Nvidia : Inside Out

Prakhar Raj & Rituparna Senapati
January 13, 2022
4:30 pm

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Brief

Nvidia is a graphics processing chip company that makes the majority of its money from GPU sales, which are used for competitive gaming, professional visualization, cryptocurrency mining, and a variety of other uses. NVIDIA’s platform strategy combines hardware, system software, programmable algorithms, libraries, systems, and services to deliver distinctive value to the industries they serve. Although various end markets have a wide range of needs, NVIDIA’s unified underlying architecture, which uses GPUs and software stacks based on the CUDA architecture, effectively addresses them.

What exactly is CUDA?

NVIDIA developed CUDA, a parallel computing platform and programming model for general computing on graphics processing units (GPUs). By using the capabilities of GPUs, developers may substantially speed up computational applications with CUDA.

NVIDIA’s greatest income generator is the gaming market, which accounted for $3.06 billion of the company’s second-quarter revenue in 2021. It improves the performance range of its GPU technology for this market by incorporating streaming multiprocessors, unified memory, and NVLink in the latest graphics cards. With handheld consoles, Shield Android TVs, Tablets, and the cloud gaming service, NVIDIA was able to grow its portfolio in the gaming business.

SWOT Analysis

Strengths

NVIDIA’s success in new areas has been outstanding, and the company has made significant progress in broadening its portfolio into new sectors. The corporation looks to be making progress with cutting-edge technology such as artificial intelligence (AI), machine learning (ML), and robotics.
NVIDIA’s GPUs were created to support parallel computing in the same way that traditional CPUs do, but with the extra benefit of being optimized for GPU-specific software and algorithms. The business uses the same technology in its current chipsets, progressing from Fermi to Volta architecture, allowing it to stay ahead of the competition.
NVIDIA’s staff is made up of highly qualified and experienced employees that are well-versed in cutting-edge technologies such as artificial intelligence and cloud computing.

Weaknesses

Despite the great quality of its products, NVIDIA’s efforts to expand into new areas have met with minimal success thus far. AMD and Intel are the company’s main competitors in the semiconductor sector. Furthermore, NVIDIA is under increased pressure from consumers who want better user experiences at lower prices.
NVIDIA has not created adequate demand forecasting tools, which has resulted in inventory concerns for certain of its products. This is because the company primarily works with PC OEMs to estimate demand, meaning that it relies on its customers to forecast future product requests.

Opportunities

Unreal Engine 5 is now an open-source software. This means democratization of game design and development. This is gaining a lot of ground with the latest in line being the project of “The Matrix Awakens”. In short, the gaming industry is expected to record significant year-on-year growth in the near and long-term future. Meaning increasing demand. The latest in the GPU series RTX can be proven to be a go-to for game developers.
Metaverse poses a huge opportunity for digital creators around the world. Since Nvidia has the capability of integrating the hardware using software infrastructure, creating a collaborative platform for the creators to enable them to create digital assets and NFTs can be a game-changer.
The ARM acquisition deal, if succeeded, put Nvidia in a dominant position in the GPU hardware market.
New environmental policies: New environmental policies urge businesses to embrace renewable energy, giving NVIDIA a chance to capitalize on this trend. The corporation can develop sustainable energy sources for its industrial facilities, lowering production costs and boosting product quality. This will aid NVIDIA in gaining market share in the burgeoning green computing market.

Threats

The major challenges faced by Nvidia are the competitive threats posed by Intel and AMD.
The UK competition Regulator can block the ARM acquisition deal.

Nvidia's Position in the Market

As of January 2022, NVIDIA has a market cap of $693.19 Billion. This makes NVIDIA the world’s 9th most valuable company by market cap according to our data.

Observing the growth over the years, we can see that the growth remained unaffected by the Covid-19 pandemic. Moreover, it grew over 100% in 2020 and 2021.

However, if we observe the data of Intel, they were clearly hit by the pandemic.

Intel Recorded a 20% loss in the market capitalization following the Covid-19 hit. It can be explained by the slump in the sales of laptops and PCs.

AMD’s market cap has increased in the year 2020 and 2021 just like Nvidia. Just that the growth of Nvidia was comparatively larger.

Source: companiesmarketcap.com

Insights

There was a much visible growth in the market caps of Nvidia and AMD which shouldn’t come as a surprise given the sales growth in the gaming hardware during the pandemic. Intel was clearly hit since its expertise lies in the CPU and not in the GPU.

