Letter #86: Jensen Huang (2004)
Founder and CEO of Nvidia | 2004 Shareholder Letter
Today’s letter is Jensen Huang’s 2004 Nvidia shareholder letter. This was Nvidia’s 5th year as a public company, having IPOed in 1999. In it, Jensen discusses their investment milestones, improving fundamentals and lessons learned, some of their press/awards, how Nvidia was part of one of the most powerful technological transformations of that time as the engine for the networked digital media era, and growth opportunities for each of their businesses.
This letter is a fun snapshot look into the past of one of the greatest companies of all time. I have some takeaways, but quite frankly, I’m just hoping Byrne Hobart includes this letter in the Longreads edition of his newsletter like he did for Gordon Moore so I know what my takeaways *should* be).
Jensen is the Cofounder, President, and CEO of Nvidia, which he founded on his 30th birthday in 1993. 6 years later, in 1999, they went public and invented the GPU, which made possible real-time programmable shading, which in turns defines modern computer graphics and revolutionized parallel computing. Most recently, GPU deep learning ignited modern AI (the next era of computing) with the GPU acting as the brain of computers, robots, and self-driving cars. Before founding Nvidia, he was a director at LSI Logic and a microprocessor engineer at AMD.
I hope you enjoy this letter as much as I did!
Relevant Resources:
Letter
TO OUR SHAREHOLDERS
I am pleased to share with you our accomplishments for fiscal year 2004. As a result of the passion, dedication, and talent of our employees and partners, we continue to lead the industry in providing graphics and digital media solutions for three of the largest electronics markets in the world—computing, consumer electronics, and wireless handheld devices.
With more than 1,900 employees and revenues approaching $2 billion, NVIDIA shipped its 300 millionth processor this year. Since our founding, we have dedicated ourselves to advancing graphics and digital media processing technologies that enhance the user experience and enable new uses of computers. Today, NVIDIA’s core businesses—GPU (graphics processing unit), MCP (media and communications processor) and WMP (wireless media processor)—are at the epicenter of the electronics industry’s most exciting growth areas. NVIDIA’s innovations are helping to drive the delivery of rich digital media experiences to a vast number of visual computing platforms, such as consumer PCs, notebook PCs, game consoles, media centers, professional workstations, digital content creation, scientific/medical imaging systems and cell phones.
AN INVESTMENT YEAR, WITH IMPRESSIVE MILESTONES
NVIDIA achieved great progress in the last twelve months. Some highlights:
FIRST TO MARKET WITH A COMPLETE “TOP TO BOTTOM” FAMILY OF GPUS WITH PROGRAMMABLE SHADERS. NVIDIA’s family of graphics processing units (GPUs) with support for Microsoft ® DirectX® 9 continues to revolutionize the 3D graphics experience.
SUPPLIER OF CHOICE FOR MICROSOFT MEDIA CENTERS. Media Center represents the leading edge of the convergence of computing technologies with the consumer electronics market. Through the advances of computing and digital technologies, a new class of consumer experience has been made possible—TV, pictures, movies and music can be experienced through a single, powerful device and navigated through an attractive and simple user interface. In 2003, an estimated 90% of Microsoft Media Centers were shipped with NVIDIA technology. OEMs prefer NVIDIA’s solutions for their high-definition video technologies and superior video quality.
200% YEAR-OVER-YEAR REVENUE GROWTH IN MEDIA AND COMMUNICATIONS PROCESSORS (MCPs). The NVIDIA nForce ™ brand of media and communications processors incorporate the leading edge of networking, connectivity, storage, and security innovations. We focus on the AMD processor platform and lead the high-performance segment. MCP is an important growth business for NVIDIA, and an ideal vehicle to make important investments in networking, storage, and wireless technologies. We were proud to be the first in the industry, this year, to provide integrated Gigabit Ethernet networking with hardware security processing.
ENTRY INTO HANDHELD DEVICES. Our acquisition of MediaQ turbocharged NVIDIA’s entry into the multimedia handheld segment. The combined expertise in ultra-low power management, imaging, and graphics has earned us early design wins with major handheld providers, such as Motorola and Mitsubishi. Consumers are increasingly demanding cell phones with rich graphics and digital camera capabilities. Future phones will even be able to make video phone calls, record video, and play networked games. NVIDIA’s heritage and investments in graphics, networking, and digital media processing positions us well to capitalize on these opportunities. We expect wireless media processors to be one of our fastest growing businesses in the coming years.
IMPROVING FUNDAMENTALS, LESSONS LEARNED
NVIDIA has a long-standing culture of intellectual honesty and innovation. Since our inception, we have achieved more than 14 “industry firsts” with our new product introductions. In early 2003, we introduced the industry’s first fully programmable 32-bit floating point precision GPU, the GeForce FX. Although the GeForce ™ FX architecture led the industry in flexibility and precision, the high cost of the architecture put significant pressure on our gross margins. We learned from our experience and immediately made fundamental improvements in the way we design and build these extraordinarily complex programmable GPUs. We dedicated ourselves to create a fundamentally new architecture in record time, leapfrog the industry, and recapture our market leadership. After an intense 18 months and several hundred person-years of development, we are now in volume production of our brand new GeForce 6 family of GPUs. We are pleased to be first to market with the industry’s third-generation programmable GPU technology, called Shader Model 3.0. We are unwavering in our intention to maintain our technology leadership in GPUs. The GeForce 6 architecture exemplifies this commitment.
