15 Pages And Powerpoint. Apple Company

15 Pages And Powerpoint. Apple Company

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Strategic Audit:

Nvidia Corporation

 

STUDENT NAMES HERE

NAME OF COURSE AND PROFESSOR

DATE

 

 

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Table of Contents I. Current Situation…………………………………………………………………………………………………………………………… 3

Current Performance …………………………………………………………………………………………………………………….. 3

Strategic Posture ………………………………………………………………………………………………………………………….. 5

II. Strategic Managers ………………………………………………………………………………………………………………………. 8

Board of Directors …………………………………………………………………………………………………………………………. 8

Top Management ……………………………………………………………………………………………………………………….. 10

III. External Environment ………………………………………………………………………………………………………………… 10

Natural Environment …………………………………………………………………………………………………………………… 10

Societal Environment …………………………………………………………………………………………………………………… 11

Task Environment ……………………………………………………………………………………………………………………….. 15

IV. Internal Environment ………………………………………………………………………………………………………………… 17

Corporate Structure …………………………………………………………………………………………………………………….. 17

Corporate Culture ……………………………………………………………………………………………………………………….. 19

Corporate Resources …………………………………………………………………………………………………………………… 20

V. Analysis of Strategic Factors ……………………………………………………………………………………………………….. 25

Situational Analysis ……………………………………………………………………………………………………………………… 25

VI. Strategic Alternatives and Recommended Strategy ……………………………………………………………………… 29

Strategic Alternatives ………………………………………………………………………………………………………………….. 29

Recommended Strategy ………………………………………………………………………………………………………………. 33

VII. Implementation ……………………………………………………………………………………………………………………….. 34

VIII. Evaluation and Control …………………………………………………………………………………………………………….. 34

 

 

 

 

 

 

 

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Strategic Audit: Nvidia Corporation

Current Situation

Current Performance

Nvidia’s revenue for fiscal year 2017 grew by 38% to $6.91 billion, compared to $5.01 billion in

fiscal year (FY) 2016; this enormous growth in our revenues was equally matched by large

increases in net income and return on equity over the same period. From FY 2016 to FY 2017, net

income increased from 14.9% to 28.0% with an increase in return on equity from 13.7% to 28.9%

over the same period. Our common stock value has appreciated sharply by 1812% from January,

2013 to January, 2018, creating value for long-time Nvidia shareholders (January, 2013: $12.66;

January, 2018: $242.00). Truly, FY 2017 was a landmark year for our firm, with 2018 continuing

the trend. The long-term stability that Nvidia continues to experience has brought great satisfaction

to our shareholders, our customers, and our employees (Nvidia Annual Report, 2017, p. 50).

(Sources: Nvidia Annual Report, 2017, p. 50; Nvidia Annual Report, 2015, p.51)

 

 

 

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Nvidia has created robust value for shareholders, with EPS increasing by 238%, from 2013 to 2017.

 

(Sources: Nvidia Annual Report, 2017, p. 50; Nvidia Annual Report, 2015, p.51)

 

 

The most pleasing news for shareholders is the phenomenal increase in stock value of 1812%, from

2013-2018.

(Sources: Nvidia Annual Report, 2017, p. 50; Nvidia Annual Report, 2015, p.51)

 

 

 

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The pronounced increase in revenue was attributed to strong growth in most aspects of our

company’s product offerings. Among our firm’s strongest growth areas, year-over-year, for 20

years, has been the production and sales of our graphics processing units (GPU); this year has seen

similar robust growth in our GPUs sales, with revenue in our GPU product line growing by 39%

from $4.2 billion in FY 2016 to $5.8 billion through FY 2018. The GPU growth was stimulated by

an abundance of new gaming titles appearing on the market; this in turn has led to gaming

enthusiasts upgrading their computer hardware with Nvidia’s GPU’s to heighten their gaming

experience. Additionally, heavy demand for Nvidia GPU’s has occurred in response to the rapidly

developing interest in the cryptocurrency mining industry (Nvidia Annual Report, 2017, p. 89).

 

Strong sales of our Tegra CPU have also contributed to the robust growth in annual revenue, with

sales of Tegra increasing by 47% from FY 2016 to FY 2017, and totaling $824 million for FY 2017

(Nvidia Annual Report, 2017, p. 89).

 

Strategic Posture

Mission – Our corporate mission at Nvidia is based on our five core values. The first of these values

is the willingness to take risks. The second is to strive for excellence. The next core values are

intellectual honesty followed by directness. The final core value is making a contribution. Nvidia

upholds all of these core values, while striving to maintain our position as the world’s foremost

supplier of quality graphics processing units and other innovative products (Nvidia Sustainability

Report, 2017, p. 11).

 

Objectives – Nvidia’s main objective is to advance the GPU computing platform while seeking to

advance GPUs as the leading technological chip architecture. The massive parallel processing

 

 

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power of GPU chips can be used to solve very complex problems. Nvidia will integrate new

processing technology with legacy methods whenever possible to aid in the compatibility of older

hardware with newer hardware. The target markets are gaming, visualization, datacenters, and the

automotive industry (U.S. SEC, Form 10-K, Q4- 2018, p. 7).

 

Our second objective is of nearly equal importance as our primary objective: to extend our

technology and platform leadership in the research and applications of artificial intelligence (AI)

(U.S. SEC, Form 10-K, Q4-2018, p. 8). Nvidia seeks to capture the competitive advantage in the AI

sector by offering a complete end-to-end GPU computing platform; these offerings include Nvidia’s

GPU’s, the CUDA programming language, algorithms, and system software. Nvidia will continue

to specialize its GPU chips for AI usage as it will help maintain its leadership position in this sector

(U.S. SEC, Form 10-K, Q4-2018, p. 7).

 

Our third object is “extending our technology and platform leadership in visual computing” (U.S.

SEC, Form 10-K, Q4-2018, p. 8). Nvidia seeks to continue to increase our role in visual computing.

Nvidia views visual computing as a very important evolutionary step in the computing world. We

are always expanding our research capabilities, while furthering development within visual

computing, in an effort to bring life-like immersive computing experiences to our constituent

markets (U.S. SEC, Form 10-K, Q4-2018, p. 8).

 

The final objective is “advancing the leading autonomous vehicle platform” (U.S. SEC, Form 10-K,

Q4-2018, p. 8). Nvidia sees advances in autonomous vehicles (AV) as the next revolution in

transportation technology. As the global leader in AI research and applications, Nvidia seeks to

apply this growing technology to the AV segment in order to seek a first-to-market competitive

 

 

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advantage. Nvidia has created the DRIVE brand to integrate the best of our AI hardware and

software solutions for the automotive market. With an all-inclusive objectivity toward the

development of AV technologies, Nvidia seeks to poise our company as the market leader in AV

applications (U.S. SEC, Form 10-K, Q4-2018, p. 7).

