impact our treasury operations. Other income and expense could also vary materially from
expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment charges related to debt securities as well as equity
and other investments; interest rates; and cash, cash equivalent and marketable securities balances. For example, during fiscal year 2009, we recorded impairment
charges of $5.6 million related to our money market investment in the Reserve International Liquidity Fund, Ltd., or the International Reserve Fund. The current
volatility in the financial markets and overall economic uncertainty increases the risk that the actual amounts realized in the future on our financial instruments
could differ significantly from the fair values currently assigned to them.
Our business is cyclical in nature and is currently experiencing a severe downturn, which has harmed and may continue to harm our financial results.
Our business is directly affected by market conditions in the highly cyclical semiconductor industry, which is currently experiencing a severe downturn.
The semiconductor industry has been adversely affected by many factors, including the current global downturn, ongoing efforts by our customers to reduce
their spending, diminished product demand, increased inventory levels, lower average selling prices, uncertainty regarding long
- term growth rates and underlying
financial health and increased competition. These factors, could, among other things, limit our ability to maintain or increase our sales or recognize revenue and in
turn adversely affect our business, operating results and financial condition. If our actions to reduce our operating expenses to sufficiently offset these factors
during this downturn are unsuccessful, our operating results will suffer.
Our revenue may fluctuate while our operating expenses are relatively fixed, which makes our results difficult to predict and could cause our results to
fall short of expectations.
Demand for many of our revenue components fluctuate and are difficult to predict, and our operating expenses are relatively fixed and largely independent
of revenue. Therefore, it is difficult for us to accurately forecast revenue and profits or losses in any particular period. Our operating expenses, which are
comprised of research and development expenses, sales, general and administrative expenses and restructuring and other charges, represented 36%, 25% and 28%
of our total revenue for fiscal years 2009, 2008 and 2007, respectively. Since we often recognize a substantial portion of our revenue in the last month of each
quarter, we may not be able to adjust our operating expenses in a timely manner in response to any unanticipated revenue shortfalls in any quarter as was the case
in the fourth quarter of fiscal year 2009. Our operating expenses, which are comprised of research and development expenses and sales, general and administrative
expenses and restructuring and other charges, represented 66% of our total revenue for the fourth quarter of fiscal year 2009. Further, some of our operating
expenses, like stock
- based compensation expense can only be adjusted over a longer period of time and cannot be reduced during a quarter. If we are unable to
reduce operating expenses quickly in response to any revenue shortfalls, our financial results will be negatively impacted.
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