More things to note from nvid:
Because most operating expenses are relatively fixed in the short term, the Company may be unable to adjust spending sufficiently in a timely manner to compensate for any unexpected sales shortfall, which could materially adversely affect quarterly results of operations. The Company will 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 the Company to invest significantly greater resources than anticipated in research and development or sales and marketing efforts, the Company's business, financial condition and results of operations could be materially adversely affected.
They should have included legal expenses in there as well :D Elsewhere they talk about how their business slows down in second quarter and picks up in the second half of the year. So if they lose the sales now, bye-bye till next year, and that means game over.
Regarding Intel's entry into the market they say:
NVIDIA believes that the principal factors of competition in this market are performance, conformity to industry-standard APIs, software support, access to customers and distribution channels, manufacturing capabilities, price of graphics processors and total system costs of add-in boards. The Company expects competition to increase both from existing competitors and new market entrants
Which actually bodes well for 3Dfx. Conspicuously, they name everyone as their competition, from s3 and ATI to SGI and Intel, but not 3Dfx. As for the law suits from SGI and S3, they say:
The Company expects that the litigation with SGI and S3 will likely result in significant expense to the Company and divert the efforts of the Company's technical and management personnel, whether or not such litigation results in a favorable determination for the Company.
Here is what I think is happening :D
Substantially all of the Company's sales are made on the basis of purchase orders rather than long-term agreements. As a result, the Company may commit resources to the production of products without having received advance purchase commitments from customers. Any inability to sell products to which the Company has devoted significant resources could have a material adverse effect on the business, financial condition or results of operations of the Company. In addition, cancellation or deferral of product orders could result in the Company holding excess inventory, which could have a material adverse effect on the Company's profit margins and restrict its ability to fund its operations. The Company recognizes revenue upon shipment of products to the customer.
Finally they have this to say on their profitability:
OPERATING EXPENSES
Research and Development. Research and development expenses consist primarily of salaries and benefits, cost of development tools and software, and consultant costs, net of contract funding from ST. Research and development expenses before adjustments for contract funding increased from $616,000 in the first quarter of 1997 to $3.8 million in the first quarter of 1998, primarily due to additional personnel and related costs, such as depreciation changes incurred on capital expenditures and software license and maintenance fees. The Company anticipates that it will continue to devote substantial resources to research and development and that these expenses will exceed $3.8 million, net of contract funding from ST, in each of the remaining three quarters of 1998.
Sales, General and Administrative. Sales, general and administrative expenses consist primarily of salaries, commissions and bonuses earned by sales, marketing and administrative personnel, promotional and advertising expenses, and travel and entertainment, net of contract funding received from ST. Sales, general and administrative expenses increased from $385,000 in the first quarter of 1997 to $3.3 million in the first quarter of 1998, primarily due to increased promotional expenses, additional personnel and commissions and bonuses on sales of the RIVA128 graphics processor. The Company expects that sales and marketing expenses will continue to increase in absolute dollars as the Company expands its sales and marketing efforts and increases promotional activities, and that general and administrative expenses will increase in connection with expenses related to the SGI and S3 patent lawsuits until such lawsuits are resolved, expenses associated with being a public company and the Company's expected move to a larger facility in the third quarter of 1998.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest expense primarily consists of interest incurred as a result of capital lease obligations. Interest expense increased from $54,000 in the first quarter of 1997 to $83,000 in the first quarter of 1998, primarily as a result of additional equipment leased in support of the Company's development activities. Interest income primarily consists of interest earned on the Company's cash and cash equivalents. Interest income was $22,000 and $44,000 in the first quarter of 1997 and 1998, respectively. Interest income was higher in the first quarter of 1998 due to higher average cash balances as a result of the Company's receipt of net proceeds from the sale of preferred stock in August 1997 and net cash provided by operating activities in the two quarters ended March 29, 1998. |
