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NVIDIA 10-K 2009
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0001045810-09-000013.txt : 20090313
0001045810-09-000013.hdr.sgml : 20090313
20090313090225
ACCESSION NUMBER: 0001045810-09-000013
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20090125
FILED AS OF DATE: 20090313
DATE AS OF CHANGE: 20090313

FILER:

COMPANY DATA:
COMPANY CONFORMED NAME: NVIDIA CORP
CENTRAL INDEX KEY: 0001045810
STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674]
IRS NUMBER: 943177549
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0127

FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-23985
FILM NUMBER: 09677521

BUSINESS ADDRESS:
STREET 1: 2701 SAN TOMAS EXPRESSWAY
CITY: SANTA CLARA
STATE: CA
ZIP: 95050
BUSINESS PHONE: 408-486-2000

MAIL ADDRESS:
STREET 1: 2701 SAN TOMAS EXPRESSWAY
CITY: SANTA CLARA
STATE: CA
ZIP: 95050

FORMER COMPANY:
FORMER CONFORMED NAME: NVIDIA CORP/DE
DATE OF NAME CHANGE: 20020612

FORMER COMPANY:
FORMER CONFORMED NAME: NVIDIA CORP/CA
DATE OF NAME CHANGE: 19980303


10-K
1
fy2009form10k.htm
FISCAL YEAR 2009 FORM 10-K



fy2009form10k.htm






   UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549

________________



FORM
10-K










[x]


ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934










 


For the fiscal year ended
January 25, 2009



OR








[_]


TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





Commission
file number: 0-23985

 

NVIDIA
CORPORATION

(Exact
name of registrant as specified in its charter)

 
















Delaware


94-3177549


(State
or other jurisdiction of


(I.R.S.
Employer


 Incorporation
or Organization)


Identification
No.)



2701
San Tomas Expressway

Santa
Clara, California 95050

(408)
486-2000

(Address,
including zip code, and telephone number, including area code, of principal
executive offices)

 

Securities
registered pursuant to Section 12(b) of the Act:












Title
of each class


Name
of each exchange on which registered


Common
Stock, $0.001 par value per share


The
NASDAQ Global Select Market





Securities
registered pursuant to Section 12(g) of the Act:

None



Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.

Yes x No
o



Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.

Yes o No
x



Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.

Yes x No
o

 

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in
definitive proxy  or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.  
x

 

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
accelerated filer x                                                                                                                                                     Accelerated
filer o                               

Non-accelerated
filer o (Do not
check if a smaller reporting company)                Smaller reporting
company o



 

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).

Yes o No x


 

The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of July 27, 2008 was approximately $6.1 billion (based on the
closing sales price of the registrant’s common stock as reported by the NASDAQ
Global Select Market, on July 25, 2008). This calculation excludes approximately
26,237,509 shares held by directors and executive officers of the
registrant. This calculation does not exclude shares held by such organizations
whose ownership exceeds 5% of the registrant’s outstanding common stock that
have represented to the registrant that they are registered investment advisers
or investment companies registered under section 8 of the Investment
Company Act of 1940.

 

The
number of shares of common stock outstanding as of March 6, 2009 was
542,453,547.

 


DOCUMENTS
INCORPORATED BY REFERENCE

 

Portions
of the registrant’s Proxy Statement for its 2009 Annual Meeting of Stockholders
to be filed with the Securities and Exchange Commission by April 6, 2009 are
incorporated by reference.




 




 



 







 






NVIDIA
CORPORATION

 

TABLE
OF CONTENTS



















































































































































































 
 

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Forward-Looking
Statements



   This Annual Report on
Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended, which are subject to the
“safe harbor” created by those sections. Forward-looking statements are based on
our management’s beliefs and assumptions and on information currently available
to our management. In some cases, you can identify forward-looking statements by
terms such as “may,” “will,” “should,” “could,” “goal,” “would,” “expect,”
“plan,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “potential”
and similar expressions intended to identify forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors,
which may cause our actual results, performance, time frames or achievements to
be materially different from any future results, performance, time frames or
achievements expressed or implied by the forward-looking statements. We discuss
many of these risks, uncertainties and other factors in this Annual Report on
Form 10-K in greater detail under the heading “Risk Factors.” Given these
risks, uncertainties and other factors, you should not place undue reliance on
these forward-looking statements. Also, these forward-looking statements
represent our estimates and assumptions only as of the date of this filing. You
should read this Annual Report on Form 10-K completely and with the
understanding that our actual future results may be materially different from
what we expect. We hereby qualify our forward-looking statements by these
cautionary statements. Except as required by law, we assume no obligation to
update these forward-looking statements publicly, or to update the reasons
actual results could differ materially from those anticipated in these
forward-looking statements, even if new information becomes available in the
future.

 

   All references to
“NVIDIA,” “we,” “us,” “our” or the “Company” mean NVIDIA Corporation and its
subsidiaries, except where it is made clear that the term means only the parent
company.

 

   NVIDIA, GeForce, SLI,
Hybrid SLI, GoForce, Quadro, NVIDIA Quadro, NVIDIA nForce, Tesla,
Tegra, CUDA, NVIDIA APX, PhysX, Ageia, Mental Images, and the NVIDIA logo are
our trademarks and/or registered trademarks in the United States and other
countries that are used in this document. We may also refer to trademarks of
other corporations and organizations in this document.



Our
Company

 

   NVIDIA Corporation is the
worldwide leader in visual computing technologies and the inventor of the
graphic processing unit, or the GPU, a high-performance processor which
generates realistic, interactive graphics on workstations, personal computers,
game consoles, and mobile devices. Our products are designed to generate
realistic, interactive graphics on consumer and professional computing devices.
We serve the entertainment and consumer market with our GeForce graphics
products, the professional design and visualization market with our Quadro
graphics products, the high-performance computing market with our Tesla
computing solutions products, and the handheld computing market with our Tegra
computer-on-a-chip products. We have four major product-line operating segments:
the GPU business, the professional solutions business, or PSB, the media and
communications processor, or MCP, business, and the consumer products business,
or CPB.

 

   Our GPU business is
comprised primarily of our GeForce products that support desktop and notebook
personal computers, or PCs, plus memory products. Our PSB is comprised of our
Quadro professional workstation products and other professional graphics
products, including our NVIDIA Tesla high-performance computing products. Our
MCP business is comprised of nForce core logic and motherboard GPU, or mGPU
products. Our CPB is comprised of our Tegra and GoForce mobile brands and
products that support netbooks, personal navigation devices, or PNDs, handheld
personal media players, or PMPs, personal digital assistants, or PDAs, cellular
phones and other handheld devices. CPB also includes license, royalty, other
revenue and associated costs related to video game consoles and other digital
consumer electronics devices.  Original equipment manufacturers, or
OEMs, original design manufacturers, or ODMs, add-in-card manufacturers, system
builders and consumer electronics companies worldwide utilize our processors as
a core component of their entertainment, business and professional
solutions.

 

   We were incorporated in
California in April 1993 and reincorporated in Delaware in April 1998. Our
headquarter facilities are in Santa Clara, California. Our Internet address is
www.nvidia.com. The
contents of our website are not a part of this Form 10-K.





 




 



4







 




   GPU Business

 

   Our GPU business is
comprised primarily of our GeForce products that support desktop and notebook
PCs, plus memory products. Our GPU business is focused on Microsoft Windows and
Apple PC platforms.  GeForce GPUs power PCs made by or distributed by
most PC OEMs in the world for desktop PCs, notebook PCs, PCs loaded with
Windows Media Center and media extenders such as the Apple
TV.  GPUs enhance the user experience for playing video games, editing
photos, viewing and editing videos and high-definition, or HD, movies. GPUs also
enable the rich visual user interfaces of the Windows Vista and Apple OS X
operating systems. The combination of the programmable Unified Shader GPU with
Microsoft Corporation’s, or Microsoft’s, DirectX 10 high-level shading language
is known as DirectX 10 GPUs. Combined with the ability to directly access the
GPU via the new Windows Vista applications from Microsoft Office to Web 2.0,
applications can now incorporate improved quality through 3D
effects.

 

   We believe we are in an
era where visual computing is becoming increasingly important to consumers and
other end users of our products. Our strategy is to promote our GeForce
brand as one of the most important processors through technology leadership,
increasing programmability, and great content experience.  In fiscal
year 2009, our strategy was to extend our architectural and technology advantage
with our GeForce GPUs.

 

   The GeForce GTX 280 and
260 GPU products that we launched during fiscal year 2009 represent the
second-generation of our unified architecture. Based on a comparison between the
GeForce GTX 280 and the GeForce 8800 Ultra in a variety of benchmarks and
resolutions, the GeForce GTX 280 and 260 GPUs deliver 50 percent more
gaming performance over the GeForce 8800 Ultra GPU. Other significant product
launches during fiscal year 2009 included the GeForce 9600 GT, which provides
more than double the performance of our GeForce 8600 GTS product; the GeForce
9800 GX2, which provides a new dual GPU board featuring Quad Scalable Link
Interface, or SLI, technology; and the GeForce 9800 GTX, which is a
flexible GPU that supports both two-way and three-way SLI
technology.

 

   We also launched the
GeForce GTX 295 and GeForce GTX 285 which were designed based on Compute Unified
Device Architecture, or CUDA, technology.  The GeForce GTX 295 is
among the world’s fastest dual GPU solutions featuring the power of two GeForce
GTX 200 GPUs on a single card. The GeForce GTX 285 is among the world’s most
powerful single GPU solution and works efficiently in complex DirectX 10
environments with extreme HD resolutions. We also shipped notebook products from
the GeForce 100M Series, which includes the GeForce G105M and the GeForce G110M
to meet the performance demands of today’s visual computing
applications.  The GeForce G105M is over 55 percent faster than
our previous product in the mainstream segment, while the GeForce G110M is 35
percent faster than our previous mainstream GPU.

 

    In fiscal
year 2009, we completed our acquisition of Ageia Technologies, Inc., or Ageia,
an industry leader in gaming physics technology. Ageia's PhysX software is
widely adopted in several PhysX-based games that are shipping or in development
on Sony Playstation 3, Microsoft Xbox 360, Nintendo Wii, and gaming PCs. We
believe that the combination of the GPU and physics engine brands  result
in an enhanced visual experience for the gaming world. Subsequent to our
acquisition of Ageia, we launched the GeForce 9800 GTX+, GeForce 9800 GT, and
GeForce 9500 GT GPUs, which provide support for our PhysX physics engine and
CUDA parallel processing across a wide range of price segments. Electronic Arts,
THQ and 2K Games, a publishing label of Take-Two Interactive Software, have
licensed PhysX technology as a development platform which will be available for
use by each of the companies’ studios worldwide.

 

    Our share of
the standalone desktop GPU category decreased from 64% to 63% in fiscal year
2009, according to the December 2007 and December 2008 PC Graphics Report
from Mercury Research, respectively. Our share of the standalone notebook
category decreased from 75% to 63%, according to the December 2007 and
December 2008 PC Graphics Report from Mercury Research,
respectively.

