Fiscal 2017 challenges
We’ve looked at the various opportunities presented by virtual reality (or VR), deep learning, and autonomous cars for NVIDIA (NVDA). We’ve also learned that the company is geared to tap these markets.
However, opportunities come with challenges. Let’s look at some of the challenges the company could face in fiscal 2017.
Technology failure, dependence on foundry, poor adoption of technology, and competition could weaken NVIDIA’s growth potential. However, NVIDIA has up to $5 billion in cash reserves to withstand near-term headwinds.
All new technologies run the risk of failing. NVIDIA’s Game Ready 364.72 driver is facing troubles as GeForce forums and Reddit are filled with consumer complaints regarding boot failure, flickering, frequent crashes, freezing, visual distortion, gray and green screen artifacting, and DSR (dynamic super resolution) scaling issues.
The company has a failure analysis lab in which it identifies where a problem originated and takes the necessary steps to fix it.
Dependence on foundry
NVIDIA is a fabless company and outsources its manufacturing work to Taiwan Semiconductor Manufacturing Company (TSM). Although this frees NVIDIA from the overhead costs associated with maintaining a plant, it also exposes the company to the risk of product delays or missed design cycles.
In February 2016, TSM’s plant was affected by an earthquake in Taiwan (EWT) that slightly affected the its production. Moreover, TSM lost its customer Qualcomm (QCOM) as the latter’s Snapdragon 810 chips were affected by overheating and power issues.
Poor adoption of technology
NVIDIA is building technology on the anticipation of increased demand for graphics processing units due to the increased adoption of VR, deep learning, and autonomous cars. If the market doesn’t grow as anticipated, NVIDIA’s earnings will be negatively affected.
In fiscal 2016, NVIDIA reported strong growth as its biggest competitor Advanced Micro Devices (AMD) lost market share due to delays in product launches, which rendered its products outdated. However, AMD is now set to regain its lost share and is launching competing technologies.
However, NVIDIA has more cash to spend on R&D (research and development) compared to AMD, which is struggling for cash.