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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 28, 2000
NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
000-23985 94-3177549
(Commission File No.) (I.R.S. Employer Identification No.)
3535 Monroe Street
Santa Clara, CA 95051
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (408) 615-2500
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Item 5. Other Events.
NVIDIA Corporation (the "Company") hereby updates its Risk Factors and
description of its Business.
The Company's Risk Factors are updated as follows:
RISK FACTORS
Our operating results are unpredictable and may fluctuate.
Many of our revenue components fluctuate and are difficult to predict,
and our operating expenses are largely independent of revenue in any particular
period. It is therefore difficult for us to accurately forecast revenue and
profits or losses. We believe that our quarterly and annual results of
operations will be affected by a variety of factors that could adversely affect
our revenue, gross profit and results of operations.
Factors that have affected our results of operations in the past, and
are likely to affect our results of operations in the future, include the
following:
. demand and market acceptance for our products and/or our customers'
products;
. the successful development and volume production of next-generation
products;
. new product announcements or product introductions by our competitors;
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. our ability to introduce new products in accordance with OEM design
requirements and design cycles;
. changes in the timing of product orders due to unexpected delays in
the introduction of our customers' products;
. fluctuations in the availability of manufacturing capacity or
manufacturing yields;
. competitive pressures resulting in lower than expected average selling
prices;
. rates of return in excess of that forecasted or expected due to
quality issues;
. the rescheduling or cancellation of customer orders;
. the loss of a key customer or the termination of a strategic
relationship;
. seasonal fluctuations associated with the PC market;
. substantial disruption in our suppliers' operations, either as a
result of a natural disaster, equipment failure or other cause;
. supply constraints for and changes in the cost of the other components
incorporated into our customers' products, including memory devices;
. our ability to reduce the manufacturing costs of our products;
. legal and other costs related to defending intellectual property;
. bad debt write-offs;
. unexpected inventory write-downs; and
. introductions of enabling technologies to keep pace with faster
generations of processors and controllers.
Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.
Because most operating expenses are relatively fixed in the short term,
we may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall. We may be required to reduce
prices in response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other competitive
factors require us to invest significantly greater resources than anticipated in
research and development or sales and marketing efforts, our business could
suffer. Accordingly, we believe that period-to-period comparisons of our results
of operations should not be relied upon as an indication of future performance.
In addition, the results of any quarterly period are not indicative of results
to be expected for a full fiscal year.
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Our 3D graphics solution may not continue to be accepted by the PC market.
Our success will depend in part upon continued broad adoption of our 3D
graphics processors for high performance 3D graphics in PC applications. The
market for 3D graphics 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 dynamic random
memory devices pricing 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. Only a small number of products have achieved broad
market acceptance and such market acceptance, if achieved, is difficult to
sustain due to intense competition. Since we have no other product line, our
business would suffer if for any reason our current or future 3D graphics
processors do not continue to achieve widespread acceptance in the PC market. If
we are unable to complete the timely development of or successfully and
cost-effectively manufacture and deliver products that meet the requirements of
the PC market, our business would be harmed.
Our integrated graphics product may not be accepted by the PC market.
We expect that integrated graphics chipset products will become an
increasing part of the lower cost segment of the PC graphics market. We have
only recently introduced a 3D graphics processor targeted at this segment, as
part of a joint development effort with ALi. If this product is not competitive
in this segment and the integrated chipset segment continues to account for an
increasing percentage of the units sold in the PC market, our business may
suffer.
We need to develop new products and to manage product transitions in
order to succeed.
Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must introduce new products on a timely basis with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:
. anticipate the features and functionality that consumers will demand;
. incorporate those features and functionality into products that meet
the exacting design requirements of PC OEMs and add-in board
manufacturers or CEMs;
. price our products competitively; and
. introduce the products to the market within the limited window for PC
OEM and add-in board manufacturers.
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As a result, we believe that significant expenditures for research and
development will continue to be required in the future. The success of new
product introductions will depend on several factors, including the following:
. proper new product definition;
. timely completion and introduction of new product designs;
. the ability of Taiwan Semiconductor Manufacturing Co., or TSMC, our
primary manufacturer, WaferTech LLC, a joint venture controlled by
TSMC, and any additional third-party manufacturers to effectively
manufacture our new products in a timely manner;
. the quality of any new products;
. differentiation of new products from those of our competitors;
. market acceptance of our and our customers' products; and
. availability of adequate quantity and configurations of various types
of memory products.
Our strategy is to utilize the most advanced semiconductor process
technology appropriate for our products and available from commercial third-
party foundries. Use of advanced processes has in the past resulted in initial
yield problems. New products that we introduce may not incorporate the features
and functionality demanded by PC OEMs, add-in board manufacturers and consumers
of 3D graphics. In addition, we may not successfully develop or introduce new
products in sufficient volumes within the appropriate time to meet both the PC
OEMs' design cycles and market demand. We have in the past experienced delays in
the development of some new products. Our failure to successfully develop,
introduce or achieve market acceptance for new 3D graphics products would harm
our business.
Our failure to identify new product opportunities or to develop new
products could harm business.
As markets for our 3D graphics processors develop and competition
increases, we anticipate that product life cycles at the high end will remain
short and average selling prices will continue to decline. In particular, we
expect average selling prices and gross margins for our 3D graphics processors
to decline as each product matures and as unit volume increases. As a result, we
will need to introduce new products and enhancements to existing products to
maintain overall average selling prices and gross margins. In order for our 3D
graphics processors to achieve high volumes, leading PC OEMs and add-in board
manufacturers must select our 3D graphics processor for design into their
products and then successfully complete the designs of their products and sell
them. We may be unable to successfully identify new product opportunities or to
develop and bring to market in a timely fashion any new products. In addition,
we cannot guarantee that any new products we develop will be selected for design
into PC OEMs' and add-in board manufacturers' products, that any new designs
will be successfully
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completed or that any new products will be sold. As the complexity of our
products and the manufacturing process for products increases, there is an
increasing risk that we will experience problems with the performance of
products and that there will be delays in the development, introduction or
volume shipment of our products. We may experience difficulties related to the
production of current or future products or other factors may delay the
introduction or volume sale of new products we develop. In addition, we may be
unable to successfully manage the production transition risks with respect to
future products. Failure to achieve any of the foregoing with respect to future
products or product enhancements could result in rapidly declining average
selling prices, reduced margins, and reduced demand for products or loss of
market share. In addition, technologies developed by others may render our 3D
graphics products non-competitive or obsolete or result in our holding excess
inventory, either of which would harm our business.
We rely on third-party vendors to supply us tools for the development
of our new products and we may be unable to obtain the tools necessary to
develop these products.
In the design and development of new products and product enhancements,
we rely on third-party software development tools. While we currently are not
dependent on any one vendor for the supply of these tools, some or all of these
tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of
the inability of then available software development tools to fully simulate the
complex features and functionalities of our products. The design requirements
necessary to meet consumer demands for more features and greater functionality
from 3D graphics products in the future may exceed the capabilities of the
software development tools available to us. If the software development tools we
use become unavailable or fail to produce designs that meet consumer demands,
our business could suffer.
Our industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions that could result in substantial costs
to us.
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
protracted and expensive litigation. The 3D graphics market in particular has
been characterized recently by the aggressive pursuit of intellectual property
positions, and we expect our competitors to continue to pursue aggressive
intellectual property positions. In addition, from time to time we receive
notices alleging that we have infringed patents or other intellectual property
rights owned by third parties. We expect that, as the number of issued hardware
and software patents increases, and as competition in our markets intensifies,
the volume of intellectual property infringement claims will increase. If
infringement claims are made against us, we may seek licenses under the
claimant's patents or other intellectual property rights. However, licenses may
not be offered at all or on terms acceptable to us. The failure to obtain a
license from a third party for technology used by us could cause us to incur
substantial liabilities and to suspend the manufacture of products. Furthermore,
we may initiate claims or litigation against third parties for infringement of
our proprietary rights or to establish the validity of our proprietary rights.
We have agreed to indemnify certain customers for claims of infringement arising
out of sale of our products. Litigation by or against us or our customers
concerning infringement would likely result in
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significant expense to us and divert the efforts of our technical and management
personnel, whether or not the litigation results in a favorable determination
for us.