 

    Professional
Solutions Business

 

    Our PSB is
comprised of our Quadro professional workstation products and other professional
graphics products, including our Tesla high-performance computing products. Our
Quadro brand products are designed to deliver the highest possible level of
performance and compatibility for the professional industry.  The
Quadro family consists of the Quadro Plex Visual Computing System, or VCS,
Quadro FX, Quadro CX and the Quadro Night Vision Systems, or NVS, professional
workstation processors. Quadro products are recognized by many as the standard
for professional graphics solutions needed to solve many of the world’s most
complex visual computing challenges in the manufacturing, entertainment,
medical, science, and aerospace industries. NVIDIA Quadro products are fully
certified by several software developers for professional workstation
applications and are designed to deliver the graphics performance and precision
required by professional applications.






 




 



5







 



 

  
We believe that recent years have experienced an increasing level of global
adoption for the computer-aided design approach of product
creation.  We have achieved a leading position in the professional
graphics category by providing innovative GPU technology, software, and tools
that integrate the capabilities of our GPU with a broad array of visualization
products.  

 

    During fiscal
year 2009, we launched several new Quadro solutions. These included the Quadro
FX 3600M Professional, which is among the highest performing notebook GPUs, and
the Quadro Plex D Series, a dedicated desk side VCS system that, alternatively,
can be configured using two Quadro Plex D systems for a 3U configuration that
fits a standard 19” rack environment.  At the SIGGRAPH 2008
conference, the Quadro Plex D2 system set a new milestone in computer graphics
by demonstrating the world’s first real-time fully-interactive ray tracer. We
also launched five new Quadro FX notebook GPUs that spanned from ultra-high
performance to ultra mobility, as well as the Quadro CX, the industry’s first
accelerator for Adobe’s Creative Suite 4, or Adobe CS4, content creation
software. Adobe CS4 software has added optimization to take advantage of GPU
technology.  The Quadro CX is specifically designed to enhance the
performance of the Adobe CS4 product line and to give creative professionals the
ultimate performance and productivity.

 

    During fiscal
year 2009, we also we launched the Tesla C1060 computing processor and the Tesla
S1070 computing system, which is among the first teraflop processors and has a
1U system demonstrating up to four teraflops of performance.  Tesla is
a new family of GPU computing products that delivers processing capabilities for
high-performance computing applications, and marks our entry into the
high-performance computing industry. The Tesla family also consists of the C870
GPU computing processor, the D870 Deskside Supercomputer and the S870 1U
Computing Server. We believe we are in an era of GPU computing, where our CUDA
parallel processing architecture can accelerate compute-intensive applications
by significant multiples over that of a central processing unit, or CPU, alone.
NVIDIA CUDA is a general purpose parallel computing architecture that leverages
the parallel compute engine in our graphics processing units to solve many
complex computational problems in a fraction of the time required on a CPU.
There are currently over 25,000 developers around the world using CUDA. In order
to program using the CUDA architecture, developers can, today, use C, one of the
most widely used high-level programming languages, which can then be run at
great performance on a CUDA enabled processor. We expect other languages to be
supported in the future, including FORTRAN and C++.

 

    With CUDA, we
are able to speed up general purpose compute-intensive applications like we do
for 3D graphics processing.  Developers are able to speed-up
algorithms in areas ranging from nano molecular dynamics to image processing,
medical image reconstruction and derivatives modeling for financial risk
analysis.  Over 100 universities around the world now teach parallel
programming with CUDA and many PC OEMs now offer high performance computing
solutions with Tesla for use by customers around the world, including Motorola,
Chevron, GE Health Care and even General Mills, the consumer products company.
Researchers use CUDA to accelerate their time-to-discovery, and popular
off-the-shelf software packages are now CUDA accelerated.

 

    MCP
Business

 

    Our MCP
business is comprised of nForce core logic and GeForce mGPU
products.   Our nForce and GeForce mGPU families of products address
the core logic market.  Core logic is the computer’s “central nervous
system,” controlling and directing high speed data between the central
processing unit, or CPU, the GPU, storage, and networks.  High
quality, long-term reliability, and top performance are key customer demands of
core logic suppliers.

 

    During fiscal
year 2008, we announced a new technology named Hybrid SLI. This technology
combines the multi-GPU technology with a powerful and energy-efficient engine.
When GeForce add-in graphics cards are connected to GeForce mGPUs, Hybrid SLI
kicks in, combining their processing power to deliver an improved experience.
The technology is application aware so, depending on the processing demands of
each application running on the host PC, the discrete GPU may be completely shut
down in order to save power.

 

    During fiscal year
2009, we shipped Hybrid SLI DX10 mGPUs – the GeForce 8000 GPU
series.  The GeForce 8000 GPU series includes GeForce Boost Hybrid SLI
technology, which is designed to double performance when paired with a GeForce 8
series desktop GPU.  We also extended the reach of SLI technology into
the performance category with the launch of our NVIDIA nForce 790i Ultra SLI
MCP, a highly rated overclockable platform for Intel Corporation, or Intel,
processors.
 During fiscal year 2009, we launched
the GeForce 9M series of notebook GPUs that enables improved performance in
notebooks with Hybrid SLI technology and PhysX technology. We also launched SLI
for Intel Broomfield CPU platforms.  When paired with the nForce 200
SLI MCP, Intel’s Bloomfield CPU and Tylersburg core logic chipset will deliver
NVIDIA three-way SLI technology with up to a 2.8 times performance boost over
single graphics card platforms.

 

    In fiscal
year 2009, we launched the GeForce 9400M mGPU along with Apple Inc., or Apple,
for their new lineup of Mac notebooks. The GeForce 9400M integrates three
complex chips – the northbridge, the input-output network processor, and the
GeForce GPU into a single chip and, as a result, significantly improves
performance over Intel integrated graphics.  Apple’s MacBook and
MacBook Air notebook computers come standard with the GeForce 9400M. Apple’s
MacBook Pro notebook computer comes standard with the hybrid combination of two
GeForce GPUs - a GeForce 9400M for maximum battery life and a GeForce 9600M
GT for high performance mode.  We also launched the GeForce 9400
and 9300 mGPUs for Intel desktop PCs.  These new mGPUs set a new
price/performance standard for integrated graphics by combining the power of
three different chips into one highly compact and efficient GPU.









6











    Additionally,
in the fourth quarter of fiscal year 2009, we announced the NVIDIA Ion Platform,
which combines the GeForce 9400 GPU with the Intel Atom CPU. The combination
enables netbooks, small form factor and all-in-one PCs to play rich media and
popular games in high definition.

 

    Our MCP
strategy is to bring the benefits of GeForce GPUs to the most price sensitive
categories while creating exciting platform architectures like SLI,
Hybrid SLI, and Enthusiast System Architecture, or ESA.  ESA is a
standard for system information protocol that links a PC system’s various
critical components – such as fan, power supply, smart chassis, GPUs, and
motherboards.  It enables a unified architecture for applications and
users to control and optimize the performance of their system.  SLI,
Hybrid SLI, and ESA are examples of how we create architectures that advance the
capabilities of the PC.

 

    Consumer
Products Business

 

    Our CPB is
comprised of our Tegra and GoForce mobile brands and products that support
netbooks, PMPs,  PDAs, cellular phones and other handheld devices.
This business also includes license, royalty, other revenue and associated costs
related to video game consoles and other digital consumer electronics
devices.

 

    We believe
that mobile devices like phones, music players, and portable navigation
devices will increasingly become multi-function, multi-tasking,
PCs.  As such, we anticipate the architecture of these devices will
increasingly become more consumer PC-like and be capable of delivering all the
entertainment and web experiences that end users currently enjoy on a PC, but in
a form-factor that fits nicely in their hands.  Our mobile strategy is
to create a computer-on-a-chip that enables this experience. NVIDIA Tegra
and GoForce mobile products implement design techniques, both inside the chips
and at the system level, which result in high performance and long battery life.
These technologies enhance visual display capabilities, improve connectivity,
and minimize chip and system-level power consumption. NVIDIA Tegra and GoForce
products can be found primarily in multimedia cellular phones and other handheld
devices.

 

    During fiscal
year 2009, we launched the NVIDIA Tegra APX 2500
computer-on-a-chip.  The NVIDIA Tegra APX 2500 is a computer-on-a-chip
designed to meet the growing multimedia demands of today's mobile phone and
entertainment user   In February 2009, we announced the NVIDIA
Tegra APX 2600 computer-on-a-chip and that we have worked closely with Google,
Inc., or Google, and the Open Handset Alliance to unleash Android, an open
mobile phone software stack, with the NVIDIA Tegra series of
‘computer-on-a-chip’ processors. The NVIDIA Tegra APX 2600 and 2500 enable a
compelling user interface and high-definition video playback for a low-power,
visually rich experience, and we expect that these products will be key to
building next-generation Microsoft Windows Mobile, Windows CE, and Android-based
devices, including smartphones, PNDs, and PMPs.

 

    Additionally,
we also launched the NVIDIA Tegra 600 and 650 products, which are small,
advanced, highly-integrated visual computer-on-a-chip products. These products,
which represent a single-chip heterogeneous computer architecture designed
for low-power mobile computing devices, feature enhanced multimedia
functionality—including high definition, or HD, 1080p video and advanced 3D
technology—and deliver many times the power efficiency of competing products on
a broad range of connected devices.

 

    Additionally,
in the fourth quarter of fiscal year 2009, we also introduced GeForce 3D Vision,
a high-definition 3D stereo solution for the home. 3D Vision is a combination of
high-tech wireless glasses, a high-power infrared emitter and advanced
software that transforms hundreds of PC games into full stereoscopic
3D.



Our
Strategy

 

    We design our
products to enable our PC OEMs, ODMs, system builders, motherboard and add-in
board manufacturers, and cellular phone and consumer electronics OEMs, to build
products that deliver state-of-the-art features, performance, compatibility and
power efficiency while maintaining competitive pricing and profitability. We
believe that by developing 3D graphics, HD, video and media communications
solutions that provide superior performance and address the key requirements of
each of the product categories we serve, we will accelerate the adoption of HD
digital media platforms and devices throughout these segments. We combine
scalable architectural technology with mass market economies-of-scale to deliver
a complete family of products that span from professional workstations, to
consumer PCs, to multimedia-rich cellular phones.

 







7











    Our objective
is to be the leading supplier of performance GPUs, MCPs and computer-on-a-chip
products that support netbooks, PNDs, PDAs, PMPs, cellular phones and other
handheld devices. Our current focus is on the desktop PC, professional
workstation, notebook PC, high-performance computing, application processor,
multimedia-rich cellular phone and video game console product lines, and we plan
to expand into other product lines. Our strategy to achieve this objective
includes the following key elements:



    Build Award-Winning,
Architecturally-Compatible 3D Graphics, HD Video, Media Communications and
Ultra-Low Power Product Families for the PC, Handheld and Digital Entertainment
Platforms
.    Our strategy is to achieve market
segment leadership in these platforms by providing award-winning performance at
every price point. By developing 3D graphics, HD video and media communications
solutions that provide superior performance and address the key requirements of
these platforms, we believe that we will accelerate the adoption of 3D graphics
and rich digital media.