 

Strategies – Nvidia believes that the continued success of our company is incumbent upon our long-

term commitment to the exploration and innovation of new computer-based technologies. To

accomplish this goal, Nvidia invests heavily in research and development (R&D) and our firm is

focused on creating a unified software and hardware architecture. Currently, research and

development is involved with the creation and improvement of support software, CUDA platform

development, GPU engineering, Tegra process, very large-scale design engineering, and algorithms.

 

The research and development department employs 8,191 full-time employees. Current R&D

expense for fiscal 2018 is $1.80 billion (U.S. SEC, Form 10-K, Q4-2018, p. 9). To help reach

Nvidia’s goal, our company is committed to maintaining a strong supply chain to meet consumer

demand. As Nvidia does not manufacture our own silicon wafers used in the manufacturing of GPU

units or Tegra processor chips, our firm is very dependent on industry-leading chip manufactures.

The main two suppliers of these critical inputs are Taiwan Semiconductor Manufacturing Company

Limited and Samsung Electronics Co. Ltd., with both companies supplying Nvidia presently with

semiconductor wafers. At the present time, Nvidia does not have long term contracts with either of

these manufacturers and must secure long term contracts to ensure continuity within the supply

chain. Also, Nvidia is seeking alternative procurement strategies in order to limit dependence on

outside suppliers of critical semiconductor wafers (U.S. SEC, Form 10-K, Q4-2018, p. 13).

 

 

 

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Nvidia’s successful implementation of our strategies also involves attracting, retaining and

motivating our key employees, managers, and executives. Highly skilled workers are integrally

important at Nvidia in order to successfully implement our long-term strategies and maintain our

competitive advantage. Our goal is to maintain an effective, knowledge-based workforce by

utilizing successful recruiting efforts, as well as offering generous compensation packages. Nvidia

must additionally safe guard against changes in immigration and work permit laws which could

impair its ability to attract and retain highly qualified employees (U.S. SEC, Form 10-K, Q4-2018,

p. 16).

 

Policies – Nvidia will continue its commitment to providing substantial resources toward continued

R&D, particularly in maintaining or gaining market share within the GPU and CPU markets.

Substantial R&D funding will be allocated toward maintaining rapid advances in development of AI

and AV technologies with the goal of capturing a first-to-market position within these potential

markets. Employment development will always be a primary focal point for our organization.

 

 

Strategic Managers

Board of Directors

Nvidia has eleven board directors and maintains three board committees: Audit, Compensation, and

Nominating and Corporate Governance. Ten of the eleven directors are independent with the

exception of CEO and president, Jensen Huang (Nvidia Sustainability Report, 2017, p. 9). Our

board of directors is committed to strong corporate governance; moreover, the purpose of our board

is to review the management performance on behalf of our shareholders and to ensure that the long-

term interests of shareholders are being served.

 

 

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The three board committees are overseen by the board of directors. The audit committee consists of

at least three directors, none of which can be an employee. The purpose of the audit committee is to

act on behalf of the board to oversee Nvidia’s corporate accounting practices, financial statements,

and performance and practices (Nvidia Annual report, 2017, p. 22).

 

The second committee is the compensation committee which ensures that proper compensation

procedures are followed; this committee is comprised of at least two members of the board. The

compensation committee does allow for employees to be on the committee, thereby facilitating

objectivity and freedom from any relationship that would interfere with the exercise of independent

judgement. The purpose of the committee is to act behalf of the board to review and approve

compensation for the company’s top management and the independent directors (Nvidia Annual

report, 2017, p. 22).

 

The third committee is the nominating and corporate governance committee. The committee

consists of at least two members of the board; committee members must meet the same

requirements that are in place for the other two committees. The purpose of this committee is to

identify, review, evaluate, and recommend candidates to serve as directors on behalf of the

company (Nvidia Annual report, 2017, p. 22). Nvidia boasts a very high level of board member

engagement. In fiscal year 2017, all directors of the board attended at least 75 percent of board and

committee meetings (Nvidia Sustainability Report, 2017, p. 9). Moreover, to foster board flexibility,

Nvidia’s bylaws and corporate governance policies allow the roles of chairperson of the board and

CEO to be filled by the same or different individuals (Nvidia Annual report, 2017, p. 22).

 

 

 

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Top Management

 

Nvidia’s Executive Team consists of 18 members (Bloomberg, April 18, 2018). The CEO of Nvidia

is Jensen Huang, a Taiwan-born American entrepreneur and businessman. Mr. Huang co-founded

Nvidia and has served as its president, chief executive officer, and a member of the board of

directors since 1993. Mr. Huang has been the principle protagonist in the company’s rise to

international success. Because of Mr. Huang’s profound insight and breadth of vision, Nvidia has

been able to dominate the GPU and AI Markets. In 2017, Jensen Huang was recognized as the 3rd

best performing CEO in the world by Harvard Business Review (Nvidia Sustainability Report,

2017, p. 7). Through his strategic management, Nvidia made great strides in sales, revenue,

earnings, and stocks in 2017. Moreover, CEO Jensen Huang’s fiscal year 2017 total compensation

increased to $12.2 million from $10 million in fiscal year 2016 (Reuters, April 7, 2017).

 

Nvidia’s significant growth has been made possible by its solid management structure. The

compensation committee conducts an annual evaluation of the performance of all executive officers,

including the CEO. The purpose of the evaluation is to ensure that the executive officers improve

their performance and reduce risk (Nvidia Sustainability Report, 2017, p. 9).

 

 

External Environment

Natural Environment

According to Nvidia’s Sustainability Report 2017, “we use a comprehensive Environmental

Management System (EMS) to identify and control environmental impacts and continuously

improve our performance. A dedicated Environmental, Health, and Safety team, along with

 

 

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employees in all offices around the globe, execute the system’s policies and practices, which are

made tangible through solid goals and metrics.” This proclamation underscores Nvidia’s

commitment to the external environment by virtue of the establishment of this system of checks and

balances.

Nvidia has clearly stated objectives concerning the company’s stance as a good steward toward the

natural environment. In accordance with Nvidia’s commitment to protecting the natural

environment, our firm has taken a stance to increase energy efficiency within our offices and data

centers; additionally, we encourage a reduction in water usage within drought-stricken regions.

Nvidia promotes, and helps to provide, transportation alternatives for our employees at the Silicon

Valley headquarters while also decreasing greenhouse gas emissions through landfill reductions.

According to Nvidia’s Sustainability Report, 2017, Nvidia has maintained a commitment to a 15%

reduction in greenhouse gas by 2020, which is a goal that was originally set in 2014. Another goal,

set in 2013, is to maintain a landfill diversion rate by 80% or higher each year. Also, the company

has been following a plan since 2010 to reduce annual electricity usage per employee from 20.4

kWh to 17.4 kWh (Nvidia’s Sustainability Report, 2017, p. 12).

 

 

Societal Environment

Economic – According to the Nvidia’s Sustainability Report 2017, Nvidia’s revenue for the fiscal

year 2017 was $6.9 billion, up from $5 billion for the fiscal year 2016. The reported total operating

expenses for fiscal 2017 was $2.1 billion, an increase from $2 billion dollars in fiscal 2016. Most

importantly, the company reported a massive increase in net income of over $1 billion from FY

2016 to FY 2017; the reported net income of $1.6 billion in 2017 far exceeded the reported net

income of $614 million for fiscal year 2016.