We are subject to a patent infringement lawsuit and could be subject to
future lawsuits that could divert our resources and result in the payment of
substantial damages.
On September 21, 1998, 3Dfx Interactive, Inc. filed a patent infringement
suit against us in the United States District Court for the Northern District of
California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added
a second patent to the suit and on May 24, 1999, 3Dfx added a third patent to
the suit. The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA
TNT2 Ultra products infringe the patents in suit and seeks unspecified
compensatory and trebled damages and attorneys' fees. Our current generation of
products is not identified as infringing any of the patents in suit. We have
filed an answer and counter-claims asserting that the patents in suit are
invalid and not infringed. These assertions are supported by our investigations
to date and an opinion from our patent counsel in this suit. We anticipate that
the trial date will be set by the District Court after it rules on claims
construction issues. We have and will continue to defend vigorously this suit.
The litigation with 3Dfx has resulted, and we expect that the 3Dfx litigation
will continue to result, in significant legal expenses, whether or not the
litigation results in a favorable determination for us. In the event of an
adverse result in the 3Dfx suit, we might be required to do one or more of the
following:
. pay substantial damages (including treble damages);
. permanently cease the manufacture and sale of any of the infringing
products;
. expend significant resources to develop non-infringing products; or
. obtain a license from 3Dfx for infringing products.
On August 28, 2000, we filed a patent infringement lawsuit against 3Dfx
in the United States District Court for the Northern District of California. The
lawsuit alleges that 3Dfx's graphics chip and card products, which are used to
accelerate 3D graphics on personal computers, infringe five of our patents and
seeks an injunction restraining 3Dfx from manufacturing, selling or importing
infringing graphics chip and card products including its Voodoo 3, Voodoo 4 and
Voodoo 5 and VSA-100 family of products, as well as monetary damages. The matter
is in its earliest stages, discovery has not yet begun and no trial date has
been set.
We have in the past been subject to patent infringement suits with SGI
and S3 Incorporated, both of which were settled and resulted in cross-licenses
and, in the case of SGI, payments by us. In addition, we may be subject to
patent infringement suits brought by other parties in the future. For example,
we have received correspondence from Rambus Inc. indicating that it believes our
products infringe certain patents held by Rambus and requesting that we agree to
certain licensing terms, including royalty payments. We believe the Rambus
patents are invalid, not infringed and unenforceable. Although we currently are
having discussions with Rambus regarding potential business alternatives to
Rambus' proposed licensing
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terms, we cannot guarantee that we will be able to reach a satisfactory
agreement with Rambus. If we are unable to do so, Rambus may sue us for patent
infringement at any time.
We may be unable to adequately protect our intellectual property.
We rely primarily on a combination of patents, trademarks, copyrights,
trade secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 33 issued United
States patents, and have 46 United States patent applications pending. Our
issued patents have expiration dates from April 2015 to April 2018. Our issued
patents and pending patent applications relate to technology developed by us in
connection with the development of our 3D graphics processors. Our pending
patent applications and any future applications may not be approved. In
addition, any issued patents may not provide us with competitive advantages or
may be challenged by third parties. The enforcement of patents of others may
harm our ability to conduct our business. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property, or disclose our intellectual property or
trade secrets. Our failure to effectively protect our intellectual property
could harm our business. We have licensed technology from third parties for
incorporation in our graphics processors, and expect to continue to enter into
license agreements for future products. These licenses may result in royalty
payments to third parties, the cross-license of technology by us or payment of
other consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer.
Our failure to achieve one or more design wins would harm our business.
Our future success will depend in large part on achieving design wins,
which entails having our existing and future products chosen as the 3D graphics
processors for hardware components or subassemblies designed by PC OEMs and
motherboard and add-in board manufacturers. Our add-in board manufacturers and
major OEM customers typically introduce new system configurations as often as
twice per year, generally based on spring and fall design cycles. Accordingly,
our existing products must have competitive performance levels or we must timely
introduce new products with such performance characteristics in order to be
included in new system configurations. Our failure to achieve one or more design
wins would harm our business. The process of being qualified for inclusion in a
PC OEM's product can be lengthy and could cause us to miss a cycle in the demand
of end users for a particular product feature, which also could harm our
business.
Our ability to achieve design wins also depends in part on our ability
to identify and ensure compliance with evolving industry standards.
Unanticipated changes in industry standards could render our products
incompatible with products developed by major hardware manufacturers and
software developers, including Intel and Microsoft. This would require us to
invest significant time and resources to redesign our products to ensure
compliance with relevant standards. If our products are not in compliance with
prevailing industry standards for a significant period of time, our ability to
achieve design wins could suffer.
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We are dependent on the PC market, which may not continue to grow.
In fiscal 2000, we derived all of our revenue from the sale of products
for use in PCs. In the first quarter of fiscal 2001, we derived most of our
revenue from the sale of products for use in the entire desktop PC market, from
professional workstations to low-cost PCs. We expect to continue to derive most
of our revenue from the sale or license of products for use in PCs in the next
several years. The PC market is characterized by rapidly changing technology,
evolving industry standards, frequent new product introductions and significant
price competition. These factors result in short product life cycles and regular
reductions of average selling prices over the life of a specific product.
Although the PC market has grown substantially in recent years, this growth may
not continue. A reduction in sales of PCs, or a reduction in the growth rate of
PC sales, would likely 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 have incorrectly forecast product transitions. In
these cases, PC manufacturers may abruptly suspend substantially all purchases
of additional inventory from suppliers like us until the excess inventory has
been absorbed. Any reduction in the demand for PCs generally, or for a
particular product that incorporates our 3D graphic processors, could harm our
business.
The acceptance of next generation products in business PC 3D graphics
may not continue to develop.
Our success will depend in part upon the demand for performance 3D
graphics for business PC applications. The market for performance 3D graphics on
business PCs has only recently begun to emerge and is dependent on the future
development of, and substantial end-user and OEM demand for, 3D graphics
functionality. As a result, the market for business PC 3D graphics computing may
not continue to develop or may not grow at a rate sufficient to support our
business. The development of the market for performance 3D graphics on business
PCs will in turn depend on the development and availability of a large number of
business PC software applications that support or take advantage of performance
3D graphics capabilities. Currently there are only a limited number of software
applications like this, most of which are games, and a broader base of software
applications may not develop in the near term or at all. Consequently, a broad
market for full function performance 3D graphics on business PCs may not
develop. Our business prospects will suffer if the market for business PC 3D
graphics fails to develop or develops more slowly than expected.
We are dependent on a small number of customers and we are subject to
order and shipment uncertainties.
We have only a limited number of customers and our sales are highly
concentrated. We primarily sell our products to add-in board and motherboard
manufacturers and CEMs, which incorporate graphics products in the boards they
sell to PC OEMs. Sales to add-in board manufacturers and CEMs are primarily
dependent on achieving design wins with leading PC OEMs. The number of add-in
board manufacturers and CEMs and leading PC OEMs is limited. We expect that a
small number of add-in board manufacturers and CEMs directly, and a small number
of PC OEMs indirectly, will continue to account for a substantial portion of our
revenue for the foreseeable future. As a result, our business could be harmed by
the loss of business from
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PC OEMs or add-in board manufacturers and CEMs. In addition, revenue from add-in
board manufacturers, motherboard manufacturers, CEMs and PC OEMs that have
directly or indirectly accounted for significant revenue in past periods,
individually or as a group, may not continue, or may not reach or exceed
historical levels in any future period.
Our business may be harmed by instability in Asia due to the
concentration of customers who are located or have substantial operations in
Asia, including Taiwan. The People's Republic of China and Taiwan have in the
past experienced and currently are experiencing strained relations. A worsening
of these relations or the development of hostilities between the two could
result in disruptions in Taiwan and possibly other areas of Asia, which could
harm our business. While we believe political instability in Asia has not
adversely affected our business, because of our reliance on companies with
operations in Asia, continued economic and political instability in Asia might
harm us.
We may be unable to manage our growth and, as a result, may be unable
to successfully implement our strategy.
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. As of
July 30, 2000, we had 529 employees as compared to 392 employees as of January
30, 2000. We expect that the number of our employees will increase substantially
over the next 12 months. Our future growth, if any, will depend on our ability
to continue to implement and improve operational, financial and management
information and control systems on a timely basis, as well as our ability to
maintain effective cost controls. Further, we will be required to manage
multiple relationships with various customers and other third parties. Our
systems, procedures or controls may not be adequate to support our operations
and our management may be unable to achieve the rapid execution necessary to
successfully implement our strategy.