 

    Target Leading OEMs,
ODMs and System Builders
.    Our strategy is to
enable our leading PC, handheld and consumer electronics OEMs, ODMs and major
system builder customers to differentiate their products in a highly competitive
marketplace by using our products. We believe that design wins with these
industry leaders provide market validation of our products, increase brand
awareness and enhance our ability to penetrate additional leading customer
accounts. In addition, we believe that close relationships with OEMs, ODMs and
major system builders will allow us to better anticipate and address customer
needs with future generations of our products.

 

    Sustain Technology
and Product Leadership in 3D Graphics and HD Video, and Media Communications and
Ultra-Low Power
.    We are focused on using our
advanced engineering capabilities to accelerate the quality and performance of
3D graphics, HD video, media communications and ultra-low power processing in
PCs and handheld devices. A fundamental aspect of our strategy is to actively
recruit the best 3D graphics and HD video, networking and communications
engineers in the industry, and we believe that we have assembled an
exceptionally experienced and talented engineering team. Our research and
development strategy is to focus on concurrently developing multiple generations
of GPUs, including GPUs for high-performance computing, MCPs and mobile and
consumer products that support netbooks, PNDs, PMPs, PDAs, cellular phones and
other handheld devices using independent design teams. As we have in the past,
we intend to use this strategy to achieve new levels of graphics, networking and
communications features and performance and ultra-low power designs, enabling
our customers to achieve superior performance in their products.

 

    Increase Market
Share
.    We believe that substantial market share
will be important to achieving success. We intend to achieve a leading share of
the market in areas in which we don't have a leading market share, and maintain
a leading share of the market in areas in which we do have the lead, by devoting
substantial resources to building families of products for a wide range of
applications that offer significant improvement in performance over existing
products.

 

    Use Our Expertise in
Digital Multimedia
.    We believe the synergy created
by the combination of 3D graphics, HD video and the Internet will fundamentally
change the way people work, learn, communicate and play. We believe that our
expertise in HD graphics and system architecture positions us to help drive this
transformation. We are using our expertise in the processing and transmission of
high-bandwidth digital media to develop products designed to address the
requirements of high-bandwidth concurrent multimedia.

 

    Use our Intellectual
Property and Resources to Enter into License and Development Contracts.

From time to time, we expect to enter into license arrangements that will
require significant customization of our intellectual property components.
 For license arrangements that require significant customization of our
intellectual property components, we generally recognize this license revenue
using the percentage-of-completion method of accounting over the period that
services are performed. For example, in fiscal year 2006, we entered into an
agreement with Sony Computer Entertainment, Inc., or SCE, to jointly develop a
custom GPU for SCE’s PlayStation3.  Our collaboration with SCE includes
license fees and royalties for the PlayStation3 and all derivatives, including
next-generation digital consumer electronics devices.  In addition, we are
licensing software development tools for creating shaders and advanced graphics
capabilities to SCE.

 

    Revolutionize
computing with CUDA and Tesla.  
Tesla is a family of GPU
computing products that delivers processing capabilities for high-performance
computing applications, and marks our entry into the high-performance computing
industry. NVIDIA CUDA is a general purpose parallel computing architecture that
leverages the parallel compute engine in NVIDIA GPUs to solve many complex
computational problems in a fraction of the time required on a CPU. We believe
we are in an era of GPU computing, where our CUDA parallel processing
architecture can accelerate compute-intensive applications by significant
multiples over that of a CPU alone. We are working with developers around the
world to adopt and write application programs for the CUDA architecture using C,
one of the most widely used high-level programming languages, which can then be
run at great execution speeds on a CUDA enabled processor. We expect other
languages to be supported in the future, including FORTRAN and
C++.  With CUDA, we are able to speed up general purpose
compute-intensive applications like we do for 3D graphics
processing.  Developers are able to speed-up algorithms in areas
ranging from nano molecular dynamics to image processing, medical image
reconstruction and derivatives modeling for financial risk
analysis.  We are also working with universities around the world who
now teach parallel programming with CUDA and we are also working with many PC
OEMs who now offer high performance computing solutions with Tesla for use by
their customers around the world. Researchers also use CUDA to accelerate their
time-to-discovery, and popular off-the-shelf software packages are now CUDA
accelerated.









8











Sales
and Marketing

 

    Our worldwide
sales and marketing strategy is a key part of our objective to become the
leading supplier of performance GPUs, MCPs, and applications processors that
support netbooks, PNDs, PMPs, PDAs, cellular phones and other handheld devices.
Our sales and marketing teams work closely with each industry’s respective OEMs,
ODMs, system builders, motherboard manufacturers, add-in board manufacturers and
industry trendsetters, collectively referred to as our Channel, to define
product features, performance, price and timing of new products. Members of our
sales team have a high level of technical expertise and product and industry
knowledge to support the competitive and complex design win process. We also
employ a highly skilled team of application engineers to assist our Channel in
designing, testing and qualifying system designs that incorporate our products.
We believe that the depth and quality of our design support are keys to
improving our Channel’s time-to-market, maintaining a high level of customer
satisfaction within our Channel and fostering relationships that encourage
customers to use the next generation of our products.

 

    In the GPU
and MCP segments we serve, the sales process involves achieving key design wins
with leading OEMs and major system builders and supporting the product design
into high volume production with key ODMs, motherboard manufacturers and add-in
board manufacturers. These design wins in turn influence the retail and system
builder channel that is serviced by add-in board and motherboard manufacturers.
Our distribution strategy is to work with a number of leading independent
contract equipment manufacturers, or CEMs, ODMs, motherboard manufacturers,
add-in board manufacturers and distributors each of which have relationships
with a broad range of major OEMs and/or strong brand name recognition in the
retail channel. In the CPB segment we serve, the sales process primarily
involves achieving key design wins directly with the leading handheld OEMs and
supporting the product design into high-volume production. Currently, we sell a
significant portion of our processors directly to distributors, CEMs, ODMs,
motherboard manufacturers and add-in board manufacturers, which then sell boards
and systems with our products to leading OEMs, retail outlets and to a large
number of system builders.

 

    Although a
small number of our customers represent the majority of our revenue, their end
customers include a large number of OEMs and system builders throughout the
world.  As a result of our Channel strategy, our sales are focused on
a small number of customers. Sales to our largest customer, Hewlett-Packard
Company, accounted for 11% of our total revenue for fiscal year
2009.

 

    To encourage
software title developers and publishers to develop games optimized for
platforms utilizing our products, we seek to establish and maintain strong
relationships in the software development community. Engineering and marketing
personnel interact with and visit key software developers to promote and discuss
our products, as well as to ascertain product requirements and solve technical
problems. Our developer program makes certain that our products are available to
developers prior to volume availability in order to encourage the development of
software titles that are optimized for our products.



Backlog

 

    Our sales are
primarily made pursuant to standard purchase orders. The quantity of products
purchased by our customers as well as our shipment schedules are subject to
revisions that reflect changes in both the customers’ requirements and in
manufacturing availability. The semiconductor industry is characterized by short
lead time orders and quick delivery schedules. In light of industry practice and
experience, we believe that only a small portion of our backlog is
non-cancelable and that the dollar amount associated with the non-cancelable
portion is not significant. Consequently, we do not believe that a backlog as of
any particular date is indicative of future results.

 

Dependence
on PC market



    We derive and
expect to continue to derive the majority of our revenue from the sale or
license of products for use in the desktop PC and notebook PC markets, including
professional workstations. A reduction in sales of PCs, or a reduction in the
growth rate of PC sales, may reduce demand for our products.  Changes
in demand for our products could be large and sudden.  During fiscal
year 2009, sales of our desktop GPU products decreased approximately 29%
compared to fiscal year 2008.  These decreases were primarily due to the
Standalone Desktop and Standalone Notebook GPU market segment decline as
reported in the PC Graphics December 2008 Report from Mercury Research. 
Since PC manufacturers often build inventories during periods of anticipated
growth, they may be left with excess inventories if growth slows or if they
incorrectly forecast product transitions. In these cases, PC manufacturers may
abruptly suspend substantially all purchases of additional inventory from
suppliers like us until their excess inventory has been absorbed, which would
have a negative impact on our financial results.









9











Seasonality

 

    Our industry
is largely focused on the consumer products market. Historically, we have seen
stronger revenue in the second half of our fiscal year than in the first
half of our fiscal year, primarily due to back-to-school and holiday
demand. This seasonal trend did not occur in fiscal year
2009.  Revenue in the second half of fiscal year 2009 declined by 33%
when compared to revenue from the first half of fiscal year 2009. The current
recessionary economic environment has created substantial uncertainty in our
business. There can be no assurance that the historical seasonal trend will
resume in the future.



Manufacturing

 

    Fabless
Manufacturing Strategy

 

    We do not
directly manufacture semiconductor wafers used for our products. Instead, we
utilize what is known as a fabless manufacturing strategy for all of our
product-line operating segments whereby we employ world-class suppliers for all
phases of the manufacturing process, including wafer fabrication, assembly,
testing and packaging. This strategy uses the expertise of industry-leading
suppliers that are certified by the International Organization for
Standardization, or ISO, in such areas as fabrication, assembly, quality control
and assurance, reliability and testing. In addition, this strategy allows us to
avoid many of the significant costs and risks associated with owning and
operating manufacturing operations. Our suppliers are also responsible for
procurement of most of the raw materials used in the production of our products.
As a result, we can focus our resources on product design, additional quality
assurance, marketing and customer support.

 

    We utilize
industry-leading suppliers, such as Taiwan Semiconductor Manufacturing
Corporation, or TSMC, United Microelectronics Corporation, or UMC, Chartered
Semiconductor Manufacturing, or Chartered, Semiconductor Manufacturing
International Corporation, or SMIC, and Austria Micro Systems, or AMS to produce
our semiconductor wafers. We then utilize independent subcontractors, such as
Advanced Semiconductor Engineering, or ASE, Amkor Technology, or Amkor, JSI
Logistics Ltd., or JSI, King Yuan Electronics Co., Ltd, or KYEC, Siliconware
Precision Industries Company Ltd., or SPIL, and STATS ChipPAC Incorporated, or
ChipPAC, to perform assembly, testing and packaging of most of our
products.

 

    We typically
receive semiconductor products from our subcontractors, perform incoming quality
assurance and then ship the semiconductors to CEMs, distributors, motherboard
and add-in board manufacturer customers from our third-party warehouse in Hong
Kong. Generally, these manufacturers assemble and test the boards based on our
design kit and test specifications, and then ship the products to retailers,
system builders or OEMs as motherboard and add-in board solutions.

 

    Product
Defect

 

    Our products
are complex and may contain defects or experience failures due to any number of
issues in design, fabrication, packaging, materials and/or use within a system.
If any of our products or technologies contains a defect, compatibility issue or
other error, we may have to invest additional research and development efforts
to find and correct the issue.  Such efforts could divert our
management’s and engineers’ attention from the development of new products and
technologies and could increase our operating costs and reduce our gross margin.
In addition, an error or defect in new products or releases or related software
drivers after commencement of commercial shipments could result in failure to
achieve market acceptance or loss of design wins. Also, we may be required to
reimburse customers, including for customers’ costs to repair or replace the
products in the field. A product recall or a significant number of product
returns could be expensive, damage our reputation and could result in the
shifting of business to our competitors. Costs associated with correcting
defects, errors, bugs or other issues could be significant and could materially
harm our financial results.

