1/ Thread about the business model of #Nvidia
19th most valuable company worldwide by riding the wave of industry growth, applying a straightforward business model and maintaining clear focus.
19th most valuable company worldwide by riding the wave of industry growth, applying a straightforward business model and maintaining clear focus.
2/ Founded in 1993 by Jensen Huang, who is still the CEO, Nvidia saw its share price skyrocketing in the previous 5 years from 20 USD to 400 USD. This made Nvidia by far the most valuable ‘fabless’ chip maker worldwide, followed by competitors like Broadcom, AMD and NXP.
3/ Nvidia’s business model is fairly simple: Fabless. They focus on the R&D of Graphic Processor Units that are used in laptops and data centers. Production is fully outsourced to chip makers such as TSM (Taiwan based), which is the 11th most valuable firm in the world.
4/ Nvidia’s focus is on being the most innovative fabless chip vendor by designing GPUs (87% of turnover) and Tegra processors (13% turnover) and by responding quickly to new areas of chip application such as bitcoin mining, self-driving cars, supercomputers, 5G, …
5/ Nvidia also needs sales capabilities as they have to sell their products to classic players such as Dell, HP and Toshiba, but also to new players from other industries such as Amazon (cloud) and Mercedes (see video about their recent partnership).
6/ Nvidia is responding to almost every megatrend: AI, VR, blockchain, IoT, … This explains partially the rise in market value. Though, the entire industry could ride this wave. Nvidia is leading the pack because of their innovation power and ability to make partnerships.
7/ The turnover in '19 was roughly 12 bln USD, with a gross margin of 61% (roughly 5 bln is paid to manufacturers like TSM). The OpEx counts for 3 billion USD, leading to a net profit of 4 billion USD. In comparison: TSM has a 36 bln USD turnover, with a net profit of 12 bln USD
8/ With a market cap of 250 bln USD, investors have clearly picked up Nvidia as a growth target. With the industry being able to ride on megatrends and Nvidia’s particular strengths (R&D and partnerships), the firm is in a strong position to remain the dominant fabless player.
9/ Though, the industry as such is vulnerable for economic downturns and for political tension (e.g. trade wars between US and China where the chips are produced and many buyers are situated).
10/ Also, smaller competitors such as AMD, Broadcom (with its Apple partnership) and Applied Materials are potential threats. And how dependent is Nvidia on the vision of its founding CEO that has been there for 27 years?
11/ To summarize, Nvidia is a textbook example of how a company can ride a wave of industry growth by applying a fairly ‘hassle free’ business model (no production) and focusing on a limited number of core competencies (innovation and partnerships).
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