We are dependent on key personnel and the loss of these employees could
harm our business.
Our performance will be substantially dependent on the performance of
our executive officers and key employees. None of our officers or employees is
bound by an employment agreement, and our relationships with these officers and
employees are, therefore, at will. We do not have "key person" life insurance
policies on any of our employees. The loss of the services of any of our
executive officers, technical personnel or other key employees, particularly
Jen-Hsun Huang, our President and Chief Executive Officer, would harm our
business. Our success will depend on our ability to identify, hire, train and
retain highly qualified technical and managerial personnel. Our failure to
attract and retain the necessary technical and managerial personnel would harm
our business.
We depend on third-party fabrication to produce our products.
We do not manufacture the semiconductor wafers used for our products
and do not own or operate a wafer fabrication facility. Our products require
wafers manufactured with state-of-the-art fabrication equipment and techniques.
We utilize TSMC and WaferTech to produce our semiconductor wafers and utilize
independent contractors to perform assembly, test and
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packaging. We depend on these suppliers to allocate to us a portion of their
manufacturing capacity sufficient to meet our needs, to produce products of
acceptable quality and at acceptable manufacturing yields, and to deliver those
products to us on a timely basis. These manufacturers may be unable to meet our
near-term or long- term manufacturing requirements. We obtain manufacturing
services on a purchase order basis and TSMC has no obligation to provide us with
any specified minimum quantities of product. TSMC fabricates wafers for other
companies, including certain of our competitors, and could choose to prioritize
capacity for other users or reduce or eliminate deliveries to us on short
notice. Because the lead time needed to establish a strategic relationship with
a new manufacturing partner could be several quarters, there is no readily
available alternative source of supply for any specific product. We believe that
long-term market acceptance for our products will depend on reliable
relationships with TSMC and any other manufacturers used by us to ensure
adequate product supply to respond to customer demand.
In September 1999, a significant earthquake in Taiwan contributed to a
temporary shortage of graphics processors in the third and fourth quarters of
fiscal 2000. Because of our reliance on TSMC, our business may be harmed by
political instability in Taiwan, including the worsening of the strained
relations between The People's Republic of China and Taiwan. Furthermore, any
substantial disruption in our suppliers' operations, either as a result of a
natural disaster, political unrest, economic instability, equipment failure or
other cause, could harm our business.
We are dependent primarily on TSMC and we expect in the future to
continue to be dependent upon third-party manufacturers to do the following:
. produce wafers of acceptable quality and with acceptable manufacturing
yields;
. deliver those wafers to us and our independent assembly and testing
subcontractors on a timely basis; and
. allocate to us a portion of their manufacturing capacity sufficient to
meet our needs.
Our wafer requirements represent a significant portion of the total
production capacity of TSMC. Although our products are designed using TSMC's
process design rules, TSMC may be unable to achieve or maintain acceptable
yields or deliver sufficient quantities of wafers on a timely basis and/or at an
acceptable cost. Additionally, TSMC may not continue to devote resources to the
production of our products, or to advance the process design technologies on
which the manufacturing of our products is based. Any difficulties like these
would harm our business.
Failure to achieve expected manufacturing yields would reduce our product
supply and harm our business.
Semiconductor manufacturing yields are a function both of product design,
which is developed largely by us, and process technology, which typically is
proprietary to the manufacturer. Since low yields may result from either design
or process technology failures, yield problems may not be effectively determined
or resolved until an actual product exists that
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can be analyzed and tested to identify process sensitivities relating to the
design rules that are used. As a result, yield problems may not be identified
until well into the production process, and resolution of yield problems would
require cooperation by and communication between the manufacturer and us.
The risk of low yields is compounded by the offshore location of most
of our manufacturers, increasing the effort and time required to identify,
communicate and resolve manufacturing yield problems. Because of our potentially
limited access to wafer fabrication capacity from our manufacturers, any
decrease in manufacturing yields could result in an increase in our per unit
costs and force us to allocate our available product supply among our customers.
This could potentially harm customer relationships as well as revenue and gross
profit. Our wafer manufacturers may be unable to achieve or maintain acceptable
manufacturing yields in the future. Our inability to achieve planned yields from
our wafer manufacturers could harm our business. We also face the risk of
product recalls or product returns resulting from design or manufacturing
defects that are not discovered during the manufacturing and testing process. In
the event of a significant number of product returns due to a defect or recall,
our business could suffer.
Failure to transition to new manufacturing process technologies could
affect our ability to compete effectively.
Our strategy is to utilize the most advanced semiconductor process
technology appropriate for our products and available from commercial third-
party foundries. Use of advanced processes may have greater risk of initial
yield problems. Manufacturing process technologies are subject to rapid change
and require significant expenditures for research and development. We
continuously evaluate the benefits of migrating to smaller geometry process
technologies in order to improve performance and reduce costs. We have migrated
to the .18 micron technology with the GeForce2 GTS GPUs, and we believe that the
transition of our products to increasingly smaller geometries will be important
to our competitive position. Other companies in the industry have experienced
difficulty in migrating to new manufacturing processes and, consequently, have
suffered reduced yields, delays in product deliveries and increased expense
levels. We may experience similar difficulties and the corresponding negative
effects. Moreover, we are dependent on our relationships with our third-party
manufacturers to migrate to smaller geometry processes successfully. We may be
unable to migrate to new manufacturing process technologies successfully or on a
timely basis.
The 3D graphics industry is highly competitive and we may be unable to
compete.
The market for 3D graphics processors for PCs in which we compete 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 APIs,
manufacturing capabilities, price of graphics processors and total system costs
of add-in boards and motherboards. We expect competition to increase both from
existing competitors and new market entrants with products that may be less
costly than our 3D graphics processors or may provide better performance or
additional features not provided by our products.
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Our primary source of competition is from companies that provide or
intend to provide 3D graphics solutions for the PC market. Our competitors
include the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc. and Matrox
Electronics Systems Ltd.;
. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional market
and provide high end 3D solutions for PCs and workstations, including
3Dlabs Inc., SGI and Evans and Sutherland Computer Corporation; and
. companies that focus on the video game market, such as 3Dfx and
VideoLogic Group plc.
If and to the extent we offer products outside of the 3D graphics
processor market, we may face competition from some of our existing competitors
as well as from companies with which we currently do not compete. We cannot
accurately predict if we will compete successfully in any new markets we may
enter.
We may compete with Intel in the integrated low-cost chipset market.
In June 2000, Intel began shipping the Intel 815 and 815e 3D graphics
chipsets that are targeted at the low-cost PC market. Intel has significantly
greater resources than we do, and our products may not compete effectively
against future products introduced by Intel. In addition, we may be unable to
compete effectively against Intel or Intel may introduce additional products
that are competitive with our products in either performance or price or both.
We expect Intel to continue to do the following:
. invest heavily in research and development and new manufacturing
facilities;
. maintain its position as the largest manufacturer of PC
microprocessors;
. increasingly dominate the PC platform; and
. promote its product offerings through advertising campaigns designed
to engender brand loyalty among PC users.
Intel may in the future develop graphics add-in cards or graphics-enabled
motherboards that could directly compete with graphics add-in cards or graphics-
enabled motherboards based on our product. In addition, due to the widespread
industry acceptance of Intel's microprocessor architecture and interface
architecture, including its AGP, and Intel's intellectual property position with
respect to such architecture, Intel exercises significant influence over the PC
industry generally. Any significant modifications by Intel to the AGP, the
microprocessor or core logic components or other aspects of the PC
microprocessor architecture could result in
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incompatibility with our technology, which would harm our business. In addition,
any delay in the public release of information relating to modifications like
this could harm our business.
We are dependent on third parties for assembly and testing of our
products.