 

    For example,
in July 2008, we recorded a $196.0 million charge against cost of revenue to
cover anticipated customer warranty, repair, return, replacement and other
associated costs arising from a weak die/packaging material set in certain
versions of our previous generation MCP and GPU products used in notebook
systems. All of our newly manufactured products and all of our products that are
currently shipping in volume have a different material set that we believe is
more robust. The previous generation MCP and GPU products that are impacted were
included in a number of notebook products that were shipped and sold in
significant quantities. Certain notebook configurations of these MCP and GPU
products are failing in the field at higher than normal rates. While we have not
been able to determine a root cause for these failures, testing suggests a weak
material set of die/package combination, system thermal management designs, and
customer use patterns are contributing factors. We have worked with our
customers to develop and have made available for download a software driver to
cause the system fan to begin operation at the powering up of the system and
reduce the thermal stress on these chips. We have also recommended to our
customers that they consider changing the thermal management of the MCP and GPU
products in their notebook system designs. We intend to fully support our
customers in their repair and replacement of these impacted MCP and GPU products
that fail, and their other efforts to mitigate the consequences of these
failures.

 

    We continue
to engage in discussions with our supply chain regarding reimbursement to us for
some or all of the costs we have incurred and may incur in the future relating
to the weak material set. We also continue to seek to access our insurance
coverage, which provided us with $8.0 million in related reimbursement during
fiscal year 2009. However, there can be no assurance that we will recover any
additional reimbursement. We continue to not see any abnormal failure rates in
any systems using NVIDIA products other than certain notebook configurations.
However, we are continuing to test and otherwise investigate other products.
There can be no assurance that we will not discover defects in other MCP or GPU
products.

 







10











Inventory
and Working Capital

 

    Our
management focuses considerable attention on managing our inventories and other
working-capital-related items. We manage inventories by communicating with our
customers and then using our industry experience to forecast demand on a
product-by-product basis. We then place manufacturing orders for our products
that are based on forecasted demand. The quantity of products actually purchased
by our customers as well as shipment schedules are subject to revisions that
reflect changes in both the customers’ requirements and in manufacturing
availability. We generally maintain substantial inventories of our products
because the semiconductor industry is characterized by short lead time orders
and quick delivery schedules.

 

    We believe
that our existing cash balances and anticipated cash flows from operations will
be sufficient to meet our operating, acquisition and capital requirements for at
least the next twelve months. However, there is no assurance that we will not
need to raise additional equity or debt financing within this time frame.
Additional financing may not be available on favorable terms or at all and may
be dilutive to our then-current stockholders. We also may require additional
capital for other purposes not presently contemplated. If we are unable to
obtain sufficient capital, we could be required to curtail capital equipment
purchases or research and development expenditures, which could harm our
business.



Research
and Development

 

    We believe
that the continued introduction of new and enhanced products designed to deliver
leading 3D graphics, HD video, audio, ultra-low power communications, storage,
and secure networking performance and features is essential to our future
success. Our research and development strategy is to focus on concurrently
developing multiple generations of GPUs, MCPs and our consumer products that
support netbooks, PNDs, PMPs, PDAs, cellular phones or other handheld devices
using independent design teams. Our research and development efforts are
performed within specialized groups consisting of software engineering, hardware
engineering, very large scale integration design engineering, process
engineering, architecture and algorithms. These groups act as a pipeline
designed to allow the efficient simultaneous development of multiple generations
of products.

 

    A critical
component of our product development effort is our partnerships with leaders in
the computer aided design, or CAD, industry. We invest significant resources in
the development of relationships with industry leaders, including Cadence Design
Systems, Inc., and Synopsys, Inc., often assisting these companies in the
product definition of their new products. We believe that forming these
relationships and utilizing next-generation development tools to design,
simulate and verify our products will help us remain at the forefront of the 3D
graphics market and develop products that utilize leading-edge technology on a
rapid basis. We believe this approach assists us in meeting the new design
schedules of PC OEM and other manufacturers.

 

    We
substantially increased our engineering and technical resources in fiscal year
2009, and had 3,772 full-time employees engaged in research and development as
of January 25, 2009, compared to 3,255 employees as of January 27, 2008 and
2,668 employees as of January 28, 2007. During fiscal years 2009, 2008 and 2007,
we incurred research and development expenditures of $855.9 million, $691.6
million and $553.5 million, respectively.





 




 



11







 



Competition

 

   The market for GPUs, MCPs,
and computer-on-a-chip products that support netbooks, PNDs, PMPs, PDAs,
cellular phones or other handheld devices is intensely competitive and is
characterized by rapid technological change, evolving industry standards and
declining average selling prices. We believe that the principal competitive
factors in this market are performance, breadth of product offerings, access to
customers and distribution channels, software support, conformity to industry
standard Application Programming Interfaces, or APIs, manufacturing
capabilities, processor pricing, and total system costs. We believe that our
ability to remain competitive will depend on how well we are able to anticipate
the features and functions that customers will demand and whether we are able to
deliver consistent volumes of our products at acceptable levels of quality and
at competitive prices. We expect competition to increase from both existing
competitors and new market entrants with products that may be less costly than
ours, or may provide better performance or additional features not provided by
our products. In addition, it is possible that new competitors or alliances
among competitors could emerge and acquire significant market
share.

 

    A significant
source of competition is from companies that provide or intend to provide GPU,
MCP, and computer-on-a-chip products that support netbooks, PNDs, PMPs, PDAs,
cellular phones or other handheld devices. Some of our competitors may have
greater marketing, financial, distribution and manufacturing resources than we
do and may be more able to adapt to customer or technological changes.
Currently, Intel, which has greater resources than we do, is working on a
multi-core architecture code-named Larrabee, which may compete with our products
in various markets.  Intel may also release an enthusiast level
discrete GPU based on the Larrabee architecture. Additionally, in fiscal year
2009, Intel also introduced the Intel Atom processor which is designed for lower
cost PCs. Intel may also release a second generation of Atom chips by 2010 which
is expected to have an improved battery life. The Intel Atom processor may
compete with our products that support netbooks, PDAs, cellular phones and other
handheld devices.

 

    Our current
competitors include the following:

 









·  


suppliers
of discrete MCPs that incorporate a combination of networking, audio,
communications and input/output, or I/O, functionality as part of their
existing solutions, such as AMD, Broadcom Corporation, or Broadcom,
Silicon Integrated Systems, Inc., or SIS, VIA Technologies,
Inc., or VIA, and Intel;










·  


suppliers
of GPUs, including MCPs that incorporate 3D graphics functionality as part
of their existing solutions, such as AMD, Intel, Matrox Electronics
Systems Ltd., SIS, and VIA;










·  


suppliers
of computer-on-a-chip products that support netbooks, PNDs, PMPs, PDAs,
cellular phones or other handheld devices such as AMD, Broadcom, Fujitsu
Limited, Imagination Technologies Ltd., ARM Holdings plc, Marvell
Technology Group Ltd, or Marvell, NEC Corporation, Qualcomm Incorporated,
Renesas Technology, Samsung, Seiko-Epson, Texas Instruments Incorporated,
and Toshiba America, Inc.; and










·  


suppliers
of computer-on-a-chip products for handheld and embedded devices that
incorporate multimedia processing as part of their existing solutions such
as Broadcom, Texas Instruments Inc., Qualcomm Incorporated, Marvell,
Freescale Semiconductor Inc., Renesas Technology, Samsung, and ST
Microelectronics.




 

    We expect
substantial competition from both Intel’s and AMD’s strategy of selling platform
solutions, such as the success Intel achieved with its Centrino platform
solution.  AMD has also announced a platform solution. Additionally, we
expect that Intel and AMD will extend this strategy to other segments, including
the possibility of successfully integrating a central processing unit, or CPU,
and a GPU on the same chip, as evidenced by AMD’s announcement of its Fusion
processor project. If AMD and Intel continue to pursue platform solutions, we
may not be able to successfully compete and our business would be negatively
impacted.

 

    If and to the
extent we offer products in new markets, we may face competition from some of
our existing competitors as well as from companies with which we currently do
not compete. For example, in the case of our CPB, our Tegra and GoForce products
primarily compete in architecture used in multimedia cellular phones and
handheld devices.  We believe that mobile devices like phones,
music players, and portable navigation devices will increasingly become more
consumer PC-like and be capable of delivering all the entertainment and web
experiences in a handheld device. We cannot accurately predict if we will
compete successfully in any of the new markets we may enter. If we are unable to
compete in our current or new markets, demand for our products could decrease
which could cause our revenue to decline and our financial results to
suffer.

 

    Our GPU and
MCP products are currently used with both Intel and AMD
processors.   In February 2009, Intel filed suit against us,
related to a patent license agreement that we signed with Intel in 2004. Intel
seeks an order from the court declaring that the license does not extend to a
new Intel processor architecture and enjoining us from stating that we have
licensing rights for this architecture.  If Intel successfully obtains
such a court order, we could be unable to sell our MCP products for use with
these Intel processors and our competitive position would be
harmed.  In addition, in order to continue to sell MCP products for
use with these Intel processors we could be required to negotiate a new license
agreement with Intel and we may not be able to do so on reasonable terms, if at
all.





 




 



12







 



Patents
and Proprietary Rights

 

    We rely
primarily on a combination of patents, trademarks, trade secrets, employee and
third-party nondisclosure agreements and licensing arrangements to protect our
intellectual property in the United States and internationally. Our issued
patents have expiration dates from April 10, 2009 to October 1,
2028.  We have numerous patents issued, allowed and pending in the
United States and in foreign jurisdictions. Our patents and pending patent
applications primarily relate to our products and the technology used in
connection with our products. We also rely on international treaties,
organizations and foreign laws to protect our intellectual property. The laws of
certain foreign countries in which our products are or may be manufactured or
sold, including various countries in Asia, may not protect our products or
intellectual property rights to the same extent as the laws of the United
States. This makes the possibility of piracy of our technology and products more
likely. We continuously assess whether and where to seek formal protection for
particular innovations and technologies based on such factors as:

 









·  


the
location in which our products are
manufactured;










·  


our
strategic technology or product directions in different countries;
and










·  


the
degree to which intellectual property laws exist and are meaningfully
enforced in different
jurisdictions.










·  


the
commercial significance of our operations and our competitors’ operations
in particular countries and
regions;



    Our pending
patent applications and any future applications may not be approved. In
addition, any issued patents may not provide us with competitive advantages or
may be challenged by third parties. The enforcement of patents by others may
harm our ability to conduct our business. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property. Our failure to effectively protect our
intellectual property could harm our business. We have licensed technology from
third parties for incorporation in some of our products and for defensive
reasons, and expect to continue to enter into such license agreements. These
licenses may result in royalty payments to third parties, the cross licensing of
technology by us or payment of other consideration. If these arrangements are
not concluded on commercially reasonable terms, our business could
suffer.