Despite a challenging year, we delivered solid financial results: $1.8 billion in revenues, $90 million in operating income, and net earnings per share of $0.46. Our balance sheet remains strong, with no debt and more than $600 million in cash.
NVIDIA TODAY—A RECOGNIZED LEADER
NVIDIA’s reputation for leadership is the result of innovation and investment. In the last three years, we have invested more than $1 billion in research and development. At present, the company owns over 700 issued and pending patents. We employ one of the largest and most prestigious groups of thought leaders in graphics, networking, and software in the industry. We have a distinct and powerful culture of excellence and innovation, and our accomplishments are well-recognized:
Fortune Magazine named NVIDIA as one of its 100 Fastest-Growing Companies and one of the 100 Best Companies to Work For.
Forbes Magazine named NVIDIA as one of its Best Managed Companies.
Stanford Business School recognized NVIDIA as its Entrepreneurial Company of the Year.
NVIDIA was the fastest semiconductor company to reach $2 billion in annualized revenues and is one of the world’s largest fabless semiconductor companies.
NVIDIA: THE ENGINE FOR THE “NETWORKED DIGITAL MEDIA ERA”
We are in the midst of one of the most powerful technology transformations of our age—which we call the Networked Digital Media Era. We believe NVIDIA is at the epicenter of this transformation.
The Networked Digital Media Era represents a significant lifestyle transformation and will dramatically impact all electronics industries—computing, consumer, and communications. Soon, consumers will be able to enjoy digital media experiences within their homes: they can share music, photos, video, play games, record television—all within a networked environment of PCs, cell phones, PDAs, TVs and audio systems, among a myriad of other electronic devices. The benefits of these new technologies are enormous—we will be able to enjoy rich high-definition content, from nearly anywhere and whenever we want.
The infrastructure to support the Networked Digital Media Era is finally being realized.
The number of networked households is growing rapidly; and is expected to reach more than 30 million in the US in the next three years—underscoring the growing importance people place on digital content.
High-speed, low-cost broadband connectivity is now commonplace—more than 40 million US households are forecast to have broadband Internet access by 2007. High speed Internet connectivity is enabling access to enormous amounts of digital content.
Digital storage capacity is exploding, and will quadruple by 2007, while storage costs are dropping dramatically, giving even the smallest of electronic devices such as cell phones ample capacity to store multimedia content.
The cost of high-resolution display technology such as LCD screens is decreasing rapidly, making ultra-high quality visual displays affordable to the average consumer.
The technology implications of this transformation are profound. In addition to requiring powerful graphics and media processors, the Networked Digital Media Era demands connectivity and compatibility across a wide range of devices, standards, networks and protocols.
Over the past several years, we have made the fundamental investments in graphics, digital media processing, networking, and software to position NVIDIA to lead the Networked Digital Media Era. Our GeForce GPUs deliver visual, immersive experiences. Our nForce MCPs enable connectivity across a range of networks and communications platforms. And, through our ForceWare software, we provide the “glue” that ensures compatibility and uniform performance across a range of platforms and devices.
GROWTH OPPORTUNITIES IN EACH OF OUR CORE BUSINESSES
We are excited about our progress in fiscal year 2005. As of this writing, in July 2004, we have already launched a number of strategic initiatives, that we believe puts us in an excellent position to benefit from the expected growth in these areas:
GPU LEADERSHIP: GEFORCE 6 SERIES—The PC industry’s only new architecture to support Microsoft Corporation’s powerful new DirectX 9.0 Shader Model 3.0 and incorporate a fully programmable high-definition video processor.
MEDIA CENTER: Media Center sales are estimated to more than triple in 2005. NVIDIA GPUs have captured an overwhelming majority of Media Center designs worldwide.
MOBILE PCI EXPRESS MODULE—MXM: The result of a joint design effort between NVIDIA and the industry’s leading notebook manufacturers that provides faster time-to-market and significantly lowers design costs.
64-BIT COMPUTING: NVIDIA nForce3 MCPs lead the industry in performance and features, and will help drive 64-bit computing into the mainstream.
WIRELESS HANDSETS: Beginning with the GoForce™ 3000/4000 series of wireless media processors, NVIDIA’s wireless media processors will transform the way people use their cell phones.
THANK YOU
I’d like to close by thanking all of our customers, our shareholders, and our business partners for their ongoing support of NVIDIA. I would like to also thank NVIDIA’s employees and their families for their commitment and dedication to building NVIDIA into one of the most respected and influential technology companies in the world. Our achievements last year reflect the character of our employees and the culture they’ve built. I am proud of our achievements during the past year and look forward to showing the world the results of the many important investments we’ve made.
Sincerely,
Jen-Hsun Huang
President and CEO
July 2004
Wrap-up
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