 

 

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Looking at Nvidia’s revenues in the automotive industry, “Nvidia’s automotive revenue rose 52% in

fiscal 2017. Also, Citigroup has estimated that Nvidia’s auto revenue will hit $1 billion in 2018,

owing largely to a partnership with Germany’s Audi” (Krause, 2017, p. 10). Being a giant in the

computer chip industry, Nvidia has used its vast resources to venture into the automotive industry

with the use of artificial intelligence (AI) and driverless technologies.

Overall, Nvidia has experienced strong economic prosperity from FY 2016 to FY 2017, with net

income increasing from 14.9% to 28.0% during that time, and an increase in return on equity from

13.7% to 28.9% over the same period.

 

Technological – Nvidia has established itself as a technology leader in the computer component

industry since its inception in 1993. Among the many landmark innovations and technological

advances that Nvidia has brought to market in recent years are: Nvidia GeForce GTX, Nvidia

Shield Android TV, Nvidia GeForce Now, Nvidia Drive, Nvidia Tesla, Nvidia Quadro, Nvidia

GRID, and Nvidia Jetson.

 

Nvidia has been a forerunner in AI and driverless car (AV) technologies, with one consumer

reporter stating,“Nvidia’s powerful processors are well-suited for the AI artificial intelligence

software that enables ADAS systems. Self-driving cars map and monitor their surroundings to

detect hazards” (Krause, 2017, p. 10). Nvidia and Bosch are in fact collaborating to develop cars

that can sense when drivers are falling asleep or texting on phones. Nvidia is known for expanding

into different technologies that are derived from our products and innovations. With the usage of

artificial intelligence technology, there are many endless possibilities and opportunities.

 

 

 

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Political-Legal – As with many technology-based companies in the Silicon Valley, Nvidia has also

faced some political issues due to policy changes from the Trump administration. One restriction

places limits on hiring foreign, skilled technology workers. Also, with the constant threat of new

entrants by way of expanding global competition, Nvidia must be diligent in its efforts to scan the

external environment for changes that can affect the company. Presently, Broadcom is proposing to

buy its rival Qualcomm for $70 per share in a cash and stock deal valued at $130 billion. If

completed, it would be the biggest ever takeover in the technology sector and would create a

company with a combined market capitalization of more than $200 billion.

 

A potential partnership between long-time rivals, Intel and AMD, is possibly in the making; the

firms have announced a plan to jointly produce motherboards which will combine an Intel processor

with an AMD graphics unit in order to counter the competition from Nvidia (Ruehl, Munshi, &

Nuttall, 2017). Nvidia has held the dominant position in the GPU market since bringing the original

GeForce 256 GPU to market in 1999. Even with formidable competition in GPU manufacturing by

other technology giants, such as AMD’s Radeon GPU product line, Nvidia has been able to

maintain the majority market share in the industry.

 

Sociocultural – Nvidia has been on the forefront of new technologies that have brought benefits to

societies throughout the world; the introduction by Nvidia of the GPU in 1999, for example, has

sped-up graphics rendering times and has provided enhanced graphics capabilities, creating value

and convenience for millions of users worldwide. As expressed by Nvidia, “Self-driving cars will

dramatically change the future of transportation, making driving safer, reducing carbon emissions,

and transforming how cities are designed. At the heart of autonomous driving, the technology used

 

 

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is artificial intelligence, which enables vehicles to learn to anticipate and respond to, the huge range

of fast-changing conditions on the road” (Nvidia Sustainability Report, 2107, p. 44).

 

Nvidia technology is being used in sustainable projects to support life on land and underwater, and

to benefit inner-city life through various sustainability projects. As stated in the Nvidia

Sustainability Report, 2017, “Our partners’ efforts align with the 17 sustainable development goals

developed by the United Nations to address the world’s most pressing problems” (p.44). “Nvidia

technology has opened up new horizons in entertainment, health care, transportation, space

exploration, and many other social and scientific arenas” (Nvidia Citizenship Report, 2014, p. 5).

 

With the powerful capabilities of AI, computer graphics, and the invention of external GPUs,

Nvidia can seek cures and treat disease, predict and model tsunamis, and deal with many other

sociological concerns. Additionally, Nvidia provides funding to other researchers to explore many

environmental issues to further support the sustainability of Earth’s resources (Citizenship Report,

2014, p.5).

 

Support for charities is wide-ranging at Nvidia. In 2016 alone, Nvidia provided funding of $3

million and provided 17,000 volunteer hours to support. Compute the Cure is a charitable initiative

to provide cancer researchers with funding and computing resources in order for these researchers

to have access to the latest advances in technology; Nvidia’s ultimate goal is to play in integral role

in finding a cure for cancer by providing these resources. One other noteworthy cause is Nvidia’s

educational initiative that provides funding for K-12 grade students for training and supplies.

 

 

 

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Through these charitable causes around the world, Nvidia has been able to support community

development through volunteering, corporate giving, educational initiatives, health-focused

programs, and innovations (Nvidia Sustainability Report, 2017, p. 45).

 

Task Environment

Nvidia is the leader in the graphics processing unit market; growth of the GPU market has been

vigorous as well. The GPU industry has experienced rapid advances in technology, short product

lives, fluctuating demand and supply, and price competition. Nvidia is a leading supplier of graphic

processing units for vehicles, virtual reality, and high performance computing. These blue oceans

have significant demand in the marketplace and are expected to help grow Nvidia’s business.

 

Our company faces significant competition from competitors, such as Intel, Qualcomm, AMD, and

Apple, which design and/or manufacture graphics processing units or mobile chips as well.

To stay competitive, Nvidia must continue to invest heavily in research and development. Our

reliance on third party foundries to supply critical inputs for our products is a weakness for our firm.

Also, relying on outside firms to assemble and package our products is an additional weakness.

 

Competitive Rivalry is High (T) – Competition from Intel and AMD threaten Nvidia’s share of the

GPU market. Rivalry also exists with Nvidia’s other products: smart televisions, cell phones,

tablets; among the many competitors supplying these products are Apple, Qualcomm, and Samsung.

A comparison of Nvidia’s select rivals:

1. Intel – Reported revenue of $17.1 billion in Q4FY2017 (Business Insider, 2018).

2. Qualcomm – Reported revenue of $6 billion in Q1FY2018 (Business Insider, 2018).

3. Nvidia – Reported revenue of $2.6 billion for Q4FY2018.

 

 

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Since the revenue stream of Nvidia’s largest competitors is up to 7 times larger than Nvidia’s

revenues, these competitors have significantly greater access to funding for research and

development. Also, in comparison with its competitors, Nvidia lacks economies of scale. According

to MarketLine’s SWOT analysis, the biggest challenge ahead for Nvidia is the partnering of Intel

and AMD to sell solutions jointly (MarketLine, 2017, p. 8). This joint approach would entail

integrating a CPU and GPU on the same chip. Nvidia may not be able to compete with this

approach and this may lead to intense pricing competition, decreased profitability, and a reduction

in market share.