Employees

    

   As of January 25, 2009 we
had 5,420 employees, 3,772 of whom were engaged in research and development and
1,648 of whom were engaged in sales, marketing, operations and administrative
positions. None of our employees are covered by collective bargaining
agreements, and we believe our relationships with our employees are
good.



Financial
Information by Business Segment and Geographic Data



   Our Chief Executive
Officer, who is considered to be our chief operating decision maker, or CODM,
reviews financial information presented on an operating segment basis for
purposes of making operating decisions and assessing financial
performance.  During the first quarter of fiscal year 2008, we
reorganized our operating segments. We now report financial information for four
operating segments to our CODM: the GPU business, which is comprised primarily
of our GeForce products that support desktop and notebook PCs, plus memory
products; the PSB which is comprised of our NVIDIA Quadro professional
workstation products and other professional graphics products, including our
NVIDIA Tesla high-performance computing products; the MCP business which is
comprised of NVIDIA nForce core logic and motherboard GPU products; and our CPB,
which is comprised of our Tegra and GoForce mobile brands and products that
support netbooks, PNDs, PMPs, PDAs, cellular phones and other handheld
devices.  CPB also includes license, royalty, other revenue and
associated costs related to video game consoles and other digital consumer
electronics devices. In addition to these operating segments, we have the “All
Other” category that includes human resources, legal, finance, general
administration and corporate marketing expenses, which total $346.1 million,
$266.2 million and $239.6 million for fiscal years 2009, 2008 and 2007,
respectively, that we do not allocate to our other operating segments as these
expenses are not included in the segment operating performance measures
evaluated by our CODM. “All Other” also includes the results of operations of
other miscellaneous reporting segments that are neither individually reportable,
nor aggregated with another operating segment. Revenue in the “All Other”
category is primarily derived from sales of components.  Certain prior
period amounts have been revised to conform to the presentation of our current
fiscal year.

 

    Our CODM does
not review any information regarding total assets on an operating segment basis.
Operating segments do not record intersegment revenue, and, accordingly, there
is none to be reported.  The accounting policies for segment reporting are
the same as for NVIDIA as a whole.  The information included in Note 16 of
the Notes to the Consolidated Financial Statements in Part IV, Item 15
of this Form 10-K, including financial information by business segment and
revenue and long-lived assets by geographic region, is hereby incorporated by
reference.




 




 



13







 



Executive
Officers of the Registrant



The
following sets forth certain information regarding our executive officers, their
ages and their positions as of February 27, 2009:

 

















































Name

 

Age

 

Position


Jen-Hsun
Huang

 

45

 

President,
Chief Executive Officer and Director


David
L. White*

 

53

 

Executive
Vice President and Chief Financial Officer


Ajay
K. Puri

 

54

 

Executive
Vice President, Worldwide Sales


David
M. Shannon

 

53

 

Executive
Vice President, General Counsel and Secretary


Debora
Shoquist

 

54

 

Executive
Vice President,
Operations






*
On February 27, 2009, we announced that David L. White was appointed as our
Executive Vice President and Chief Financial Officer, succeeding Marvin Burkett,
whose decision to retire was disclosed in March 2008.

 

    Jen-Hsun Huang
co-founded NVIDIA in April 1993 and has served as its President, Chief
Executive Officer and a member of the Board of Directors since its inception.
From 1985 to 1993, Mr. Huang was employed at LSI Logic Corporation, a computer
chip manufacturer, where he held a variety of positions, most recently as
Director of Coreware, the business unit responsible for LSI’s “system-on-a-chip”
strategy. From 1983 to 1985, Mr. Huang was a microprocessor designer for
Advanced Micro Devices, Inc., a semiconductor company. Mr. Huang holds a
B.S.E.E. degree from Oregon State University and an M.S.E.E. degree
from Stanford University.

 

    David White
joined NVIDIA in February 2009 as Executive Vice President and Chief
Financial Officer. From August 2004 to February 2009, Mr. White served as the
Executive Vice President of Finance and Chief Financial Officer of Sanmina-SCI
Corporation, a global provider of customized, integrated electronics
manufacturing services to original equipment manufacturers in the
communications, enterprise computing and medical industries and various other
end markets. From 2003 to 2004, Mr. White was Senior Vice President and Chief
Financial Officer of Asyst Technologies, Inc., a provider of integrated hardware
and software automation solutions that enhance semiconductor and flat-panel
display manufacturing productivity. Mr. White served as President and Chief
Executive Officer of Candescent Technologies Corporation, a developer of field
emission display technology for next-generation thin flat-panel displays, and
held various other positions, from 1995 to 2002. Mr. White holds a B.S. degree
from Brigham Young University and an M.B.A. from the University of
Washington.

 

    Ajay K. Puri
joined NVIDIA in December 2005 as Senior Vice President, Worldwide Sales and
became Executive Vice President, Worldwide Sales in January 2009. Prior to
NVIDIA, he held positions in sales, marketing, and general management over a
22-year career at Sun Microsystems, Inc. Mr. Puri previously held marketing,
management consulting, and product development positions at Hewlett-Packard
Company, Booz Allen Hamilton Inc., and Texas Instruments Incorporated. Mr. Puri
holds an M.B.A. degree from Harvard University, an M.S.E.E. degree from the
California Institute of Technology and a B.S.E.E. degree from the University of
Minnesota.

 

    David M.
Shannon
 joined NVIDIA in August 2002 as Vice President and General
Counsel. Mr. Shannon became Secretary of NVIDIA in April 2005, a Senior
Vice President in December 2005 and an Executive Vice President in January 2009.
From 1993 to 2002, Mr. Shannon held various counsel positions at Intel,
including the most recent position of Vice President and Assistant General
Counsel. Mr. Shannon also practiced for eight years in the law firm of
Gibson Dunn and Crutcher, focusing on complex commercial and high-technology
related litigation. Mr. Shannon holds B.A. and J.D. degrees from
Pepperdine University.

 

    Debora
Shoquist
joined NVIDIA in September 2007 as Senior Vice President of
Operations and became Executive Vice President of Operations in January
2009.  From 2004 to 2007, Ms. Shoquist served as Senior Vice
President of Operations at JDS Uniphase Corporation, a provider of
communications test and measurement solutions and optical products for the
telecommunications industry. From 2002 to 2004, she served as Senior Vice
President and General Manager of the Electro-Optics business at Coherent, Inc.,
a manufacturer of commercial and scientific laser equipment. Her experience
includes her role at Quantum Corporation as the President of the Personal
Computer Hard Disk Drive Division. Her experience also includes senior roles at
Hewlett-Packard Corporation. She holds a B.S degree in Electrical Engineering
from Kansas State University and a B.S. degree in Biology from Santa
Clara University.



Available
Information

 

    Our Annual
Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and, if applicable, amendments to those reports filed or furnished pursuant to
Section 13(a) of the Securities Exchange Act of 1934, or the Exchange Act, are
available free of charge on or through our Internet web site,
http://www.nvidia.com, as soon as reasonably practicable after we electronically
file such material with, or furnish it to, the Securities and Exchange
Commission, or the SEC. Our web site and the information on it or connected to
it is not a part of this Form 10-K.

 







14












 

    In evaluating
NVIDIA and our business, the following factors should be considered in addition
to the other information in this Annual Report on Form 10-K.  Before
you buy our common stock, you should know that making such an investment
involves some risks including, but not limited to, the risks described below.
Additionally, any one of the following risks could seriously harm our business,
financial condition and results of operations, which could cause our stock price
to decline. Additional risks and uncertainties not presently known to us or that
we currently deem immaterial may also impair our business
operations.



Risks
Related to Our Business and Industry

 

    Global
economic conditions have reduced demand for our products, adversely impacted our
customers and suppliers and harmed our business.

 

    Our
operations and performance depend significantly on worldwide economic
conditions. Uncertainty about current global economic conditions poses a
continuing risk to our business as consumers and businesses have postponed
spending in response to tighter credit, negative financial news and/or declines
in income or asset values, which have reduced the demand for our products. Other
factors that could depress demand for our products in the future include
conditions in the residential real estate and mortgage markets, labor and
healthcare costs, access to credit, consumer confidence, and other macroeconomic
factors affecting consumer spending behavior. These and other economic factors
have reduced demand for our products and could further harm our business,
financial condition and operating results.

 

    The current
financial turmoil affecting the banking system and financial markets and the
possibility that financial institutions may consolidate or go out of business
have resulted in a tightening in the credit markets, a low level of liquidity in
many financial markets, and extreme volatility in fixed income, credit, currency
and equity markets. There could be a number of follow-on effects from the credit
crisis on our business, including insolvency of key suppliers resulting in
product delays; inability of customers, including channel partners, to obtain
credit to finance purchases of our products and/or customer, including channel
partner, insolvencies; and failure of financial institutions, which may
negatively impact our treasury operations. Other income and expense could also
vary materially from expectations depending on gains or losses realized on the
sale or exchange of financial instruments; impairment charges related to debt
securities as well as equity and other investments; interest rates; and cash,
cash equivalent and marketable securities balances. For example, during fiscal
year 2009, we recorded impairment charges of $5.6 million related to our money
market investment in the Reserve International Liquidity Fund, Ltd., or the
International Reserve Fund. The current volatility in the financial markets and
overall economic uncertainty increases the risk that the actual amounts realized
in the future on our financial instruments could differ significantly from the
fair values currently assigned to them.

 

    Our business
is cyclical in nature and is currently experiencing a severe downturn, which has
harmed and may continue to harm our financial results.

 

    Our business
is directly affected by market conditions in the highly cyclical semiconductor
industry, which is currently experiencing a severe downturn. The semiconductor
industry has been adversely affected by many factors, including the current
global downturn, ongoing efforts by our customers to reduce their spending,
diminished product demand, increased inventory levels, lower average selling
prices, uncertainty regarding long-term growth rates and underlying financial
health and increased competition. These factors, could, among other things,
limit our ability to maintain or increase our sales or recognize revenue and in
turn adversely affect our business, operating results and financial
condition.  If our actions to reduce our operating expenses to
sufficiently offset these factors during this downturn are unsuccessful, our
operating results will suffer.

 

    Our revenue
may fluctuate while our operating expenses are relatively fixed, which makes our
results difficult to predict and could cause our results to fall short of
expectations.

 

    Demand for
many of our revenue components fluctuate and are difficult to predict, and our
operating expenses are relatively fixed and largely independent of revenue.
Therefore, it is difficult for us to accurately forecast revenue and profits or
losses in any particular period.  Our operating expenses, which are
comprised of research and development expenses, sales, general and
administrative expenses and restructuring and other charges, represented 36%,
25% and 28% of our total revenue for fiscal years 2009, 2008 and 2007,
respectively.  Since we often recognize a substantial portion of our
revenue in the last month of each quarter, we may not be able to adjust our
operating expenses in a timely manner in response to any unanticipated revenue
shortfalls in any quarter as was the case in the fourth quarter of fiscal year
2009. Our operating expenses, which are comprised of research and development
expenses and sales, general and administrative expenses and restructuring and
other charges, represented 66% of our total revenue for the fourth quarter of
fiscal year 2009. Further, some of our operating expenses, like stock-based
compensation expense can only be adjusted over a longer period of time and
cannot be reduced during a quarter.  If we are unable to reduce operating
expenses quickly in response to any revenue shortfalls, our financial results
will be negatively impacted.





