NVIDIA 2008 Annual Report Download - page 27

We have experienced difficulty in migrating to new manufacturing processes in the past and, consequently, have suffered reduced yields, delays in product
deliveries and increased expense levels. We may face similar difficulties, delays and expenses as we continue to transition our new products to smaller geometry
processes. Moreover, we are dependent on our third
- party manufacturers to invest sufficient funds in new manufacturing techniques in order to have ample
capacity for all of their customers and to develop the techniques in a timely manner. Our product cycles may also depend on our third
- party manufacturers
migrating to smaller geometry processes successfully and in time for us to meet our customer demands. Some of our competitors own their manufacturing facilities
and may be able to move to a new state of the art manufacturing process more quickly or more successfully than our manufacturing partners. For example, Intel
has released a 45 nanometer chip for desktop computers which it is manufacturing in its foundries. In addition, in October 2008, AMD and the Advanced
Technology Investment Company, a technology investment company backed by the government of Abu Dhabi, announced the establishment of a U.S.
headquartered semiconductor manufacturing company that will manufacture AMD
’ s advance processors. If our suppliers fall behind our competitors in
manufacturing processes, the development and customer demand for our products and the use of our products could be negatively impacted. If we are forced to
use larger geometric processes in manufacturing a product than our competition, our gross margin may be reduced. The inability by us or our third
- party
manufacturers to effectively and efficiently transition to new manufacturing process technologies may adversely affect our operating results and our gross margin.
We rely on third
- party vendors to supply software development tools to us for the development of our new products and we may be unable to obtain the
tools necessary to develop or enhance new or existing products.
We rely on third
- party software development tools to assist us in the design, simulation and verification of new products or product enhancements. To
bring new products or product enhancements to market in a timely manner, or at all, we need software development tools that are sophisticated enough or
technologically advanced enough to complete our design, simulations and verifications. In the past, we have experienced delays in the introduction of products
as a result of the inability of then available software development tools to fully simulate the complex features and functionalities of our products. In the future, the
design requirements necessary to meet consumer demands for more features and greater functionality from our products may exceed the capabilities of available
software development tools. Unavailability of software development tools may result in our missing design cycles or losing design wins, either of which could
result in a loss of market share or negatively impact our operating results.
Because of the importance of software development tools to the development and enhancement of our products, a critical component of our product
development efforts is our partnerships with leaders in the computer
- aided design industry, including Cadence Design Systems, Inc. and Synopsys, Inc. We have
invested significant resources to develop relationships with these industry leaders and have often assisted them in the 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, communications and networking segments and develop products that utilize leading
- edge technology on a rapid basis. If these
relationships are not successful, we may be unable to develop new products or product enhancements in a timely manner, which could result in a loss of market
share, a decrease in revenue or negatively impact our operating results.
We sell our products to a small number of customers and our business could suffer if we lose any of these customers.
We have a limited number of customers and our sales are highly concentrated. For fiscal years 2009, 2008 and 2007, aggregate sales to customers in excess
of 10% of our total revenue accounted for approximately 11% of total revenue from one customer and approximately 10% and 12% of our total revenue from
another customer, respectively. Although a small number of our other customers represent the majority of our revenue, their end customers include a large
number of original equipment manufacturers, or 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 contract equipment manufacturers, or CEMs, original design manufacturers, or 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 manufacturers and
motherboard manufacturers and were unable to replace the lost sales with sales to different customers, if they were to significantly reduce the number of products
they order from us, or if we were unable to collect accounts receivable from them, our revenue may not reach or exceed the expected level in any period, which
could harm our financial condition and our results of operations.
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