 

Entry Barriers are High (S) – In order to compete effectively with Nvidia, rivals require

significant capital resource investment into research and development. For example, Nvidia

recorded the following expenditures for R&D in corresponding years (MarketLine, 2017, p. 5):

FY2014, $11.5 billion; FY2015, $12.1 billion; FY2016, $12.7 billion.

 

During its 2017 fiscal year, Nvidia earmarked nearly $1.5 billion for research and development

expenditures (Nvidia Annual Report, 2017, p. 50). Based on this information, we can conclude that

significant financial and human capital resources are required to invest into research and

development in order to supply competitive products to the marketplace. These examples of costs

demonstrate a high barrier for startups. Additionally, brand identity and customer loyalty with

Nvidia and other competitors create entry barriers for new companies.

 

Buyer’s Power is High (T) – Nvidia operates in a competitive environment with rapid changes in

technology, product lines, and retail pricing. Rivals are increasingly competing for market share.

Rapid advancements in technology have resulted in declining selling prices. The aforementioned

 

 

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competitive environment has provided buyers the power to demand low prices for quality products.

(T)

 

Supplier’s Power is High (W) – Since Nvidia does not produce its own products, suppliers can

command more bargaining power and cause a deterioration of Nvidia’s profits. Due to fluctuations

in the supply and demand for raw materials, supply issues can raise prices and extract profits from

Nvidia.

 

Threat of Substitutes is High (W) – Larger competitors such as Intel can influence computer

manufacturers to utilize their products as substitute inputs, thereby competing directly with Nvidia’s

components. Since Nvidia has relatively smaller economies of scale, it must ensure that the supply

of its products matches closely with consumer demand to minimize excess production and excess

inventories. If demand surpasses supply, it would be difficult for Nvidia to escalate production

quickly as its suppliers may not have the capabilities or resources to meet the hastened production

schedule; should this occur, consumers can easily find substitute GPUs from rivals, such as AMD’s

Radeon line of GPU’s, and switch to the competition.

 

Internal Environment

Corporate Structure

Divisional structure – Nvidia sells many computer component products which comprise a global

distribution system. Organized as a divisional structure, the company is divided by a product line

operating segment. There are three segments which will be explained separately. Nvidia’s flagship

product, the graphics processing unit (GPU), is a product line that satisfies entertainment and

 

 

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consumer needs. The product line is predominated by its consumer-level product, the GeForce GPU

(Nvidia Sustainability Report, 2017, p. 8).

 

Two other smaller, yet lucrative divisions of Nvidia supply products designed for professionals

within the computing and graphic design markets. One of these divisions supplies professional

graphics and design products. The other division supplies the Tesla model, which is high-powered

computing hardware, and its line of Quadro graphics products. Together these divisions comprise

Nvidia’s professional solutions business (PSB).

 

The third Nvidia division supplies Ion motherboards (MCPs), also known as micro graphics

processing units, or mGPU’s; these are produced alongside computer processing units (CPUs) to

make up Tegra’s “system on a chip” mobile computing technologies (Nvidia Sustainability Report,

2017, p. 8).

 

Strategies and policies – The Board of Directors oversees the strategies, policies, and decisions

made by the chief executives to ensure that the best interests of Nvidia’s shareholders are being

considered and upheld. There are three committees within the board in charge of varying tasks: the

Audit Committee, the Compensation Committee, and the Nominating and Corporate Governance

Committee. The chief executives are CEO Jensen Huang, the CFO, and three executive vice

presidents, or EVPs. Jensen Huang has served as CEO since founding the company in 1993 (Nvidia

Sustainability Report, 2017, p. 9).

 

Decentralized power – Power is decentralized, since each part of Nvidia’s three product line

operating segments has unique challenges that must be managed. Each individual division is

 

 

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permitted to organize its structure with a semblance of autonomy, becoming specialized for its own

unique production needs in the interest of individualized efficiency and effectiveness (Nvidia

Sustainability Report, 2017, p. 8).

Corporate Culture

A strong, clearly defined corporate culture has allowed Nvidia to remain on the cutting edge of

innovation since its start in 1993. Its reputation for encouraging risk-taking, open discussion of

ideas, and making an individual contribution lie at the crux of its success and are stated in the

company’s five core values. The spirit of cutting edge innovation has resulted in heavy investment

in research and development to foster the growth of competitive and promising technologies, such

as AI and autonomous vehicles (AV) (Nvidia Sustainability Report, 2017, p. 11).

 

Nvidia’s knowledge-based community consists of the industry’s brightest thinkers which culminate

in an environment of proactive, sustained innovation: the signature feature of the company. Thus,

recruitment of the best talent is a key success component for Nvidia. To promote teamwork, Nvidia

stresses a strong sense of professional community, offering perks such as catered lunches to

emphasize company allegiance and inter-company harmony. Long hours and a lack of work-life

balance, however, can cause employee burnout and lead to high turn-over (Nvidia Sustainability

Report, 2017, p. 18).

 

A cited goal by the Board of Directors for 2018 is to strengthen hiring and retention of qualified

talent. With offices on four continents, there is a decentralization of power; delegation based on the

individual needs of each unique setting has nurtured sizable market penetration within the

technology market. However, maintaining uniformity within a company that allows for

 

 

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decentralized management and decision-making is fraught with numerous challenges (Nvidia

Sustainability Report, 2017, p. 18).

 

Corporate Resources

Marketing – When it comes to marketing, at Nvidia we focus primarily on markets that have a high

demand for our products. There are four large markets where we direct our marketing efforts;

gaming, professional visualization, data center, and automotive. We have experienced strong

momentum in these markets and have become the industry leader and the largest contributor in most

of these markets. Nvidia works with suppliers for all phases of our manufacturing process. We also

contract with manufacturers to build, test, and distribute our products.

 

Nvidia has consistently grown year over year, increasing market share. Our core gaming segment

has had solid growth and will continue our momentum with solid new game titles lined-up. Nvidia

also continues to push into the automotive industry and we have become an integral part of the

industry; our technological innovations in AI and AV will add corporate value as advanced

computing features are introduced in new car models, such as self-driving technology.

 

We also promote our environmental efforts with every opportunity that presents itself. Each product

or process that we are involved with presents some form of environmental sustainability issue that

must be addressed in concert with our suppliers. We proudly share this information during

conference calls, quarterly business reviews, and other forums (Nvidia 2017 sustainability report;

page 17).

 

 

 

 

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Finance – Nvidia has benefited from tremendous growth over the past three years, with revenues

growing by 48% since FY 2015. With this enhanced revenue stream will come increased

opportunities to intensify R&D. One of our core values, “innovate”, provides our team the

inspiration needed to create and advance products and services that delight our customers and help

shape the industry; this potential for additional funding of R&D will help ensure new product and

process development in the future. All of our product and design launches are executed with

improving energy and efficiency along the way which not only helps our environmental

sustainability efforts but increases profitability as well.

