NVIDIA 2009 Annual Report Download - page 30

Any difficulties in collecting accounts receivable, including from foreign customers, could harm our operating results and
financial condition.
Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our customers' businesses, and
to downturns in the industry and the worldwide economy. Accounts receivable from significant customers, those representing 10% or
more of total accounts receivable aggregated approximately 38% of our accounts receivable balance from three customers at January
25, 2009 and approximately 12% of our accounts receivable balance from one customer at January 27, 2008.
Difficulties in collecting accounts receivable could materially and adversely affect our financial condition and results of
operations. These difficulties are heightened during periods when economic conditions worsen. We continue to work directly with
more foreign customers and it may be difficult to collect accounts receivable from them. We maintain an allowance for doubtful
accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance consists of an
amount identified for specific customers and an amount based on overall estimated exposure. If the financial condition of our
customers were to deteriorate, resulting in an impairment in their ability to make payments, additional allowances may be required, we
may be required to defer revenue recognition on sales to affected customers, and we may be required to pay higher credit insurance
premiums, any of which could adversely affect our operating results. In the future, we may have to record additional reserves or
write-offs and/or defer revenue on certain sales transactions which could negatively impact our financial results.
Risks Related to Regulatory, Legal, Our Common Stock and Other Matters
We are subject to litigation arising from alleged defects in our previous generation MCP and GPU products, which if
determined adversely to us, could harm our business.
During the second fiscal quarter of 2009, we recorded a $196.0 million charge against cost of revenue to cover anticipated customer
warranty, repair, return, replacement and other associated costs arising from a weak die/packaging material set in certain versions of
our previous generation MCP and GPU products used in notebook systems. The previous generation MCP and GPU products that are
impacted were included in a number of notebook products that were shipped and sold in significant quantities. Certain notebook
configurations of these MCP and GPU products are failing in the field at higher than normal rates. While we have not been able to
determine a root cause for these failures, testing suggests a weak material set of die/package combination, system thermal
management designs, and customer use patterns are contributing factors. We continue to engage in discussions with our supply chain
regarding reimbursement to us for some or all of the costs we have incurred and may incur in the future relating to the weak material
set. We also continue to seek to access our insurance coverage, which provided us with $8 million in related reimbursement during
fiscal year 2009. However, there can be no assurance that we will recover any additional reimbursement. We continue to not see any
abnormal failure rates in any systems using NVIDIA products other than certain notebook configurations. However, we are continuing
to test and otherwise investigate other products. There can be no assurance that we will not discover defects in other MCP or GPU
products.
In September, October and November 2008, several putative class action lawsuits were filed against us, asserting various claims
related to the impacted MCP and GPU products. Such lawsuits could result in the diversion of management’s time and attention away
from business operations, which could harm our business. In addition, the costs of defense and any damages resulting from this
litigation, a ruling against us, or a settlement of the litigation could adversely affect our cash flow and financial results.
The ongoing civil actions or any new actions relating to the market for GPUs could adversely affect our business.
In November 2006, we received a subpoena from the San Francisco Office of the Antitrust Division of the United States
Department of Justice, or DOJ, in connection with the DOJ's investigation into potential antitrust violations related to GPUs and
cards. In October 2008, the DOJ formally notified us that the DOJ investigation had been closed. No specific allegations were made
against NVIDIA during the investigation.
Several putative civil complaints were filed against us by direct and indirect purchasers of GPUs, asserting federal antitrust claims
based on alleged price fixing, market allocation, and other alleged anti-competitive agreements between us and ATI Technologies,
ULC., or ATI, and Advanced Micro Devices, Inc., or AMD, as a result of its acquisition of ATI. The indirect purchasers’
consolidated amended complaint also asserts a variety of state law antitrust, unfair competition and consumer protection claims on the
same allegations, as well as a common law claim for unjust enrichment.
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Source: NVIDIA CORP, 10-K, March 13, 2009 Powered by Morningstar® Document Research℠