NVIDIA 2013 Annual Report Download - page 154

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by-product basis. We then place manufacturing orders for our products that are based on forecasted demand. The quantity
of products actually purchased by our customers as well as shipment schedules are subject to revisions that reflect changes
in both the customers' requirements and in manufacturing availability. We generally maintain substantial inventories of our
products because the semiconductor industry is characterized by short lead time orders and quick delivery schedules. A
substantial amount of our inventories are maintained as semi-finished products that can be leveraged across a wide range
of our processors to balance our customer demands.
Our existing cash and marketable securities balances increased by 25.3% to $4.67 billion at the end of fiscal year 2014
compared with the end of fiscal year 2013, primarily due to our issuance of $1.5 billion in Convertible Senior Notes in
December 2013. We believe that these balances and our anticipated cash flows from operations will be sufficient to meet
our operating, acquisition, capital purchases and our intended capital return to shareholders needs for at least the next twelve
months.
Research and Development
We believe that the continued introduction of new and enhanced products designed to deliver leading visual computing
technology including 3D graphics, HD video, audio, ultra-low power consumption and SOC architectures is essential to
our future success. Our research and development strategy is to focus on concurrently developing multiple generations of
GPUs and Tegra Processors, including GPUs for high-performance computing, and Tegra SOCs for SHIELD and other
mobile products using independent design teams. Our research and development efforts are performed within specialized
groups consisting of software engineering, hardware engineering, very large scale integration design engineering, process
engineering, 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 computer-aided design
industry. We invest significant resources in the development of relationships with industry leaders, 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 that utilize leading-edge technology on a rapid basis. We believe this approach assists
us in meeting the new design schedules of PC OEMs and other manufacturers. We believe in leveraging our significant
R&D depth and scale to create differentiated products.
As of January 26, 2014, we had 6,384 full-time employees engaged in research and development. During fiscal years
2014, 2013 and 2012, we incurred research and development expense of $1,335.8 million, $1,147.3 million and $1,002.6
million, respectively.
Competition
The market for our products 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, software support, conformity to
industry standard Application Programming Interfaces, manufacturing capabilities, processor pricing and total system costs.
We believe that our ability to remain competitive will depend on how well we are able to anticipate the features and functions
that customers will demand and whether we are able to deliver consistent volumes of our products at acceptable levels of
quality and at competitive prices. We expect competition to increase from both existing competitors and new market entrants
with products that may be less costly than ours, or may provide better performance or additional features not provided by
our products. In addition, it is possible that new competitors or alliances among competitors could emerge and acquire
significant market share.
A significant source of competition comes from companies that provide or intend to provide GPUs and mobile SOC
products. Some of our competitors may have greater marketing, financial, distribution and manufacturing resources than
we do and may be more able to adapt to customer or technological changes.