 

The following is a brief synopsis of our financial gains in FY 2017:

 We reported $6.91 billion in revenue in FY 2017 which is an increase of 38% from FY

2016.

 Our gross profit increased by 45% to $4.1 billion, from FY 2016 to FY 2017.

 Nvidia has increased shareholder wealth by returning $1 billion to shareholders through

dividends and stock repurchases, up 285% from FY 2016 to FY 2017.

 EPS rose by 172% from $1.13 / share in FY 2016 to $3.08 / share per share in FY 2017.

In short, we are increasing our profitability and reducing our long term debt. We expect our gaming,

artificial intelligence, data center, and self-driving car segments to continue to grow and raise

industry standards (Nvidia Annual Report, 2017, pp. 13 and 24).

 

Research and Development (R&D) – At Nvidia, research and development is at the center of our

purpose, and to innovate it takes a lot of research, development, excellence, and determination.

Innovation is a part of our culture, code, and values. We know our efforts taken toward value

 

 

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creation and excellence will encounter occasional mistakes, but we will anticipate and avoid the

mistakes the best that we can.

 

We strive to hire the best talent in the technology industry and we challenge them to do their best

work every day. This allows us to build products and services that people don’t know that they need

until they experience them firsthand. All of our products and designs are executed with improving

energy and efficiency along the way. We have extended our focus to revolutionizing artificial

intelligence; every major cloud provider has adopted our Tesla V100 GPU which is capable of

delivering artificial intelligence and high-performance computing. We have also transitioned more

of our focus toward building a comprehensive next-generation, self-driving platform built on Nvidia

hardware and software. Approximately 21% of Nvidia’s revenue went to research and development

in 2017 and we have spent a total of $13 billion since Nvidia’s inception on R&D (Nvidia

Sustainability Report, 2017, page 17).

 

Operations and Logistics – In order to understand the risks and opportunities within our business,

we examine our priority issues from a value chain perspective and examine the impact of those

issues within our organization. Our primary operational issues revolve around our innovation, talent

strategies, and supply chain management. We look to build our operational value through product

designs, development, manufacturing, distribution, and delivery.

 

Nvidia prides itself on the positive social impact our products have on consumers. Our ability to

give back to communities through education and charitable donations create goodwill for the

organization. All of our processes are designed around reducing our ecological footprint and finding

 

 

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ways to become more effective and efficient to uphold our environmental responsibility (Nvidia

Sustainability Report, 2017, page 17).

 

We rely on strategic partners to produce many of our products and we encourage these partners to

reduce the impact that the manufacturing processes have on the planet and its peoples. We work

with these companies to share the same vision of becoming more efficient and conserving scarce

energy resources. To accomplish this we have created a dedicated environmental, health, and safety

team to execute our goals and objectives of measuring and reducing our collective footprint. All of

our operations are geared toward increasing energy efficiency, reducing waste tonnage to landfills,

increasing water efficiency, and promoting alternative transportation for commuting employees.

(Nvidia Sustainability Report, 2017, p. 24)

 

Human Resources Management (HRM) – Nvidia has been ranked within the best 100 companies

to work for. Our human resources department ensures that we hire the right people for the job. We

take pride in our workforce and are always looking for ways to improve employee satisfaction,

benefits, and retention. We create a culture around diversity and inclusion by making sure we have

a diverse team while offering valuable benefits. Our HR department is always improving our hiring

processes and always mitigating bias within our hiring practices.

 

In our most recent employee engagement survey, 90% of employees expressed an appreciation of

diverse perspectives. Our work requires the best talent and we look to attract and retain that talent

by recognizing their skills, passions, and abilities to collaborate with others. Our inclusion strategy

involves our recruiting processes, having equality in our hiring practices, and giving special

consideration to women and under-represented minorities. Also in place are systems for

 

 

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performance analysis and professional development. Lastly, employee support includes offering

valuable benefits, unconscious bias awareness, and employee support programs. (Nvidia 2017

sustainability report; page 25)

 

Information Technology (IT) – Nvidia’s invention of the GPU and development of expanded

technology is why we are here today. Our technological advancements have allowed growth of the

PC gaming market by designing modern computer graphics capabilities while enhancing computer

performance. Through our GPU innovations we have been able to develop deep learning technology

with artificial intelligence to act as a brain within computers, robots, and self-driving cars that can

perceive and understand the world.

 

We are currently researching 18 different areas of computer-based technology simultaneously, as

we look for ways of improving or advancing this technology. Currently we have over 120 scientists

and researchers around the globe involved in this endeavor. Some highlighted areas of development

are high-performance computing, virtual and augmented reality, machine learning and artificial

intelligence, and robotics, to name just a few. Our technology strategy, regardless of what we are

designing, is to improve energy efficiency with each step of our research, development, and design

processes. Furthermore, our primary consideration with partners and suppliers in the production of

our products and services is to conduct business with recognized industry leaders that share our

desire to be socially responsible toward environmental performance.

 

 

 

 

 

 

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Analysis of Strategic Factors

Situational Analysis

(Please see SFAS Matrix exhibit in appendix.)

Strengths – Nvidia has a strong market position and is a very popular brand globally. Our CEO,

Jensen Huang, knows exactly which direction to take Nvidia in and has done a very capable job of

leading the company for 24 years. We are now focusing on various platforms, such as gaming,

professional visualization, datacenter, automotive market, and OEM & IP. In addition, we started

investing in AI seven years ago (Takahashi, 2017, p. 2); because of this early AI investment, we

have built a strong foundation and have given the company an edge in AI technology. Currently,

Nvidia partners with more than 320 automotive manufacturers to develop and distribute full self-

driving car platforms. This opportunity will enable our company to reach higher achievement in AI

and self-driving car technology (Nvidia Sustainability Report, 2017, p.8).

 

Since the Nvidia culture supports innovation, our company has invested an enormous amount of effort

and money in research and development activities on an annual basis. According to our EVP David

Shannon, Nvidia has invested over $1 billion annually and more than $6 billion since the company

first started in R&D. (StreetInsider, 2013, p. 1); as a result, our company can provide very high quality

products while increasing barriers to new entrants due to the difficulty of imitating our products.

 

Today’s iteration of Nvidia does business with many different customers; this impressive list

includes: original equipment manufacturers, original device manufacturers, system builders, add-in

board manufacturers, retailers/distributors, internet and cloud service providers, automotive

manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem

 

 

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participants. This far-ranging strategy can augment the revenue stream by increasing the customer-

base substantially, with more potential for profit building as a result of this varied mix of customers.

 

According to the 2017 Nvidia Sustainability Report, the level of employee engagement and retention

is quite impressive; as a result, the report stated, “Our voluntary turnover rate declined to 5.8 percent

from 7.2 percent, versus 9.1 percent average for semiconductor companies which have the lowest

voluntary turnover of any sector in the tech industry” (Nvidia Sustainability Report, 2017, p. 30).