But we need to understand that market capitalization is not a sure-shot way of concluding the position of any company in the market.

Check out the market share insights of PC GPUs in the last two decades of these market leaders.

Source: Statista

Intel is way ahead of Nvidia and AMD. So why is it that the investors are valuing Nvidia way more than Intel and AMD?

If we dig a bit deeper into the Financial statements of Nvidia, AMD and Intel, we will find the Free Cash Flows as the following:

Company	FCF FY19	FCF FY20
Nvidia	$3,143M	$4,272M
AMD	$276M	$777M
Intel	$1,690M	$2,110M

Sources: Nvidia, AMD, Intel

We are considering the Free Cash Flows (FCFs), year on year, as reported by these companies. Since FCF is what a majority of shareholders look into while evaluating the valuation of a company, we are focusing on this only. However, Financial statements reveal a lot more information that can be decisive in valuation.

The Free Cash Flow analysis of these market leaders reveals that NVIDIA, AMD, and Intel have generated over $1,100M, $500M, and $400M of excess FCF respectively from FY19 to FY20. With this data in our mind, we can now connect the dots of why Nvidia is valued way more than the other companies. Its power is CASH.

“Nvidia argues that the deal will lead to more innovation and that Arm will benefit from increased investment.” – NVIDIA on ARM acquisition. (source)

Strategic Human Resource Management: Organizational Structure and Culture

Having an enormous pool of talent and a cornucopia of Assets, cash and capabilities is both a boon and a bane. The fine line between the two is how well is your Human Resource Strategy aligned with the overall business strategy. Things become especially tricky when the success of the organization depends more on innovation rather than on production capacity. Because innovation depends on the people. It is not something that can achieve economies of scale. Strategic alignment is the key.

Organizational Structure

NVIDIA follows a divisional organizational structure with a great degree of matrixed structure with decentralization at its core. This was done for the company to concentrate on specific product classification. It can also assist each division in acting independently, ensuring that any changes made by one division do not affect the performance and productivity of the others. It is also the company’s primary strategy for establishing a competitive edge and staying ahead of their competitors in terms of leveraging globalization. This division aids the corporation in achieving success in all the countries where it operates. The implementation of a divisional structure allows for a smooth flow of innovation throughout the firm. With the front line being the face of the company, then middle managers, senior managers and finally top-level executives making the majority decisions related to the strategic direction of the company.

Nvidia has several domains of business mainly dealing with AI, ML, graphics and automation. Meaning it needs to foster innovation. To do that they need a good amount of flexibility which can be explained by the decentralization of processes and a matrixed structure which should ideally allow the teams in different divisions to easily collaborate on projects. But at the same time, because it is a manufacturer of the hardware, it needs to have efficiency in the system and the divisional structure ensures that the collaboration on projects does not affect the overall divisional efficiency.

To balance the innovation and efficiency and to create a great experience for over 20,000 employees is truly marvelous and NVIDIA has surely excelled at this.

Culture of one team

Here is a first-hand experience of one of the employees at NVIDIA:

One of the most common sayings I hear around the company is “Nobody fails alone”. I didn’t really get it when I joined, but I think I do now. The concept of the star athlete is what really comes to mind here and it simply doesn’t work at NVIDIA. Whenever you work on a hard or challenging problem, you’ve got to lean on your teammates and not be afraid to ask anyone in the company for help. If you fail and you didn’t ask anyone for help, then that act of failing is an individual act that goes against our culture. If you fail and you enlisted the help of others, failure is now a team act and we gave it our best shot. Don’t get me wrong, we succeed a lot around here. But I feel it is important to phrase things in terms of failure because failing correctly inevitably leads to success.

The Cohesiveness of teams, collaboration and accountability of the team are what constitute the culture at Nvidia.

Final Thoughts

Nvidia is a great place to work and its strategies, business model and culture supported by the Alignment of Human Resource Strategies constitutes its success as a team. Their power lies in their size and the effective management of the people. The divisional structure with a substantial degree of the matrix structure is a unique combination of an organizational structure and worth giving more thought. With more information readily available, we would have skimmed the article more for our readers. We hope the conciseness of this article and the style of presentation kept your interest throughout the article.

Do tell us what you think in the comments below.

We will be back with another short study on Inside Out soon!