 




 



15







 



   
In September 2008, we announced a workforce reduction to allow for continued
investment in strategic growth areas, which was completed in the third quarter
of fiscal year 2009. As a result, we eliminated approximately 360 positions
worldwide, or about 6.5% of our global workforce.  During fiscal year
2009, expenses associated with the workforce reduction, which were comprised
primarily of severance and benefits payments to these employees, totaled $8.0
million. We anticipate that the expected decrease in operating expenses from
this action will be offset by continued investment in strategic growth areas. In
addition, in response to the current economic environment, we have commenced
several cost reduction measures which are designed to reduce our operating
expenses and will continue to focus on reducing our operating expenses during
fiscal year 2010. Please refer to the discussion in Note 19 to the Notes to the
Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for the potential impact of the tender offer on operating
expenses during the first quarter of fiscal year 2010.

 

    Any one or
more of the risks discussed in this Annual Report on Form 10-K or other factors
could prevent us from achieving our expected future revenue or net income.
Accordingly, we believe that period-to-period comparisons of our results of
operations should not be relied upon as an indication of future performance.
Similarly, the results of any quarterly or full fiscal year period are not
necessarily indicative of results to be expected for a subsequent quarter or a
full fiscal year. As a result, it is possible that in some quarters our
operating results could be below the expectations of securities analysts or
investors, which could cause the trading price of our common stock to decline.
We believe that our quarterly and annual results of operations may continue to
be affected by a variety of factors that could harm our revenue, gross profit
and results of operations.

 

    Our failure
to estimate customer demand properly could adversely affect our financial
results.

 

    We
manufacture our products based on forecasts of customer demand in order to have
shorter shipment lead times and quicker delivery schedules for our
customers.  As a result, we may build inventories for anticipated
periods of growth which do not occur or may build inventory anticipating demand
for a product that does not materialize. The current negative worldwide economic
conditions and market instability makes it increasingly difficult for us, our
customers and our suppliers to accurately forecast future product demand trends.
In forecasting demand, we make multiple assumptions any of which may prove to be
incorrect. Situations that may result in excess or obsolete inventory
include:

 









·  


if
there were a sudden and significant decrease in demand for our
products;










·  


if
there were a higher incidence of inventory obsolescence because of rapidly
changing technology and customer
requirements;










·  


if
we fail to estimate customer demand properly for our older products as our
newer products are introduced; or










·  


if
our competition were to take unexpected competitive pricing
actions.



    Any inability
to sell products to which we have devoted resources could harm our business. In
addition, cancellation or deferral of customer purchase orders could result in
our holding excess inventory, which could adversely affect our gross margin and
restrict our ability to fund operations. Additionally, because we often sell a
substantial portion of our products in the last month of each quarter, we may
not be able to reduce our inventory purchase commitments in a timely manner in
response to customer cancellations or deferrals. We could be subject to excess
or obsolete inventories and be required to take corresponding inventory
write-downs and/or a reduction in average selling prices if growth slows or does
not materialize, or if we incorrectly forecast product demand, which could
negatively impact our financial results.

 

    Conversely,
if we underestimate our customers’ demand for our products, our third party
manufacturing partners may not have adequate lead-time or capacity to increase
production for us meaning that we may not be able to obtain sufficient inventory
to fill our customers’ orders on a timely basis. Even if we are able to increase
production levels to meet customer demand, we may not be able to do so in a cost
effective or timely manner. Inability to fulfill our customers’ orders on a
timely basis, or at all, could damage our customer relationships, result in lost
revenue, cause a loss in market share, impact our customer relationships or
damage our reputation, any of which could adversely impact our
business.



    Because our
gross margin for any period depends on a number of factors, our failure to
forecast changes in any of these factors could adversely affect our gross
margin.

 

    We are
focused on improving our gross margin. Our gross margin for any period depends
on a number of factors, including:

 








·  


the
mix of our products sold;









·  


average
selling prices;










·  


introduction
of new products;










·  


product
transitions;









·  


sales
discounts;









·  


unexpected
pricing actions by our competitors;










·  


the
cost of product components; and










·  


the
yield of wafers produced by the foundries that manufacture our
products.




    During the
fourth quarter of fiscal year 2009, our gross margin declined to 29.4% as
compared to 45.7% during the fourth quarter of fiscal year 2008 and decreased
from 41.0% from the third quarter of fiscal year 2009. If we do not correctly
forecast the impact of any of the relevant factors on our business, there may
not be any actions we can take or we may not be able to take any possible
actions in time to counteract any negative impact on our gross margin.
Additionally, during fiscal year 2009, the revenue and gross margins from our
sale of desktop products decreased primarily due to a decline in the Standalone
Desktop market segment as reported in the December 2008 PC Graphics Report from
Mercury Research. This decline was driven by a combination of market migration
from desktop PCs towards notebook PCs and an overall market shift in the mix of
products towards lower priced products. If the overall shift in the demand from
the consumer continues to shift towards lower priced products, it will have an
adverse impact on our gross margin. In addition, if we are unable to meet our
gross margin target for any period or the target set by analysts, the trading
price of our common stock may decline.







16











 


    We are
dependent on the personal computer market and its rate of growth in the future
may have a negative impact on our business.

 

    We derive and
expect to continue to derive the majority of our revenue from the sale or
license of products for use in the desktop personal computer, or PC, and
notebook PC markets, including professional workstations. A reduction in sales
of PCs, or a reduction in the growth rate of PC sales, may reduce demand for our
products. These changes in demand could be large and sudden. During fiscal year
2009, sales of our desktop GPU products decreased by approximately 29% compared
to fiscal year 2008. These decreases were primarily due to the Standalone
Desktop GPU market segment decline as reported in the PC Graphics December 2008
Report from Mercury Research.   Since PC manufacturers often
build inventories during periods of anticipated growth, they may be left with
excess inventories if growth slows or if they incorrectly forecast product
transitions. In these cases, PC manufacturers may abruptly suspend substantially
all purchases of additional inventory from suppliers like us until their excess
inventory has been absorbed, which would have a negative impact on our financial
results.

 

    If we are
unable to compete in the markets for our products, our financial results could
be adversely impacted.

 

    The market
for GPUs, MCPs, and computer-on-a-chip products that support netbooks, PNDs,
PMPs, PDAs, cellular phones or other handheld devices is intensely competitive
and is characterized by rapid technological change, new product introductions,
evolving industry standards and declining average selling prices.  We
believe that the principal competitive factors in this market are performance,
breadth of product offerings, access to customers and distribution channels,
software support, conformity to industry standard Application Programming
Interface, or APIs, manufacturing capabilities, price of processors, and total
system costs. We believe that our ability to remain competitive will depend on
how well we are able to anticipate the features and functions that customers
will demand and whether we are able to deliver consistent volumes of our
products at acceptable levels of quality. We expect competition to increase from
both existing competitors and new market entrants with products that may be less
costly than ours, or may provide better performance or additional features not
provided by our products. In addition, it is possible that new competitors or
alliances among competitors could emerge and acquire significant market share.
 We believe other factors impacting our ability to compete
are: 










·  


product
performance;










·  


product
bundling by competitors with multiple product
lines;










·  


breadth
and frequency of product offerings;










·  


access
to customers and distribution
channels;










·  


backward-forward
software support;










·  


conformity
to industry standard application programming interfaces;
and










·  


manufacturing
capabilities.




    

    A significant
source of competition is from companies that provide or intend to provide GPU,
MCP, and computer-on-a-chip products that support netbooks, PNDs, PMPs, PDAs,
cellular phones or other handheld devices. Some of our competitors may have
greater marketing, financial, distribution and manufacturing resources than we
do and may be more able to adapt to customer or technological changes.
Currently, Intel Corporation, or Intel, which has greater resources than we do,
is working on a multi-core architecture code-named Larrabee, which may compete
with our products in various markets.  Intel may also release an
enthusiast level discrete GPU based on the Larrabee architecture. Additionally,
in fiscal year 2009, Intel also introduced the Intel Atom processor which is
designed for lower cost PCs. Intel may also release a second generation of Atom
chips by 2010 which is expected to have an improved battery life. The Intel Atom
processor may compete with our products that support netbooks, PDAs, cellular
phones and other handheld devices.

 







17











    Our current
competitors include the following:

 








·  


suppliers
of discrete MCPs that incorporate a combination of networking, audio,
communications and input/output, or I/O, functionality as part of their
existing solutions, such as AMD, Broadcom Corporation, or Broadcom,
Silicon Integrated Systems, Inc., or SIS, VIA Technologies,
Inc., or VIA, and Intel;










·  


suppliers
of GPUs, including MCPs that incorporate 3D graphics functionality as part
of their existing solutions, such as AMD, Intel, Matrox Electronics
Systems Ltd., SIS, and VIA;










·  


suppliers
of computer-on-a-chip products that support netbooks, PNDs, PMPs, PDAs,
cellular phones or other handheld devices such as AMD, Broadcom, Fujitsu
Limited, Imagination Technologies Ltd., ARM Holdings plc, Marvell
Technology Group Ltd, or Marvell, NEC Corporation, Qualcomm Incorporated,
Renesas Technology, Samsung, Seiko-Epson, Texas Instruments Incorporated,
and Toshiba America, Inc.; and










·  


suppliers
of computer-on-a-chip products for handheld and embedded devices that
incorporate multimedia processing as part of their existing solutions such
as Broadcom, Texas Instruments Inc., Qualcomm Incorporated, Marvell,
Freescale Semiconductor Inc., Renesas Technology, Samsung, and ST
Microelectronics.



    

    If and to the
extent we offer products in new markets, we may face competition from some of
our existing competitors as well as from companies with which we currently do
not compete. For example, in the case of our CPB, our Tegra and GoForce products
primarily compete in architecture used in multimedia cellular phones and
handheld devices.  We believe that mobile devices like phones,
music players, and portable navigation devices will increasingly become more
consumer PC-like and be capable of delivering all the entertainment and web
experiences in a handheld device. We cannot accurately predict if we will
compete successfully in any of the new markets we may enter. If we are unable to
compete in our current or new markets, demand for our products could decrease
which could cause our revenue to decline and our financial results to
suffer.

 

    Our GPU and
MCP products are currently used with both Intel and AMD
processors.   In February 2009, Intel filed suit against us,
related to a patent license agreement that we signed with Intel in 2004. Intel
seeks an order from the court declaring that the license does not extend to a
new Intel processor architecture and enjoining us from stating that we have
licensing rights for this architecture.  If Intel successfully obtains
such a court order, we could be unable to sell our MCP products for use with
these Intel processors and our competitive position would be
harmed.  In addition, in order to continue to sell MCP products for
use with these Intel processors we could be required to negotiate a new license
agreement with Intel and we may not be able to do so on reasonable terms, if at
all.

 

    As Intel and
AMD continue to pursue platform solutions, we may not be able to successfully
compete and our business would be negatively impacted.