Our graphics processors are assembled and tested by Advance
Semiconductor Engineering, Inc., ChipPAC Incorporated and Siliconware Precision
Industries Company Ltd., all of which are based in Asia. Because we rely on
Asian assembly and test subcontractors, our business may be harmed by political
instability in Asia, including the worsening of the strained relations between
The People's Republic of China and Taiwan. We do not have long-term agreements
with any of these subcontractors. As a result of our dependence on third-party
subcontractors for assembly and testing of our products, we do not directly
control product delivery schedules or product quality. Any product shortages or
quality assurance problems could increase the costs of manufacture, assembly or
testing of our products and could harm our business. Due to the amount of time
typically required to qualify assemblers and testers, we could experience
significant delays in the shipment of our products if we are required to find
alternative third parties to assemble or test our products or components. Any
delays in delivery of our products could harm our business.
We are subject to risks associated with product defects and
incompatibilities.
Products as complex as ours may contain defects or failures when
introduced or when new versions or enhancements to existing products are
released. We have in the past discovered software defects and incompatibilities
with customers' hardware in certain of our products and may experience delays or
lost revenue to correct any new defects in the future. Errors in new products or
releases after commencement of commercial shipments could result in loss of
market share or failure to achieve market acceptance. Our products typically go
through only one verification cycle prior to beginning volume production and
distribution. As a result, our products may contain defects or flaws that are
undetected prior to volume production and distribution. The widespread
production and distribution of defective products could harm our business.
We are subject to risks associated with international operations.
Our reliance on foreign third-party manufacturing, assembly and testing
operations subjects us to a number of risks associated with conducting business
outside of the United States, including the following:
. unexpected changes in, or impositions of, legislative or regulatory
requirements;
. delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs, quotas and other trade barriers and
restrictions;
. longer payment cycles;
. imposition of additional taxes and penalties;
<PAGE>
. the burdens of complying with a variety of foreign laws; and
. other factors beyond our control.
We also are subject to general political risks in connection with our
international trade relationships. In addition, the laws of certain foreign
countries in which our products are or may be manufactured or sold, including
various countries in Asia, may not protect our products or intellectual property
rights to the same extent as do the laws of the United States. This makes the
possibility of piracy of our technology and products more likely. Currently, all
of our arrangements with third-party manufacturers provide for pricing and
payment in U.S. dollars, and to date we have not engaged in any currency hedging
activities, although we may do so in the future. Fluctuations in currency
exchange rates could harm our business in the future.
The semiconductor industry is cyclical in nature.
The semiconductor industry historically has been characterized by the
following factors:
. rapid technological change;
. cyclical market patterns;
. significant average selling price erosion;
. fluctuating inventory levels;
. alternating periods of overcapacity and capacity constraints; and
. variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development.
In addition, the industry has experienced significant economic
downturns at various times, characterized by diminished product demand and
accelerated erosion of average selling prices. We may experience substantial
period-to- period fluctuations in results of operations due to general
semiconductor industry conditions.
Failure in implementation of our enterprise resource planning system
could adversely affect our operations.
In December 1999, we began the implementation of an SAP A.G. system as
our enterprise resource planning, or ERP, system to replace our information
systems in business, finance, operations and service. The first phase of the
implementation was successfully completed in June 2000 and our operations are
fully functioning under the new ERP system. Future phases of the implementation
are expected to occur throughout fiscal 2001. We are heavily dependent upon the
proper functioning of our internal systems to conduct our business. System
failure or malfunctioning may result in disruptions of operations and inability
to process transactions. Our results of operations and financial position could
be adversely affected if we encounter unforeseen problems with respect to system
operations or future implementation.
<PAGE>
Some provisions in our certificate of incorporation, our bylaws and our
agreement with Microsoft could delay or prevent a change in control.
Our certificate of incorporation and bylaws contain provisions that
could make it more difficult for a third party to acquire a majority of our
outstanding voting stock. These provisions include the following:
. the ability of the board of directors to create and issue
preferred stock without prior stockholder approval;
. the prohibition of stockholder action by written consent;
. a classified board of directors; and
. advance notice requirements for director nominations and
stockholder proposals.
On March 5, 2000, we entered into a licensing and development agreement
with Microsoft that included a grant to Microsoft of first and last rights of
refusal over any offer we receive to purchase 30% or more of the outstanding
shares of our common stock. This provision could also delay or prevent a change
in control of NVIDIA.
We are subject to risks associated with interest rate and foreign
exchange rate fluctuation.
The primary objective of our investment activities is to preserve
principal while at the same time maximizing the income we receive from the
investments without significantly increasing risk. To minimize potential loss
arising from adverse changes in interest rates, we maintain a portfolio of cash
and cash equivalents primarily in highly rated domestic money market funds. In
general, money market funds are not subject to market risk because the interest
paid on such funds fluctuates with the prevailing interest rate.
We consider our exposure to foreign exchange rate fluctuations to be
minimal. Currently, all of our arrangements with third-party manufacturers
provide for pricing and payment in U.S. dollars, and therefore are not subject
to exchange rate fluctuations. To date, we have not engaged in any currency
hedging activities, although we may do so in the future. Fluctuations in foreign
currency exchange rates could harm our business in the future.
<PAGE>
The Company's Business description is updated as follows:
BUSINESS
Overview
We design, develop and market graphics processors and related software
for personal computers and digital entertainment platforms. We provide a
"top-to-bottom" family of award-winning performance 3D graphics processors and
graphics processing units, or GPUs, that set the standard for performance,
quality and features for a broad range of desktop PCs, from professional
workstations to low-cost PCs. Our 3D graphics processors are used in a wide
variety of applications, including games, business productivity, the Internet
and industrial design. Our graphics processors were the first to incorporate a
128-bit multi-texturing graphics architecture designed to deliver to users of
our products a highly immersive, interactive 3D experience with compelling
visual quality, realistic imagery and motion, stunning effects and complex
object and scene interaction at real-time frame rates. The NVIDIA TNT2, TNT2 M64
and Vanta graphics processors deliver high performance 3D and 2D graphics at
affordable prices, making them the graphics hardware of choice for a wide range
of applications for both consumer and commercial use. Our graphics processors
are designed to be architecturally compatible backward and forward between
generations, giving our OEM customers and end users a low cost of ownership. We
are recognized for developing the world's first GPU, the GeForce 256, which
incorporates independent hardware transform and lighting processing units along
with a complete rendering pipeline into a single-chip architecture. Our current
GPUs, the GeForce2 Ultra, the GeForce2 GTS, the GeForce2 MX, the NVIDIA Quadro2
Pro and the Quadro2 MXR, process hundreds of billions of operations per second
and increase the PC's ability to render high-definition 3D scenes in real-time.
Our GPU family provides superior processing and rendering power at competitive
prices and is architected to deliver the maximum performance from industry
standards such as Microsoft's Direct3D API and SGI's OpenGL API on Windows 98,
Windows 2000 and Linux platforms. We have also developed an integrated core
logic/graphics chipset called Aladdin TNT2 through a partnership with Acer
Laboratories, Inc., or ALi, one of the leading suppliers of core logic chipsets
for the PC. The Aladdin TNT2 chipset brings NVIDIA-class graphics performance
and quality to the value PC segment.
Our products currently are designed into products offered by virtually
every leading branded PC OEM, including Acer, Compaq, Dell, eMachines, Fujitsu-
Siemens, Gateway, HP, IBM, micronpc.com, NEC, Packard Bell NEC, SGI and Sony, as
well as leading CEMs, including Celestica, Intel, Mitac, MSI, SCI and VisionTek,
and leading add-in board manufacturers, including ASUSTek, Canopus, Creative,
ELSA and Guillemot. The benefits and performance of the NVIDIA family of 3D
graphics processors have received significant industry validation and have
enabled us and our customers to win more than 600 industry awards, including
over 20 "Editors' Choice" awards from PC Magazine during the last three years,
Edge Magazine's 1999 "Hardware Innovation of the Year," MicroDesign Research's
"1999 Analyst's Choice for Best 3D Processor" and, in the workstation market,
Pro/E the Magazine's "Platinum Award."
<PAGE>
Industry Background
Interactive 3D graphics technology is emerging as one of the
significant new computing developments since the introduction of the graphical
user interface. Interactive 3D graphics is integral to various computing and
entertainment platforms such as workstations, consumer and commercial desktop
PCs, Internet appliances and home gaming consoles. 3D graphics is a powerful
broadband medium that enables the communication and visualization of
information, whether it is in professional applications like CAD/CAM and digital
content creation, commercial applications like financial analysis and
business-to-business collaboration or simply surfing the Internet or playing
games. The visually engaging and interactive nature of 3D graphics responds to
consumers' demands for a convincing simulation of reality beyond what is
possible with traditional 2D graphics. We expect that the fundamental
interactive capability and distributive nature of 3D graphics will make it the
primary broadband medium for a digitally connected world.