Competition within the technology industry is very intense. Our company does a great job in retaining

talent by providing great benefits for employees, including our birth mother policy (which includes

the father), and also a policy for foster parents. We also conduct global employee surveys every 18

months to track engagement and retention trends. As a result, participation is at 94 percent in our

employee surveys (NVIDIA report, 2017, p. 30). We will continue improving our benefits program

for our workplace and our employees in order to promote a better future at Nvidia.

 

At Nvidia, our focus is on employee retention. Our human resources department continually works

toward recruiting talent from many universities and research institutions throughout the world.

Enticements such as internships and sign-on bonuses are used to attract new talent. We are perpetually

seeking to fill intern positions in the areas of computer architecture, programing systems, VLSI,

circuits, networking, computer graphics, display technology, computational photography, computer

vision, and machine learning, by way of Nvidia research internships (Nvidia Sustainability Report,

2017, p. 25). We consider talent management to be one of our highest priorities and talent is one of

our greatest assets. Thus, we go to great lengths to attract and retain qualified, talented employees.

Weaknesses – Product diversification is not always as varied as our company has aimed for as one

of our top priorities. Per the FY18Q4 earnings call report, there was an obvious drop of 84% in

 

 

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revenue in one of our product offerings, which resulted from a disputed patent license agreement with

Intel. Following a more thorough investigation, there was not much improvement on the revenue

growth rate for this product within the last three consecutive fiscal years 2015-2017 (Jankowski, 2018,

fig.7). We began to realize that licensing should be explored as a new strategy to gain profits by

receiving royalty payments from Intel and others for the use of our intellectual property. Even if

financial results from licensing are not initially impressive, licensing should remain a minor segment

of our company and might lead to huge profits in a long-term scenario; this in turn will keep the

company focused on invention and improvement.

 

Operating expenses increased from $1.3 billion to $1.5 billion from fy 2016 to fy 2017 due to a

renewed commitment to the development of AI (Tanner, 2017, p. 1); in other words, R&D activities

require a huge amount of capital to be allocated from company revenues annually. The main reason

we are investing a huge amount of capital in R&D activities is because our company is in the

technology industry, which is dependent on innovation for growth opportunities. It is R&D that is the

most important expense and investment that our company relies upon for development of future

products. If R&D fails to deliver new and vital products, our company will face financial challenges

in the future.

 

Opportunities – There are many opportunities and directions for Nvidia to partake in to support

growth. One opportunity that Nvidia explores is within the human resources department which works

to recruit interns at many universities in order to find new talent for Nvidia.

 

Secondly, as the popularity of cryptocurrency is on the rise, there has been a tremendous surge in

demand for our GPU’s from data-miners. We are planning to develop a new type of GPU that will be

 

 

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utilized exclusively for cryptocurrency mining as a result of the recent surge in demand for GPU’s by

cryptocurrency miners; this new supply strategy will allow our firm to better fulfill the needs of both

gamers and cryptocurrency miners.

 

Thirdly, we have partnered with many automotive manufacturers to develop and distribute self-

driving programs which can bring a huge profit potential to our company in the future. Furthermore,

the company has also invested in innovations that provide programs to current employees to facilitate

learning, such as: L&D program, NVLearn portal, the online platform Deep Learning Institute.

 

Threats – Although the annual growth rate for Nvidia’s revenues looks quite impressive, even higher

growth rates may be on the horizon with many innovations still being developed; however, Nvidia

faces intense competition from Advanced Micro Devices Inc. and Intel Corporation, who are also

reporting strong growth rates (Nvidia Annual Report, 2017, p. 11). Nvidia may also face intense

competition for the AI and data center markets from strong enterprises such as Cisco Systems,

Facebook, Tesla Motors, and others. We are following our mission and vision while striving to stay

ahead of competitors with our advanced technologies; this endeavor to maintain our position as the

leader in GPU technology and to maintain and grow our market share will be our enduring challenge.

 

All of our manufacturing, assembly, and testing are dependent upon subcontractors. We have used

this partnership as a means to curtail operating costs such as hiring full time labor, purchasing

equipment, maintenance of machines, and risk aversion; this reliance on subcontractors also carries a

risk of leaked company intellectual properties and the challenge of finding capable subcontractors for

the projects. Currently we are holding a seat on the EICC board of directors. We can find solutions to

challenges and opportunities in our global supply chain by utilizing the EICC Code of Conduct. With

 

 

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our participation in EICC, we can obtain access to inside information which can help the company to

maintain its long-term stability within the computer components market.

 

Strategic Alternatives and Recommended Strategy

Strategic Alternatives

As Nvidia’s gross profits continue to skyrocket, with a gain of 45% for FY 2017 versus FY 2016, it

is clearly evident that our strategy is working. Nvidia’s intensive investment in research and

development and human resource assets has catapulted the company into a strong leadership

position in the computer component industry. Even though this current strategy has been very

successful, it is important for Nvidia to consider strategic alternatives to continue its expansion in

artificial intelligence, autonomous driving, and graphic processing unit manufacturing. Nvidia can

continue its expansive growth and market leadership by leveraging its intellectual property, as well

as expanding vertically and acquiring manufacturing plants (Nvidia Annual Report, 2017, p. 51).

 

Nvidia management names one of its primary goals in 2018 as the desire to strengthen hiring and

retention. Current strategies entail partnerships with the highest performing universities in the

country to ensure access to the brightest hiring pool. It is evident that hiring is proceeding with

success, as Nvidia continues to hold its reputation as one of the most cutting-edge technology firms

in the industry. However, turnover is an issue that stems from an intense professional environment

with little work-life balance, which also staves work force diversity. The best strategies to temper

these factors are to implement culture-emphasizing hiring practices as well as programs that cater to

a more diverse work force (Nvidia Sustainability report, 2017, p. 47).

 

 

 

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Strategy 1 – The first strategic alternative Nvidia can utilize is to leverage its intellectual property.

Nvidia’s intellectual property consists of patents and trademarks. Nvidia can seek to use this

valuable asset through licenses and development agreements. The licenses and agreements can be

procured by Nvidia’s customers and partners. With the agreements and licenses, the customers will

be able to incorporate these features into their own products. Nvidia can also offer the ability to

integrate their intellectual property into customer’s products through customized development

agreements (Nvidia “Nvidia-Q4Y18-Form-10k”, p. 8). The advantage of this strategic alternative is

the opportunity to bring more revenue to Nvidia as well as a greater adoption of its technologies.

The disadvantage of this strategy is the possibility of Nvidia competing with itself as customers may

turn into competitors if Nvidia’s intellectual properties are replicated by competitors. One other

disadvantage is the possibility of piracy and reverse engineering of its products by competitors.

 

Strategy 2 – The second strategic alternative Nvidia can utilize is to vertically expand and acquire a

chip manufacturing facility. The benefits of manufacturing our own critical inputs for our products

include increasing quality assurance in the manufacturing process as well as remediating defects or

security vulnerabilities. Nvidia can avoid experiencing a lack of critical inputs, such as

semiconductor wafers and circuit boards, by manufacturing our own inputs of production. Supply

fluctuations can be minimized and production scheduling will be made more streamlined with the

ability to supply our own critical inputs. Nvidia can also avoid delays in product shipments. This

ability to supply our own inputs will enhance the value chain at the same time. (Nvidia “Nvidia-

Q4Y18-Form-10k”, p. 14).