 

    We expect
substantial competition from both Intel’s and AMD’s strategy of selling platform
solutions, such as the success Intel achieved with its Centrino platform
solution.  AMD has also announced a platform solution. Additionally, we
expect that Intel and AMD will extend this strategy to other segments, including
the possibility of successfully integrating a central processing unit, or CPU,
and a GPU on the same chip, as evidenced by AMD’s announcement of its Fusion
processor project. If AMD and Intel continue to pursue platform solutions, we
may not be able to successfully compete and our business would be negatively
impacted.

 

    If our
products contain significant defects our financial results could be negatively
impacted, our reputation could be damaged and we could lose market
share.

 

    Our products
are complex and may contain defects or experience failures due to any number of
issues in design, fabrication, packaging, materials and/or use within a system.
If any of our products or technologies contains a defect, compatibility issue or
other error, we may have to invest additional research and development efforts
to find and correct the issue.  Such efforts could divert our
engineers’ attention from the development of new products and technologies and
could increase our operating costs and reduce our gross margin. In addition, an
error or defect in new products or releases or related software drivers after
commencement of commercial shipments could result in failure to achieve market
acceptance or loss of design wins. Also, we may be required to reimburse
customers, including our customers’ costs to repair or replace products in the
field. A product recall or a significant number of product returns could be
expensive, damage our reputation, could result in the shifting of business to
our competitors and could result in litigation against us. Costs associated with
correcting defects, errors, bugs or other issues could be significant and could
materially harm our financial results. For example, in July 2008, we recorded a
$196.0 million charge against cost of revenue to cover anticipated customer
warranty, repair, return, replacement and other associated costs arising from a
weak die/packaging material set in certain versions of our previous generation
media and communications processor, or MCP, and GPU products used in notebook
systems. In September, October and November 2008, several putative class action
lawsuits were filed against us, asserting various claims related to the impacted
MCP and GPU products.  Please refer to the risk entitled “We are subject to litigation arising
from alleged defects in our previous generation MCP and GPU products, which if
determined adversely to us, could harm our business”
for the risk
associated with this litigation.




 




 



18







 



   
We
are subject to risks associated with international operations which may harm our
business.

 

    We conduct
our business worldwide.  Our semiconductor wafers are manufactured,
assembled, tested and packaged by third-parties located outside of the United
States.  We generated 87%, 89% and 86% of our revenue for fiscal years
2009, 2008 and 2007, respectively, from sales to customers outside the United
States and other Americas. As of January 25, 2009, we had offices in fifteen
countries outside of the United States.  The manufacture, assembly,
test and packaging of our products outside of the United States, operation of
offices outside of the United States, and sales to customers internationally
subjects us to a number of risks, including:

 








·  


international
economic and political conditions, such as political tensions between
countries in which we do business;










·  


unexpected
changes in, or impositions of, legislative or regulatory requirements;
 










·  


complying
with a variety of foreign laws;










·  


differing
legal standards with respect to protection of intellectual property and
employment practices;










·  


cultural
differences in the conduct of
business; 










·  


inadequate
local infrastructure that could result in business
disruptions; 










·  


exporting
or importing issues related to export or import restrictions, tariffs,
quotas and other trade barriers and
restrictions; 










·  


financial
risks such as longer payment cycles, difficulty in collecting accounts
receivable and fluctuations in currency exchange
rates;










·  


imposition
of additional taxes and
penalties; and










·  


other
factors beyond our control such as terrorism, civil unrest, war and
diseases such as severe acute respiratory syndrome and the Avian flu.
 



 

    If sales to
any of our customers outside of the United States and other Americas are delayed
or cancelled because of any of the above factors, our revenue may be negatively
impacted.

 

    Our
international operations in Australia, China, Finland, France, Germany, Hong
Kong, India, Japan, Korea, Russia, Singapore, Sweden, Switzerland, Taiwan, and
the United Kingdom are subject to many of the above listed risks. Difficulties
with our international operations, including finding appropriate staffing and
office space, may divert management’s attention and other resources any of which
could negatively impact our operating results.

 

    The economic
conditions in our primary overseas markets, particularly in Asia, may negatively
impact the demand for our products abroad. All of our international sales to
date have been denominated in United States dollars. Accordingly, an
increase in the value of the United States dollar relative to foreign
currencies could make our products less competitive in international markets or
require us to assume the risk of denominating certain sales in foreign
currencies. We anticipate that these factors will impact our business to a
greater degree as we further expand our international business
activities.

 

    If our
products do not continue to be adopted by the desktop PC, notebook PC,
workstation, high-performance computing, netbook, personal media player, or PMP,
personal digital assistant, or PDA, cellular handheld device, and video game
console markets or if the demand for new and innovative products in these
markets decreases, our business and operating results would suffer.

 

    Our success
depends in part upon continued broad adoption of our processors for 3D graphics
and multimedia in desktop PC, notebook PC, workstation, high-performance
computing, netbooks, PMPs, PDAs, cellular handheld devices, and video game
console applications. The market for processors has been characterized by
unpredictable and sometimes rapid shifts in the popularity of products, often
caused by the publication of competitive industry benchmark results, changes in
pricing of dynamic random-access memory devices and other changes in the total
system cost of add-in boards, as well as by severe price competition and by
frequent new technology and product introductions. Broad market acceptance is
difficult to achieve and such market acceptance, if achieved, is difficult to
sustain due to intense competition and frequent new technology and product
introductions. Our GPU and MCP businesses together comprised approximately 75%,
79% and 77% of our revenue during fiscal years 2009, 2008 and 2007,
respectively.  As such, our financial results would suffer if for any
reason our current or future GPUs or MCPs do not continue to achieve widespread
adoption by the PC market. If we are unable to complete the timely development
of new products or if we were unable to successfully and cost-effectively
manufacture and deliver products that meet the requirements of the desktop PC,
notebook PC, workstation, high-performance computing, netbook, PMP, PDA,
cellular phone, and video game console markets, we may experience a decrease in
revenue which could negatively impact our operating results.

 

    Additionally,
there can be no assurance that the industry will continue to demand new products
with improved standards, features or performance. If our customers, OEMs, ODMs,
add-in-card and motherboard manufacturers, system builders and consumer
electronics companies, do not continue to design products that require more
advanced or efficient processors and/or the market does not continue to demand
new products with increased performance, features, functionality or standards,
sales of our products could decline and the markets for our products could
shrink. Decreased sales of our products for these markets could negatively
impact our revenue and our financial results.

 







19











    Our business
results could be adversely affected if the identification and development of new
products or entry into or development of a new market is delayed or
unsuccessful.

 

    In order to
maintain or improve our financial results, we will need to continue to identify
and develop new products as well as identify and enter new
markets.  As our GPUs and other processors develop and competition
increases, we anticipate that product life cycles at the high end will remain
short and average selling prices will decline. In particular, average selling
prices and gross margins for our GPUs and other processors could decline as each
product matures and as unit volume increases. As a result, we will need to
introduce new products and enhancements to existing products to maintain or
improve overall average selling prices, our gross margin and our financial
results. We believe the success of our new product introductions will
depend on many factors outlined elsewhere in these risk factors as well as the
following:

 









·  


market
demand for new products and enhancements to existing
products;










·  


timely
completion and introduction of new product designs and new opportunities
for existing products;










·  


seamless
transitions from an older product to a new
product;










·  


differentiation
of our new products from those of our
competitors;










·  


delays
in volume shipments of our
products;










·  


market
acceptance of our products instead of our customers' products;
and










·  


availability
of adequate quantity and configurations of various types of memory
products.



 

    In the past,
we have experienced delays in the development and adoption of new products and
have been unable to successfully manage product transitions from older to newer
products resulting in obsolete inventory.


 

    To be
successful, we must also enter new markets or develop new uses for our future or
existing products. We cannot accurately predict if our current or existing
products or technologies will be successful in the new opportunities or markets
that we identify for them or that we will compete successfully in any new
markets we may enter. For example, we have developed products and other
technology in order for certain general-purpose computing operations to be
performed on a GPU rather than a CPU.  This general purpose computing,
which is often referred to as GP computing, was a new use for the GPU which had
been entirely used for graphics rendering.  During fiscal year 2008,
we introduced our NVIDIA Tesla family of products, which was our entry into the
high-performance computing industry, a new market for us.  We also
offer our CUDA software development solution, which is a C language programming
environment for GPUs, that allows parallel computing on the GPU by using
standard C language to create programs that process large quantities of data in
parallel.  Some of our competitors, including Intel, are now developing
their own solutions for the discrete graphics and computing markets. Our failure
to successfully develop, introduce or achieve market acceptance for new GPUs,
other products or other technologies or to enter into new markets or identify
new uses for existing or future products, could result in rapidly declining
average selling prices, reduced demand for our products or loss of market share
any of which could cause our revenue, gross margin and overall financial results
to suffer.

 

    If we are
unable to achieve design wins, our products may not be adopted by our target
markets or customers either of which could negatively impact our financial
results.

 

    The success
of our business depends to a significant extent on our ability to develop new
competitive products for our target markets and customers. We believe achieving
design wins, which entails having our existing and future products chosen for
hardware components or subassemblies designed by OEMs, ODMs, add-in board and
motherboard manufacturers, is an integral part of our future success. Our OEM,
ODM, and add-in board and motherboard manufacturers’ customers typically
introduce new system configurations as often as twice per year, typically based
on spring and fall design cycles or in connection with trade shows. Accordingly,
when our customers are making their design decisions, our existing products must
have competitive performance levels or we must timely introduce new products in
order to be included in our customers’ new system configurations. This requires
that we:










·  


anticipate
the features and functionality that customers and consumers will demand;
 










·  


incorporate
those features and functionalities into products that meet the exacting
design requirements of our
customers;










·  


price
our products competitively; and










·  


introduce
products to the market within our customers’ limited design cycles.
 



    If OEMs,
ODMs, and add-in board and motherboard manufacturers do not include our products
in their systems, they will typically not use our products in their systems
until at least the next design configuration. Therefore, we endeavor to develop
close relationships with our OEMs and ODMs, in an attempt to better anticipate
and address customer needs in new products so that we will achieve design
wins.

 







20











    Our ability
to achieve design wins also depends in part on our ability to identify and be
compliant with evolving industry standards. Unanticipated changes in industry
standards could render our products incompatible with products developed by
major hardware manufacturers and software developers like AMD, Intel and
Microsoft Corporation, or Microsoft.  If our products are not in
compliance with prevailing industry standards, we may not be designed into our
customers’ product designs.  However, to be compliant with changes to
industry standards, we may have to invest significant time and resources to
redesign our products which could negatively impact our gross margin or
operating results. If we are unable to achieve new design wins for existing or
new customers, we may lose market share and our operating results would be
negatively impacted.

 

    We may have
to invest more resources in research and development than anticipated, which
could increase our operating expenses and negatively impact our operating
results.