We believe that a PC's interactive 3D graphics capability represents
one of the primary means by which users differentiate among various systems. PC
users today can easily differentiate the quality of graphics and prefer personal
computers that provide a superior visual experience. These factors have
dramatically increased demand for 3D graphics processors. Mercury Research
estimates that 3D graphics will be standard in every PC unit shipped by 2001.
Mercury Research also estimates that 126.8 million desktop 3D graphics
processors were sold worldwide in 1999 and that 292.2 million will be sold
worldwide in 2004.
Continuing advancements in semiconductor process and manufacturing have
made available more powerful and affordable microprocessors and 3D graphics
processors, both of which are essential to deliver interactive 3D graphics to
the PC market. Additionally, the industry has broadly adopted Microsoft's
Direct3D API and SGI's OpenGL API, which serve as common and standard languages
between software applications and 3D graphics processors, allowing the
development of numerous 3D applications and resulting in increased consumer
demand.
The technology required to create interactive and visually engaging 3D
graphics is algorithmically complex and computationally intensive. To deliver
high quality interactive 3D graphics, advanced 3D GPUs require millions of
transistors to process billions of arithmetic operations per second. Current 3D
GPUs, like the Quadro2 and the GeForce2 Ultra, are over 100 times more complex
than 2D accelerators and comparable to the complexity of Intel Pentium III
microprocessors. Despite these ongoing advances, PC 3D graphics available today
cannot deliver in real time the quality of graphics seen in digitally-created
films like "Toy Story 2." 3D graphics like those required over 1,400 powerful
workstations to render 122,699 movie frames, each of which required from 10
minutes to three days to complete. For PCs to provide even this level of 3D
graphics capability, the performance of 3D graphics processors will need to be
improved by several more orders of magnitude, with the ultimate goal being to
achieve "real world" graphics performance well beyond that seen in "Toy Story
2."
<PAGE>
We believe that a substantial market opportunity exists for providers
of performance 3D graphics processors, particularly as performance 3D graphics
have become an increasingly important requirement and point of differentiation
for PC OEMs. Consumer PC users demand a compelling visual experience and
compatibility with existing and next-generation 3D graphics applications at an
affordable price. Application developers require high-performance, standards-
based 3D architectures with broad market penetration. Since graphics is a key
point of differentiation, PC OEMs continually seek to incorporate leading-edge,
cost-effective 3D graphics solutions to build award-winning products. We believe
that providers of interactive 3D graphics solutions will compete based on their
ability to leverage their technology expertise to simultaneously meet the needs
of end users, application developers and OEMs.
Our Solution
We designed our GPUs and graphics processors to enable PC OEMs and
add-in board manufacturers to build award-winning products by delivering
state-of-the-art interactive 3D graphics capability while maintaining
affordable prices. We believe that by developing 3D graphics solutions that
provide superior performance and address the key requirements of the PC market,
we will accelerate the adoption of 3D graphics throughout this market. We
combine scalable architectural technology with mass market economies-of-scale to
deliver a complete family of products that span workstations to low-cost value
PCs.
The key features and benefits of our solution are as follows:
Advanced Scalable Single-Chip Graphics Architectures. In each of the
past three years, we have introduced a graphics processor that has subsequently
defined the 3D graphics standard widely adopted by the PC industry. In 1997, we
delivered the industry's first 128-bit 3D graphics processor with the RIVA 128.
The RIVA 128's wide data path enabled high frame rate playback of interactive
games. In 1998, we introduced the industry's first dual pixel pipeline with the
RIVA TNT, which provided the ability to apply multiple textures to each polygon,
enabling stunning visual effects. In 1999, we introduced the world's first GPU,
the GeForce 256, by integrating transform and lighting into the graphics
processor. Dedicated transform and lighting engines, which are substantially
more powerful than those functions on general purpose microprocessors, provide
the extremely high computational throughput necessary to generate
high-resolution polygonal 3D models. In addition, in 2000, we introduced the
first per-pixel shading GPUs, the GeForce2 GTS and GeForce2 Ultra, moving even
closer to cinematic-quality real-time graphics for the desktop PC market.
Per-pixel shading allows control of the visual and material components, such as
color, shadow, light and reflectivity, used to create realistic scenes and
objects. Each of these generations has served as the foundation for an
architecturally compatible family of products designed to offer additional
products focused on either enhanced performance and features or lower cost.
High-Performance, Backward-Forward Compatible Software Drivers. NVIDIA
graphics processors include an extensive set of reference drivers that translate
between the software API and hardware. The NVIDIA Unified Driver Architecture
(UDA) is designed to maximize the performance of the graphics processor and to
maintain compatibility with each successive generation of our products. These
software drivers have the flexibility to be continually enhanced in order to
further improve the performance of our processors. We believe our UDA provides a
<PAGE>
competitive advantage to our OEM customers. We are the only graphics vendor that
offers a family of graphics processors that are binary software compatible,
enabling both backward and forward compatibility between generations as well as
top-to-bottom compatibility. This compatibility is achieved through an
innovative graphics hardware architecture that virtualizes the software
interface, allowing us to innovate independent of the API. This compatibility
provides OEMs and end users with a great degree of flexibility.
Feature-Optimized, Standards-Based Architecture. The NVIDIA family of
graphics processors are architected to take full advantage of industry standards
such as Microsoft's Direct3D and SGI's OpenGL. We work closely with Microsoft
and SGI so that our family of graphics processors provide feature complete,
performance optimized drivers from one generation to the next. The
standards-compliant design of our graphics processors provides OEMs maximum
flexibility in the design and use of their systems. In particular, we believe
that our focus on industry standard APIs positions us well in the PC market, as
these standards proliferate and support more advanced 3D visuals. Direct3D and
OpenGL have gained broad developer support, with numerous 3D titles currently
using those APIs.
Our Strategy
Our objective is to ultimately be the leading supplier of performance
graphics communications processors for a broad range of PCs, laptops, Internet
appliances, handhelds and any future computing device with a display. Our
current focus is on the PC market and we plan to expand into other markets. Our
strategy to achieve this objective includes the following key elements:
Build Award-Winning, Architecturally-Compatible 3D Graphics Product
Families for the PC and Digital Entertainment Markets. Our strategy is to
achieve market share leadership in the PC and digital entertainment markets by
providing award-winning performance at every price point. By developing 3D
graphics solutions that provide superior performance and address the key
requirements of these markets, we believe that we will accelerate the adoption
of 3D graphics. As part of our strategy, we have closely aligned our product
development with Direct3D and OpenGL, which we believe maximizes third-party
software support.
Target Leading OEMs. Our strategy is to enable our leading OEM
customers to differentiate their products in a highly competitive marketplace by
using our 3D graphics processors. We believe that design wins with these
industry leaders provide market validation of our products, increase brand
awareness and enhance our ability to penetrate additional leading customer
accounts. In addition, we believe that close relationships with OEMs will allow
us to better anticipate and address customer needs with our future generations
of products. Our products currently are designed into products offered by
virtually every leading branded PC OEM, including Acer, Compaq, Dell, eMachines,
Fujitsu-Siemens, Gateway, HP, IBM, micronpc.com, NEC, Packard Bell NEC, SGI and
Sony.
Sustain Technology and Roadmap Leadership in 3D Graphics. We are
focused on leveraging our advanced engineering capabilities to accelerate the
quality and performance of 3D graphics in PCs. A fundamental aspect of our
strategy is to actively recruit the best 3D graphics engineers in the industry,
and we believe that we have assembled an exceptionally experienced
<PAGE>
and talented engineering team. We increased the number of our employees engaged
in research and development activities to 289 at July 30, 2000 from 214 at
January 30, 2000. Our research and development strategy is to focus on
concurrently developing multiple generations of graphics processors using
independent design teams. As we have in the past, we intend to leverage this
strategy to achieve new levels of graphics features and performance, enabling
our customers to achieve award-winning performance in their products.
Increase Market Share. We believe that substantial market share will be
important to achieving success in the 3D graphics business. We intend to achieve
a leading share of the market by devoting substantial resources to building
award-winning families of products for a wide range of applications.