 

The advantages of having in-house manufacturing are better quality control of the supply chain and

better control over the manufacturing process. The main disadvantage regarding in-house

 

 

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manufacturing is the initial capital investment it would require. Nvidia will need to analyze how

much of a financial benefit that in-house manufacturing would provide compared to its cost.

 

Strategy 3 – The third strategic alternative is aimed at bolstering hiring and retention by

implementing a rigorous, culture-focused hiring protocol meant for solid indoctrination into

company culture. Employee turnover, although low compared to the industry, could be further

reduced by immersive culture techniques set forth by the human resources department. Currently,

the interview process is rather impersonal.

 

For a developer, one of the most common job roles within Nvidia, the hiring process begins with

two phone interviews, one by a superior and one by a technical associate. Then, the hopeful

applicant will complete five to six technical testing sessions that include written aptitude tests and

verbal exams on coding technologies such as Java, C++, and C and D data structures. Then the

candidate meets for a short HR meeting to discuss company culture and policies before becoming

part of the team (Glassdoor.com, 2018).

 

The HR part of Nvidia’s hiring process is almost an afterthought and should instead be at the

forefront of the hiring process. Nvidia could adopt a protocol that more closely mirrors companies

with famously strong company cultures such as Zappos. To compare, at Zappos the interview

process could stretch on for many months and takes a company culture-centered approach. It

initializes an initial “social test” by inviting the hopeful to a company event. The “nice guy” test

proceeds to test the character of the applicant by testing how he or she treats the shuttle driver as

they tour the company premises. The two last hiring steps involve testing the applicant in the core

activities of the firm; at Zappos, a retail shoe firm, this core activity that is tested entails the

 

 

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provision of service. Each new candidate, no matter what job position, must man the customer

service phones for a week, with the option to take the job or walk away from the offer with a $3000

severance and an agreement to never come back (Business Insider, 2015).

 

As a technology-centered firm, Nvidia could invoke a similar strategy by leading with technical

testing and interviews, and following with a number of culture-emphasizing tests including inviting

the hopeful to company social events and issuing personality tests that reveal qualities of innovation

and leadership. Strategies such as allowing the hopeful to work for a trial period under a mentor in

addition to other culture-stressing measures, including the brief HR finale meeting, might help

alleviate some of the surprises that new hires face when coming to work at such a demanding

professional environment.

 

Strategy 4 – The fourth strategic alternative targets hiring and retention as well, by creating

company programs that make Nvidia more attractive to female applicants. Only a paltry 16% of the

entire Nvidia workforce is female, compared to the remaining majority of 84% which are male

(Nvidia Sustainability Report, 2017, p. 26). Perhaps this is due to a lack of work-life balance that is

inherent in the fast-paced technology industry. The spirit of innovation infuses this fast-paced

workplace, but retention suffers because new-hires struggle to strike a balance between a

demanding career and personal obligations.

Customarily, familial obligations fall to the responsibility of women, meaning that Nvidia’s intense

work environment discourages women applicants and stresses current ones with children. Although

turnover is low, it could be further reduced by implementing programs that alleviate the problems

that demanding hours cause, such as on-site childcare. Other company programs to attract women

would entail female-focused recruiting events within the programs, like STEM, and within the

 

 

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universities in which Nvidia recruits new hires. Woman-focused company measures would increase

hiring diversity and bolster retention, as smart, capable recruits should not have to pick between a

successful career and the strong family ties that are often tied to traditional societal gender roles.

 

Recommended Strategy

Nvidia’s reliance on third-party vendors to manufacture its products puts the company at risk.

Nvidia must rely on two vendors for silicon wafers, as well as independent subcontractors to

assemble, test, and package its products (MarketLine, p.6). These vendors may also assemble, test,

and package the products of Nvidia’s competitors. Additionally, Nvidia does not maintain long

contracts with its vendors. As a result, we have cited vendors as having supplier power over Nvidia,

which is a weakness.

 

We recommend that Nvidia explore the strategic alternative of expanding and acquiring a chip

manufacturing company. This addition to the company would allow Nvidia to make quality control

improvements, protect its intellectual property, and have better oversight of supply and shipping.

While this action will require an investment, Nvidia will realize significant improvements in

reliable supply, control costs, reduce reliance on vendors, and quality. These improvements will

increase customer satisfaction and lead to improved profits.

 

Implementation

Nvidia must analyze and assess existing chip manufacturing companies that could become a

possible target for an acquisition that would enable Nvidia to begin to manufacture the critical

inputs of production, such as silicon wafers and circuit boards. Potential acquisitions should be

 

 

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closely aligned with Nvidia’s competitive advantages, strategic initiatives, core values, and business

needs. These key strategic elements are:

 research and development oriented

 experience in manufacturing GPUs for gaming, artificial intelligence, and autonomous

vehicles

 economies of scale

 environmental responsibility

 Six Sigma quality programs already in place

After identifying the top three manufacturers that meet Nvidia’s criteria, Chief Executive Officer

Huang can then present the strategic plan to the Board of Directors to narrow down the selection

field for final approval. Once approval is secured, Nvidia will submit its acquisition offer and begin

negotiations. Nvidia should complete the acquisition and begin integrating the company by the end

of the current fiscal year.

 

Evaluation and Control

Vertical integration is a strategy to gain control over its suppliers or distributors in order to increase

the company’s power in the business industry, secure supplies or distribution channels, and reduce

transaction costs. The strategy of Nvidia’s expansion and acquisition of a chip manufacturing

company is part of our vertical integration planning. Vertical integration can have a significant

impact on our business. Through vertical integration, our company can have many benefits such as

improved coordination within the supply chain, improved quality of supplies, and lower costs due to

elimination of some market transaction costs. However, vertical integration is also a difficult

strategy to implement successfully. It will require a relatively high capital investment to expand and

 

 

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acquire our own manufacturing company. Moreover, it will be hard to reverse. If our company is

incapable of managing the new activities efficiently, it may lead to higher costs and lower quality

products. In order to prepare for vertical integration, Nvidia must conduct an analysis of possible

advantages and risks of an expansion and an acquisition of a chip manufacturing company.

Evaluating the potential benefits and risks, and weighing the advantages against the risks will be

helpful for making a decision.

 

Once we reach the decision to implement vertical integration, Nvidia will hire an expert who has

professional knowledge about the production process that is involved in manufacturing and

distributing in order to balance various stages of production and distribution. For efficient

functioning on every stage of the process, Nvidia needs someone who can control and build enough

upstream capacity to ensure that its downstream operations have sufficient supply under all demand

conditions. For smooth and effective implementation of vertical integration, a professional manager

who can manage, control, and evaluate its whole process should be hired.

Monthly reports will be monitored to ascertain expenses that are accruing in the integration process.