Leverage Our Expertise in Digital Multimedia. We believe the synergy
created by the combination of 3D graphics and the Internet will fundamentally
change the way people work, learn, communicate and play. We believe that our
expertise in 3D graphics and system architecture positions us to help drive this
transformation. We are leveraging our expertise in the processing and
transmission of high-bandwidth digital media to develop products designed to
address the requirements of high-bandwidth concurrent multimedia.
NVIDIA Architecture, Products and Products Under Development
3D Graphics Processing Architecture
3D graphics processors create two-dimensional images, which can be
displayed on computer monitors or other output devices, from computer
specifications of three-dimensional objects or "models." These two-dimensional
images are typically the perspective view of the objects from an eye-point that
changes with time and, as such, are computationally very intensive. The 3D
effect arises from a variety of visual cues, such as perspective, occlusion,
surface shading, shadows, focus and motion. Convincing realism arises from
precise calculation of these and other effects. These calculations are best
performed by dedicated processors, which provide far more power and bandwidth
than microprocessors can deliver.
The 3D graphics process is a series of specialized steps, often
referred to as the 3D graphics pipeline. Typically, the microprocessor chooses
an eye- point and decides which objects should be displayed. These are commonly
communicated to the graphics subsystem via a software interface, such as
Microsoft's Direct3D or SGI's OpenGL. The processing itself occurs in several
steps, as depicted and described below:
Model (right Transform and (right Polygon Setup (right Rasterization (right
Display arrow) Lighting arrow) arrow) arrow)
Model. The model typically is expressed as a set of polygons, such as
triangles, that form the basic shape of a three-dimensional object and have
attributes such as position and color at each vertex.
Transform and Lighting. In the transform and lighting step, the
original position and orientation of the polygons are transformed to their new
position on the screen. Based on their
<PAGE>
position and orientation, some aspects of their surface color and lighting can
be computed. The 3D visual cues of perspective and motion are handled during
this stage. These calculations require very high floating-point computation
power and are performed either by the host microprocessor or on a higher
performance GPU. Lighting occurs after transform and provides high visual
impact. Lighting effects enhance the realism of a scene and bring rendered
images one step closer to a "real world" perception.
Polygon Setup. Polygon setup calculates the slopes of the polygon sides
and various other derivatives that greatly accelerate the rasterization process.
Although early graphics devices performed these calculations in the host
microprocessor, existing 3D graphics processors perform these calculations,
permitting significantly higher performance. By offloading setup and
rasterization from the microprocessor, the additional bandwidth can be utilized
for computationally-intensive operations such as character animation, physics
and object behaviors.
Rasterization. Rasterization computes the color and other information
for every pixel (dot on the screen) that a transformed polygon touches. A number
of complex algorithms compute the color uniquely for each pixel, as well as
perform the remaining visual cues, such as shading, shadows, focus and
occlusion. This is the most computationally intensive step of the graphics
pipeline and the processors are required to perform up to 1,000 calculations per
pixel, with this number increasing rapidly as the technology advances.
Display. Display consists of sequentially reading out the color of each
pixel at a rate matched to the monitor. Unlike the other stages in the 3D
graphics pipeline, which are purely digital, the signals to the monitor are
analog, and the frequencies are far higher.
The complexity of the different steps in the 3D graphics pipeline
requires billions of floating-point and integer operations in real time in order
to deliver a realistic and interactive experience. Image quality determines
whether 3D computer representation looks realistic, and 3D performance
determines whether a 3D system conveys a sense of fluid motion in real time. If
the performance is below a certain threshold, a 3D system can reduce the
productivity or the enjoyment of the user, even if the image quality is high.
The challenge with high-quality 3D is to deliver the processing power required
to perform these computations without creating bottlenecks in the 3D graphics
pipeline.
<PAGE>
Current Product Offerings
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
Desktop Key Architectural Performance Commercial
Product Segment End User Features Metrics Ship Date
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NVIDIA GeForce2 Enthusiast Home users seeking Hardware transform 31 million triangles August 2000
Ultra GPU the best graphics and lighting per second and 1
performance and engines, multi- billion pixels per
quality for digital texturing per-pixel second
multimedia and rendering pipelines
entertainment designed to deliver
applications the maximum
performance for
Direct3D and
OpenGL applications
NVIDIA GeForce2 Performance Home users seeking Same as the GeForce2 25 million triangles March 2000
GPU GTS great graphics Ultra per second and 800
performance and million pixels per
quality for digital second
multimedia and
entertainment
applications
NVIDIA GeForce2 Mid-Range Home and corporate In addition to the 20 million triangles June 2000
MX GPU users seeking an GeForce2 Ultra and per second and 350
optimal combination GeForce2 GTS million pixels per
of graphics features, the second
performance and GeForce2 MX has
quality for digital TwinView and Digital
multimedia, business Vibrance capabilities
and entertainment
applications
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NVIDIA Quadro2 Pro Performance Professionals seeking 100% hardware- 31 million triangles August 2000
Graphics Board Workstation high-precision accelerated per second and 1
real-time 3D OpenGL transform and billion pixels per
performance for lighting engines second
CAD/CAM, digital
content creation,
scientific analysis
and life sciences
applications
NVIDIA Quadro2 MXR Entry Level Professionals seeking In addition to the 25 million triangles August 2000
Graphics Board Workstation high-precision Quadro2 Pro per second and 400
real-time 3D features, the million pixels per
performance for Quadro2 MXR has second
CAD/CAM, digital TwinView and Digital
content creation, Vibrance capabilities
scientific analysis
and life sciences
applications
------------------------------------------------------------------------------------------------------------------------------------
NVIDIA TNT2 Mainstream Home and corporate 128-bit dual-pixel 350 million pixels April 1999
users seeking rendering pipeline per second
performance and for stunning
features for business multi-textured
productivity and effects
management
NVIDIA TNT2 M64 Value Home and corporate Low-cost 64-bit 286 million pixels July 1999
users seeking the memory interface and per second
optimal combination package delivers
of performance and TNT2-class
features at an performance and
affordable price excellent quality at
a lower cost
NVIDIA Vanta Low-Cost Home and corporate Low-cost 64-bit 250 million pixels July 1999
users seeking a memory interface and per second
low-cost solution package delivers
TNT2-class
performance
NVIDIA Vanta LT Low-Cost Home and corporate Low-cost 8MB frame 160 million pixels April 2000
users seeking a buffer with per second
low-cost solution TNT2-class
performance
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
NVIDIA GeForce2 Ultra GPU
We began commercial shipment of the NVIDIA GeForce2 Ultra in August
2000. The GeForce2 Ultra is designed for the PC enthusiast market and is a
member of our second-generation GeForce2 family. The GeForce2 Ultra replaced our
first-generation GPU, the GeForce 256, as our flagship processor.
The GeForce2 Ultra is the first GPU able to break the one billion
pixels per second barrier by providing two to three times the pixel processing
power of any competitors' graphics processor currently available. Fabricated on
a .18 micron process technology, the 25 million transistor GeForce2 Ultra
delivers 31 million sustained triangles per second. GeForce2 Ultra is the
world's first graphics product to ship with 230MHz (460MHz effective) Double
Data Rate (DDR) memory, producing 7.36GB per second bandwidth. The GeForce2
Ultra includes the NVIDIA Shading Rasterizer (NSR) technology that enables
per-pixel control of visual and material components, such as color, shadow,
light and reflectivity, used to create realistic scenes and objects.
NVIDIA GeForce2 GTS GPU
We began commercial shipment of the NVIDIA GeForce2 GTS in March 2000.
The NVIDIA GeForce2 GTS is designed for the PC performance market and is a
member of our second-generation GeForce2 family.
The GeForce2 GTS is the first per-pixel shading GPU and was the first
to incorporate NSR and a High-Definition Video Processor (HDVP), which provides
a cost-effective, high-quality HDTV playback solution when combined with a
digital television receiver. In addition, GeForce2 GTS enables new applications
like high-definition timeshifting and digital VCR capabilities. Each of the four
new rasterization pipelines processes two textures per pixel, in photorealistic
32-bit color, at full speed. Fabricated on a .18 micron process technology, the
GeForce2 GTS second-generation transform and lighting architecture delivers 25
million triangles per second.
NVIDIA GeForce2 MX GPU
We began commercial shipment of the NVIDIA GeForce2 MX in June 2000.
The NVIDIA GeForce2 MX is designed for the mid-range PC market and is a member
of our second-generation GeForce2 family.
The GeForce2 MX brings the power of a GPU to the mainstream computer
market. With its innovative TwinView architecture, GeForce2 MX is the only GPU
capable of driving two digital displays independently, while fully supporting
analog RGB (VGA) and TV-out. In addition, the GeForce2 MX incorporates Digital
Vibrance Control, which makes all images, including 2D, 3D and video, more
colorful and vibrant, even on digital flat panels. Utilizing a two-pipe form of
the GeForce2 GTS architecture, the GeForce2 MX is a powerful, versatile GPU
<PAGE>
at mainstream price points. Fabricated on a .18 micron process technology, the
GeForce2 MX delivers 20 million triangles per second.
NVIDIA Quadro2 Workstation Graphics Boards
We began commercial shipment of NVIDIA Quadro2 workstation graphics
boards in August 2000. The Quadro2 family is designed for the professional
workstation, digital content creation and CAD/CAM markets. The Quadro2 graphics
board family consists of the Quadro2 Pro and the Quadro2 MXR. The Quadro2
replaces the Quadro workstation GPU as our flagship workstation processor and is
incorporated into our first family of graphics boards for the workstation
market. We combine the Quadro2 workstation GPU with our UDA, giving graphics and
design professionals a solution for both the development and deployment of
leading-edge content.
We offer two distinct implementations of Quadro2 workstation boards.
Quadro2 Pro delivers exceptional 3D and 2D performance for the engineering
professional. Quadro2 MXR features our TwinView display architecture and a
complete set of workstation capabilities for the mainstream professional. Both
implementations deliver balanced high-end performance for OpenGL and Direct3D
professional applications. With a high-speed 256-bit memory interface and up to
128MB of DDR memory on-board, the Quadro2 increases the interactivity of the
very largest models and scenes. Fabricated on a .18 micron process technology,
Quadro2 also offers an integrated high-definition video processor capable of
supporting a wide range of Advanced Television Standards Committee formats,
including 720p at 60 frames per second.
Our Quadro2 line is designed for use with professional applications
such as 3D Studio MAX, Adobe Photoshop, AutoCAD, ESRI, LightWave 3D, Maya,
Nichimen Mirai and SOFTIMAGE/3D.
NVIDIA TNT2 Graphics Processor
We began commercial shipment of the NVIDIA TNT2 graphics processor in
April 1999. The TNT2 is designed for the mainstream PC market. The TNT2 features
our fourth-generation, 128-bit multi-texturing 3D architecture. The TNT2 extends
the performance and function of the original RIVA TNT graphics processor for PC
OEMs and graphics card manufacturers. Fabricated on a .22 micron process
technology, the TNT2 graphics processor delivers the highest performance of its
generation through the use of high frequency clock rates for the 3D processor
and memory. The TNT2 supports 32 megabytes of frame buffer memory.
NVIDIA TNT2 M64, Vanta and Vanta LT Graphics Processors
Our NVIDIA TNT2 M64, Vanta and Vanta LT graphics processors are
designed for the value and low-cost consumer and commercial desktop PC markets.
Based on our award-winning TNT2 architecture, these processors offer low-cost,
highly integrated choices for entry-level add-in card and motherboard solutions.
The TNT2 M64, Vanta and Vanta LT are manufactured on a .22 micron process
technology and offer good quality and performance at an affordable price. The
TNT2 M64, Vanta and Vanta LT support up to 32, 16 and 8 megabytes of frame
buffer memory, respectively.
<PAGE>
Other Products and Projects
Aladdin TNT2 Integrated Chipset
The Aladdin TNT2 is a joint development with ALi. It combines our
award- winning TNT2 core with ALi's M1631 North Bridge. This chipset is sold
with an ALi M1535D South Bridge and brings NVIDIA graphics performance and image
quality to the fast growing value PC segment while reducing overall system cost.
ALi is responsible for the sale of this product. The Aladdin TNT2 began
commercial shipment in March 2000.
Microsoft Xbox
On March 5, 2000, we entered into an agreement with Microsoft in which
we agreed to develop and sell graphics chips and to license certain technology
to Microsoft and its licensees for use in the Xbox video game console under
development by Microsoft. In April 2000, Microsoft paid us $200.0 million as an
advance against graphics chip purchases. Microsoft may terminate the agreement
at any time. If termination occurs prior to offset in full of the advance
payments, we would be required to return to Microsoft up to $100.0 million of
the prepayment and to convert the remainder into our preferred stock at a 30%
premium to the 30-day average trading price of our common stock preceding
Microsoft's termination of the agreement. In addition, in the event that an
individual or corporation makes an offer to purchase shares equal to or greater
than thirty percent (30%) of the outstanding shares of our common stock,
Microsoft has first and last rights of refusal to purchase the stock. The
graphics chip contemplated by the agreement is highly complex, and the
development and release of the Microsoft Xbox video game console and its
commercial success are dependent upon a number of factors, many of which we
cannot control. We cannot guarantee that we will be successful in developing the
graphics chip for use by Microsoft or that the product will be developed or
released, or if released, will be commercially successful.
Sales and Marketing
Our worldwide sales strategy is a key part of our objective to become
the leading supplier of performance 3D graphics processors for PCs. Our sales
team works closely with PC OEMs, add-in board manufacturers and industry
trendsetters to define product features, performance, price and timing of new
products. Members of our sales team have a high level of technical expertise and
product and industry knowledge to support a competitive and complex design win
process. We also employ a highly skilled team of application engineers to assist
PC OEMs and add-in board manufacturers in designing, testing and qualifying
system designs that incorporate our products. We believe that the depth and
quality of our design support are key to improving PC OEMs' and add-in board
manufacturers' time-to-market, maintaining a high level of customer satisfaction
among PC OEMs and add-in board manufacturers and fostering relationships that
encourage customers to use the next generation of our products.
In the 3D graphics market, the sales process involves influencing
leading PC OEMs' and add-in board manufacturers' graphics processor purchasing
decisions, achieving key design wins and supporting the product design into high
volume production. These design wins in turn influence the retail and system
integrator channel that is serviced by add-in board and
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motherboard manufacturers. Our distribution strategy is to work with a number of
leading CEMs, add-in board manufacturers and distributors that have
relationships with a broad range of major PC OEMs and/or strong brand name
recognition in the retail channel. Currently, we sell a significant majority of
our graphics processors directly to CEMs and add-in board manufacturers, which
then sell boards with our graphics processor to leading OEMs, to retail outlets
and to a large number of system integrators.
To encourage software title developers and publishers to develop games
optimized for platforms utilizing our products, we seek to establish and
maintain strong relationships in the software development community. Engineering
and marketing personnel interact with and visit key software developers to
promote and discuss our products, as well as to ascertain product requirements
and solve technical problems. Our developer program makes products available to
partners prior to volume availability to encourage the development of software
titles that are optimized for our products.
Backlog
Our sales are primarily made pursuant to standard purchase orders that
are cancelable without significant penalties. The quantity of our products
actually purchased by the customer as well as shipment schedules are subject to
revisions to reflect changes in the customer's requirements and manufacturing
availability. The semiconductor industry is characterized by short lead time
orders and quick delivery schedules. In light of industry practice and
experience, we do not believe that backlog as of any particular date is
indicative of future results.
Manufacturing
We have a "fabless" manufacturing strategy whereby we employ
world-class suppliers for all phases of the manufacturing process, including
fabrication, assembly and testing. This strategy leverages the expertise of
industry-leading, ISO-certified suppliers in such areas as fabrication,
assembly, quality control and assurance, reliability and testing. In addition,
we are able to avoid most of the significant costs and risks associated with
owning and operating manufacturing operations. These suppliers are also
responsible for procurement of most of the raw materials used in the production
of our products. As a result, we can focus resources on product design,
additional quality assurance, marketing and customer support.