A gradual reduction in outsourced semiconductor wafers and circuit boards will be our goal; the

optimal phase-out timeframe for reduction in the dependence on outside suppliers is a reduction of

10% per month. This timeframe should allow internal capacity to gradually come online over a

period of 10 months, with the entire changeover happening in less than one year. If delays occur in

the changeover process, outside suppliers can again be accessed to meet the immediate demands for

critical inputs to our products. Over a two-year assessment period, annual costs will be examined to

determine the long-term feasibility of continuing to manufacture our own critical inputs for our

products.

 

 

 

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Exhibits 1-6 follow:

 

Wghtd.

Score

Opportunities

Increase in revenue from last year 0.20 4.50 0.90 New technologies promoted

Energy efficiency in offices 0.10 4.70 0.47 To help the environment

Reduction in water usage 0.05 3.50 0.18 To help the environment

Promote transportation alternatives 0.08 3.50 0.28 Supports the environment

Decrease green house gas emissions 0.07 3.90 0.27 Environment friendly company

Threats

Competition from Intel, AMD 0.15 4.00 0.60 Top position presently held

New product advances 0.10 4.80 0.48 Well positioned

Cryptocurrency meltdown 0.05 2.00 0.10 Volatility likely

Changing in GPU market 0.05 2.00 0.10 Competititon from AMD

Losing the automotive market 0.05 2.50 0.13 Market uncertainty

Losing foreign skilled tech workers 0.10 1.50 0.15 Reduction of H-1 visas

Total Scores 1.00 3.65

Comments

EFAS Table for Nvidia Corporation

External Factors Weight Rating

 

 

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Weighted

Score

Strengths

Trusted name in GPU market 0.10 3.1 0.31 Ranked number one in graphic cards

High barriers to entry 0.07 2.9 0.20 Requires huge capital investment

Good employee relations 0.03 2.5 0.08 Lowest turnover ratio in the industry

Positive corporate culture 0.08 3.5 0.28 Culture of innovation allows risk-taking

Very strong financial position 0.07 2.0 0.14 High growth in: revenue, EPS, share value

Commitment to R&D 0.15 3.8 0.57 Approx. 21% of revenues go into R&D

Weaknesses

Work-life imbalance 0.15 1.0 0.15 Long work hours lead to employee burnout

Lacking patent licenses 0.15 1.0 0.15 Products are vulnerable to imitations

Product stagnation risk 0.20 3.0 0.6 Constant innovation needed

Total Scores 1.00 2.48

Comments

IFAS Table for Nvidia Corporation

Internal Factors WeightRating

Wghtd

Score S I L

S1 Trusted name in GPU market 0.15 3.1 0.47 X Ranked number one in GPU’s

S4 Positive corporate culture 0.03 3.5 0.11 X Culture allows risk-taking

S6 Commitment to R&D 0.08 3.8 0.30 X Approx. 21% of revenues go to R&D

W3 Product stagnation risk 0.15 3.0 0.45 X X Constant innovation needed

W2 Lackng patent licenses 0.07 1.0 0.07 X Products vulnerable to imitation

O1 Increase in revenue 0.12 4.5 0.54 X X New technologies promoted

O2 Energy efficency in offices 0.05 4.7 0.24 X X To help the environment

T1 Competition from Intel, AMD 0.20 4.0 0.80 X Top position held presently

T2 New product advances 0.15 4.8 0.72 X X Well positioned

Total Scores 1.00 3.69

Comments

SFAS Matrix for Nvidia Corporation

Strategic Factors WeightRating * Duration

* Duration: S = short, I = intermediate, L = long

 

 

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Liquidity Ratios

Current ratio 4.77 2.57 6.38 5.95

Quick ratio 4.33 2.40 5.84 5.54

Leverage Ratios

Debt to total assets 0.38 0.32 0.32 0.32

Debt to equity 0.65 0.53 0.52 0.52

Activity Ratios

Inventory turnover – sales 8.70 11.99 9.69 10.65

Inventory turnover – cost of sales 3.59 5.26 4.31 4.80

Average collection period – days 44 days 37 days 37 days 38 days

Fixed asset turnover 13.26 10.75 8.4 7.09

Total assets turnover 0.70 0.68 0.65 0.57

Profitability Ratios

Gross profit margin 58.8% 56.1% 55.5% 54.9%

Net operating margin 28.0% 14.9% 16.2% 12.0%

Profit margin on sales 27.6% 14.8% 16.1% 12.4%

Return on total assets 19.9% 10.7% 11.1% 7.2%

Return on equity 28.9% 13.7% 14.3% 9.9%

Ratio Analysis for Nvidia Corporation (2017-2014)

20142017 2016 2015

 

 

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Net sales 100.0% 100.0% 100.0% 100.0%

Cost of sales 41.2% 43.9% 44.5% 45.1%

Gross Profit 58.8% 56.1% 55.5% 54.9%

Research and development 21.2% 26.6% 29.0% 32.3%

Selling, general, admin. expenses 9.6% 12.0% 10.3% 10.5%

Reorganization expenses 0.0% 2.6% 0.0% 0.0%

Operating Income 28.0% 14.9% 16.2% 12.0%

Interest income 0.8% 0.8% 0.6% 0.4%

Interest expense 0.8% 0.9% 1.0% 0.3%

Other income (expense), net 0.4% 0.1% 0.3% 0.2%

Income taxe expense 3.5% 2.6% 2.6% 1.7%

Net Income 24.1% 12.3% 13.5% 10.7%

Common Size Income Statements for Nvidia Corporation (2017-2014)

20142017 2016 2015

 

 

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Trusted name in

GPU market

Continue

promoting

reputation

5 Marketing Dept. Marketing Dept. Quarterly Capital Audits

Positive corporate

culture

Maintain

innovative

atmosphere

3 Management Middle

Management Quarterly Employee surveys

Commitment to

R&D

Maintain high level

of commitment 5 Management VP of Operations Quarterly Financial Audits

Product stagnation

risk

Maintain high level

of commitment to

R&D

4 Operations COO Quarterly Financial Audits

Lacking patent

licenses Apply for patent 3 Legal Dept. Legal Dept. Quarterly Secure patents

Increase in

revenue

Promote GPU’s and

new products 3 R&D VP of R&D Quarterly Sales figures

Energy efficiency in

offices

Communicate plan

to departments 3 Management

Lower

Management Quarterly

Reduction in

energy expenses

Competition from

Intel, AMD

Develop new

products 3 Operations VP of Operations Quarterly

Gain market share

in new markets

New product

advances

Develop new

products 4 Operations COO Quarterly

Gain market share

in new markets

Strategic Factors Action Plan Priority System

Implementation, Evaluation, and Control Plan

Who will

Implement Who Will Review How Often Review Criteria Used

 

 

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REFERENCES

2014 Citizenship Report. (2018). Retrieved from http://www.nvidia.com/object/fy14-gcr-social-

impact.html

2014 Citizenship Report. (2018). Retrieved from http://www.nvidia.com/object/fy14-gcr-

workforce-performance.html

2017 Sustainability Report. (2018). Retrieved from http://www.nvidia.com/object/fy17-

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