Our graphics processors are fabricated by TSMC and WaferTech and
assembled and tested by Advanced Semiconductor Engineering, ChipPAC and
Siliconware. We receive semiconductor products from our subcontractors, perform
incoming quality assurance and then ship them to CEMs, motherboard and add-in
board manufacturer customers from our Santa Clara location in the U.S. and a
third-party warehouse in Singapore. Generally, these manufacturers assemble and
test the boards based on our design kit and test specifications, then ship the
products to the retail, system integrator or OEM markets as add-in board
solutions. Our hardware and software development teams work closely with
certification agencies, Microsoft Windows Hardware Quality Labs and our OEM
customers to ensure that both our boards and software drivers are certified for
inclusion in the OEMs' products.
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Research and Development
We believe that the continued introduction of new and enhanced products
designed to deliver leading 3D graphics performance and features is essential to
our future success. Our research and development strategy is to focus on
concurrently developing multiple generations of graphics processors using
independent design teams. Our research and development efforts are performed
within specialized groups consisting of software engineering, hardware
engineering, VLSI design engineering, process engineering, and architecture and
algorithms. These groups act as a pipeline designed to allow the efficient
simultaneous development of multiple generations of products.
A critical component of our product development effort is our
partnerships with leaders in the CAD industry. We have invested significant
resources to develop relationships with industry leaders, including Avant!
Corporation, Cadence Design Systems, Inc., IKOS Systems, Inc. and Synopsys,
Inc., often assisting these companies in the product 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 market and develop products
on a rapid basis that utilize leading-edge technology. We believe this approach
assists us in meeting the new design schedules of PC manufacturers.
We have substantially increased our engineering and technical resources
and have 289 full-time employees engaged in research and development as of July
30, 2000, compared to 214 employees as of January 30, 2000. Research and
development expenses totaled $7.1 million in 1997, $25.1 million in the year
ended January 31, 1999, $47.4 million in the year ended January 30, 2000 and
$38.0 million in the six months ended July 30, 2000.
Competition
The market for 3D graphics processors for PCs is intensely competitive
and 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 APIs, manufacturing capabilities, price of
graphics processors and total system costs of add-in boards or motherboards. We
expect competition to increase both from existing competitors and new market
entrants with products that may be less costly than our 3D graphics processors
or may provide better performance or additional features not provided by our
products.
Our primary source of competition is from companies that provide or
intend to provide 3D graphics solutions for the PC market. Our competitors
include the following:
. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI and Matrox;
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. suppliers of integrated core logic chipsets that incorporate 2D
and 3D graphics functionality as part of their existing solutions,
such as Intel, Silicon Integrated Systems and Via Technologies;
. companies that have traditionally focused on the professional
market and provide high end 3D solutions for PCs and workstations,
including 3Dlabs, SGI and Evans and Sutherland Computer; and
. companies that focus on the video game market, such as 3Dfx and
VideoLogic.
If and to the extent we offer products outside of the 3D graphics
processor market, we may face competition from some of our existing competitors
as well as from companies with which we currently do not compete. We cannot
accurately predict if we will compete successfully in any new markets we may
enter.
Patents and Proprietary Rights
We rely primarily on a combination of patent, trademarks, copyrights,
trade secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 33 issued patents and
have 46 U.S. patent applications pending. Our issued patents have expiration
dates from April 2015 to April 2018. Our issued patents and pending patent
applications relate to technology developed by us in connection with the
development of our 3D graphics processors. We have no foreign patents or patent
applications. We seek patents that have broad application in the semiconductor
industry and that we believe will provide a competitive advantage. However, our
pending patent applications or any future applications may not be approved, and
any issued patents may not provide us with competitive advantages or may be
challenged by third parties. We have licensed technology from third parties for
incorporation in our graphics processors and expect to continue to enter into
agreements like this for future products. These licenses may result in royalty
payments to third parties, the cross-license of technology by us or payment of
other consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer. We attempt to protect our trade
secrets and other proprietary information through confidentiality agreements
with manufacturers and other partners, proprietary information agreements with
employees and consultants and other security measures. We also rely on
trademarks and trade secret laws to protect our intellectual property.
Employees
As of July 30, 2000 we had 529 employees, 289 of whom were engaged in
research and development and 240 of whom were engaged in sales, marketing,
operations and administrative positions. None of our employees is covered by
collective bargaining agreements, and we believe our relationship with our
employees is good.
Facilities
We lease approximately 117,000 square feet for our headquarters in
Santa Clara, California, under leases expiring in 2002. We also lease a design
center consisting of
<PAGE>
approximately 2,900 square feet in one building in Durham, North Carolina,
pursuant to a lease that expires in March 2002. In addition, we lease sales and
administrative offices in Texas, Washington, Arizona, Singapore and the United
Kingdom to support our customers. In April 2000, we entered into leases for our
new headquarters complex in Santa Clara, California. Our new complex will
comprise four buildings, representing approximately 500,000 total square feet.
We expect the first phase of two buildings consisting of approximately 250,000
square feet to be completed in June 2001, the second phase of one building
consisting of approximately 125,000 square feet to be completed in July 2001 and
the last phase of one building to be completed in March 2002. The leases expire
in 2012 and include two seven-year renewals at our option. We believe that we
currently have sufficient facilities to conduct our operations for the next
twelve months, although we expect to lease additional facilities throughout the
world as our business requires.
Legal Proceedings
On September 21, 1998, 3Dfx filed a patent infringement lawsuit against
us in the United States District Court for the Northern District of California
alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added a second
patent to the suit and on May 24, 1999, 3Dfx added a third patent to the suit.
The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA TNT2 Ultra
products infringe the patents in suit and seeks unspecified compensatory and
trebled damages and attorneys' fees. Our current generation of products is not
identified as infringing any of the patents in suit. We have filed an answer and
counter-claims asserting that the patents in suit are invalid and not infringed.
These assertions are supported by our investigations to date and an opinion from
our patent counsel in this suit. We anticipate that the trial date will be set
by the District Court after it rules on claims construction issues.
On August 28, 2000, we filed a patent infringement lawsuit against 3Dfx
in the United States District Court for the Northern District of California. The
lawsuit alleges that 3Dfx's graphics chip and card products, which are used to
accelerate 3D graphics on personal computers, infringe five of our patents and
seeks an injunction restraining 3Dfx from manufacturing, selling or importing
infringing graphics chip and card products including its Voodoo3, Voodoo4 and
Voodoo5 and VSA-100 family of products, as well as monetary damages. The matter
is in its earliest stages, discovery has not yet begun and no trial date has
been set.
On February 22, 2000, Graphiques Matrox, Inc. and Systemes
Electroniques Matrox Ltd. (collectively "Matrox") filed suit against us in the
Superior Court, Judicial District of Montreal, Province of Quebec, Canada. The
suit alleges that we improperly solicited and recruited Matrox employees and
encouraged Matrox employees to breach their Matrox confidentiality and/or non-
competition agreements. The suit by Matrox seeks, among other things, certain
injunctive relief. We believe that the claims asserted by Matrox are without
merit and we intend to vigorously defend this suit.
On May 19, 2000, we filed suit against Matrox in Santa Clara County
Superior Court alleging that Matrox's efforts to prevent its current and former
employees from pursuing employment opportunities with us constitute interference
with prospective economic advantage and contract and unfair competition. Our
suit seeks, among other things, unspecified monetary
<PAGE>
damages, a declaration that Matrox's confidentiality and/or non-competition
agreements are unenforceable under California law and a declaration that its use
of those agreements and other tactics constitutes unfair competition. On May 26,
2000, the case was transferred to the San Jose Division of the United States
District Court for the Northern District of California. On June 14, 2000, Matrox
filed an answer denying our claims and a counterclaim alleging trade secret
misappropriation, intentional interference with contractual relations and unfair
competition. Matrox's California suit seeks unspecified monetary damages and
injunctive relief. We filed an answer to this counterclaim on July 7, 2000,
denying all of Matrox's claims. As with the Montreal action, we believe that the
claims asserted by Matrox are without merit and we intend to vigorously defend
this suit.
In addition, we may be subject to litigation in the future. See "Risk
Factors--We are subject to a patent infringement lawsuit and could be subject to
future lawsuits that could divert our resources and result in the payment of
substantial damages." From time to time, we are also subject to claims in the
ordinary course of business, none of which in our view would have a material
adverse impact on our business or financial position if resolved unfavorably.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NVIDIA CORPORATION
Dated: September 28, 2000 BY: /s/ Christine B. Hoberg
-----------------------------
Christine B. Hoberg
Chief Financial Officer
(Principal Financial and
Accounting Officer)