 

    If new
competitors, technological advances by existing competitors, our entry into new
markets, or other competitive factors require us to invest significantly greater
resources than anticipated in our research and development efforts, our
operating expenses would increase. We had 3,772 full-time employees engaged in
research and development as of January 25, 2009, compared to 3,255 employees as
of January 27, 2008 and 2,668 employees as of January 28, 2007,
respectively.  Research and development expenditures were $855.9
million, $691.6 million and $553.5 million, for fiscal years 2009, 2008 and
2007, respectively.  Research and development expenses included stock-based
compensation expense of $98.0 million, $76.6 million and $70.1 million for
fiscal years 2009, 2008 and 2007, respectively. If we are required to invest
significantly greater resources than anticipated in research and development
efforts without a corresponding increase in revenue, our operating results could
further decline. Research and development expenses are likely to fluctuate from
time to time to the extent we make periodic incremental investments in research
and development and these investments may be independent of our level of revenue
which could negatively impact our financial results. In order to remain
competitive, we anticipate that we will continue to devote substantial resources
to research and development.

 

    We are
dependent on key employees and the loss of any of these employees could
negatively impact our business.

 

    Our future
success and ability to compete is substantially dependent on our ability to
identify, hire, train and retain highly qualified key personnel.  The
market for key employees in the semiconductor industry can be
competitive.  None of our key employees is bound by an employment
agreement, meaning our relationships with all of our key employees are at will.
 The loss of the services of any of our other key employees without an
adequate replacement or our inability to hire new employees as needed could
delay our product development efforts, harm our ability to sell our products or
otherwise negatively impact our business.

 

    In September
2008, we reduced our global workforce by approximately 6.5% as part of our
efforts to allow continued investment in strategic growth areas.  This
reduction in our workforce may impair our ability to recruit and retain
qualified employees of our workforce as a result of a perceived risk of future
workforce reductions.  Employees, whether or not directly affected by
the reduction, may also seek future employment with our business partners,
customers or competitors.   In addition, we rely on stock-based
awards as one means for recruiting, motivating and retaining highly skilled
talent.  If the value of such stock awards does not appreciate as
measured by the performance of the price of our common stock or if our
share-based compensation otherwise ceases to be viewed as a valuable benefit,
our ability to attract, retain, and motivate employees could be weakened, which
could harm our results of operations.  The significant decline in the
trading price of our common stock has resulted in the exercise price of a
significant portion of our outstanding options to significantly exceed the
current trading price of our common stock, thus lessening the effectiveness of
these stock-based awards.  We may not continue to successfully attract
and retain key personnel which would harm our business.

 

    We may not be
able to realize the potential financial or strategic benefits of business
acquisitions or strategic investments, which could hurt our ability to grow our
business, develop new products or sell our products.

 

     We have
acquired and invested in other businesses that offered products, services and
technologies that we believe will help expand or enhance our existing products
and business. We may enter into future acquisitions of, or investments in,
businesses, in order to complement or expand our current businesses or enter
into a new business market. Negotiations associated with an acquisition or
strategic investment could divert management’s attention and other company
resources. Any of the following risks associated with past or future
acquisitions or investments could impair our ability to grow our business,
develop new products, our ability to sell our products, and ultimately could
have a negative impact on our growth or our financial results:

 









·  


difficulty
in combining the technology, products, operations or workforce of the
acquired business with our
business;










·  


difficulty
in operating in a new or multiple new
locations;










·  


disruption
of our ongoing businesses or the ongoing business of the company we invest
in or acquire;










·  


difficulty
in realizing the potential financial or strategic benefits of the
transaction;










·  


difficulty
in maintaining uniform standards, controls, procedures and
policies;










·  


disruption
of or delays in ongoing research and development
efforts;










·  


diversion
of capital and other resources;










·  


assumption
of liabilities;










·  


diversion
of resources and unanticipated expenses resulting from litigation
arising from potential or actual business acquisitions or
investments;













·   difficulties
in entering into new markets in which we have limited or no experience and
where competitors in such markets have stronger positions;
and

·  


impairment
of relationships with employees and customers, or the loss of any of our
key employees or customers our target’s key employees or customers, as a
result of our acquisition or
investment.









21










    In addition,
the consideration for any future acquisition could be paid in cash, shares of
our common stock, the issuance of convertible debt securities or a combination
of cash, convertible debt and common stock. If we make an investment in cash or
use cash to pay for all or a portion of an acquisition, our cash reserves would
be reduced which could negatively impact the growth of our business or our
ability to develop new products. However, if we pay the consideration with
shares of common stock, or convertible debentures, the holdings of our existing
stockholders would be diluted. The significant decline in the trading price of
our common stock would make the dilution to our stockholders more extreme and
could negatively impact our ability to pay the consideration with shares of
common stock or convertible debentures. We cannot forecast the number, timing or
size of future strategic investments or acquisitions, or the effect that any
such investments or acquisitions might have on our operations or financial
results.

 

    We are
exposed to credit risk, fluctuations in the market values of our portfolio
investments and in interest rates.

 

    We account
for our investment instruments in accordance with Statement of Financial
Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities
. All of the cash equivalents and marketable
securities are treated as “available-for-sale” under SFAS No. 115. Investments
in both fixed rate and floating rate interest earning instruments carry a degree
of interest rate risk. Fixed rate securities may have their market value
adversely impacted due to a rise in interest rates, while floating rate
securities may produce less income than expected if interest rates fall. Due in
part to these factors, our future investment income may fall short of
expectations due to changes in interest rates or if the decline in fair value of
our publicly traded debt or equity investments is judged to be
other-than-temporary. We may suffer losses in principal if we are forced to sell
securities that decline in securities market value due to changes in interest
rates. Future declines in the market values of our cash, cash equivalents and
marketable securities could have a material adverse effect on our financial
condition and operating results.  However, because any debt securities
we hold are classified as “available-for-sale,” no gains or losses are realized
in our Consolidated Statements of Operations due to changes in interest
rates unless such securities are sold prior to maturity or unless declines in
value are determined to be other-than-temporary.

 

    At January
25, 2009 and January 27, 2008, we had $1.26 billion and $1.81 billion,
respectively, in cash, cash equivalents and marketable
securities.  Given the global nature of our business, we have invested
both domestically and internationally.  All of our investments are
denominated in United States dollars. We invest in a variety of financial
instruments, consisting principally of cash and cash equivalents, asset-backed
securities, commercial paper, mortgage-backed securities issued by
Government-sponsored enterprises, equity securities, money market funds and debt
securities of corporations, municipalities and the United States government
and its agencies. As of January 25, 2009, we did not have any investments in
auction-rate preferred securities.  As of January 25, 2009, our
investments in government agencies and government sponsored enterprises
represented approximately 71% of our total investment portfolio, while the
financial sector accounted for approximately 17% of our total investment
portfolio.

 

    The current
volatility in the financial markets and overall economic uncertainty increases
the risk that the actual amounts realized in the future on our financial
instruments could differ significantly from the fair values currently assigned
to them. Other income and expense could also vary materially from expectations
depending on gains or losses realized on the sale or exchange of financial
instruments; impairment charges related to debt securities as well as equity and
other investments; interest rates; and cash, cash equivalent and marketable
securities balances. For instance, we recorded other than temporary
impairment charges of $9.9 million during fiscal year 2009. These charges
include $5.6 million related to what we believe is an other than temporary
impairment of our investment in the money market funds held by the Reserve
International Liquidity Fund, Ltd., or International Reserve Fund; $2.5 million
related to a decline in the value of publicly traded equity securities and $1.8
million related to debt securities held by us that were issued by companies that
have filed for bankruptcy as of January 25, 2009.  Please refer to
Note 17 of these Notes to the Consolidated Financial Statements in Part IV,
Item 15 of this Form 10-K for further details. Subsequent to year-end,
on January 30, 2009, we received $84.4 million from the International Reserve
Fund. This was our portion of a payout of approximately 65% of the total assets
of the Fund. Each shareholder’s percentage of this distribution was determined
by dividing the shareholder’s total unfunded redeemed shares by the aggregate
unfunded redeemed shares of the Fund, which was then used to calculate the
shareholder’s pro rata portion of this distribution. We expect to receive the
proceeds of our remaining investment in the International Reserve Fund,
excluding the $5.6 million that we have recorded as an other than temporary
impairment, by no later than October 2009, when all of the underlying securities
held by the International Reserve Fund are scheduled to have matured. However,
redemptions from the International Reserve Fund are currently subject to pending
litigation, which could cause further delay in receipt of our funds. In
addition, we may determine that further impairment of our investment in the
International Reserve Fund may be necessary.









22











Risks
Related to Our Partners and Customers

 

    We depend on
foundries to manufacture our products and these third parties may not be able to
satisfy our manufacturing requirements, which would harm our
business.

 

    We do
not manufacture the silicon wafers used for our products and do not own or
operate a wafer fabrication facility. Instead, we are dependent on
industry-leading foundries, such as Taiwan Semiconductor Manufacturing
Corporation, or TSMC, to manufacture our semiconductor wafers using their
state-of-the-art fabrication equipment and techniques. The foundries, which have
limited capacity, also manufacture products for other semiconductor companies,
including some of our competitors.  Since we do not have long-term
commitment contracts with any of these foundries, they do not have an obligation
to provide us with any minimum quantity of product at any time or at any set
price, except as may be provided in a specific purchase
order.   Most of our products are only manufactured by one
foundry at a time.  In times of high demand, the foundries could
choose to prioritize their capacity for other companies, reduce or eliminate
deliveries to us, or increase the prices that they charge us.  If we
are unable to meet customer demand due to reduced or eliminated deliveries or
have to increase the prices of our products, we could lose sales to customers,
which would negatively impact our revenue and our reputation.

 

    Because the
lead-time needed to establish a strategic relationship with a new manufacturing
partner could be several quarters, we do not have an alternative source of
supply for our products. In addition, the time and effort to qualify a new
foundry could result in additional expense, diversion of resources, or lost
sales, any of which would negatively impact our financial results. We believe
that long-term market acceptance for our products will depend on reliable
relationships with the third-party manufacturers we use to ensure adequate
product supply and competitive pricing to respond to customer
demand.

 

    Failure to
achieve expected manufacturing yields for our products could negatively impact
our financial results and damage our reputation.

 

    Manufacturing
yields for our products are a function of product design, which is developed
largely by us, and process technology, which typically is proprietary to the
manufacturer. Low yields may result from either product design or process
technology failure.  We do not know a yield problem exists until our
design is manufactured.  When a yield issue is identified, the product
is analyzed and tested to determine the cause. As a result, yield problems may
not be identified until well into the production process. Resolution of yield
problems requires cooperation by, and communication between, us and the
manufacturer. Because of our potentially limited access to wafer foundry
capacity, decreases in manufacturing yields could result in an increase in our
costs and force us to allocate our available product supply among our customers.
Lower than expected yields could potentially harm customer relationships, our
reputation and our financial results.

 

    We are
dependent on third parties for assembly, testing and packaging of our products,
which reduces our control over the delivery schedule, product quantity or
product quality.

 

    Our products
are assembled, tested and packaged by independent subcontractors, such as
Advanced Semiconductor Engineering, Inc., Amkor Technology, JSI Logistics, Ltd.,
King Yuan Electronics Co., Siliconware Precision Industries Co. Ltd., and
ChipPAC. As a result, we do not directly control our product delivery schedules,
product quantity, or product quality.  All of these subcontractors
assemble, test and package products for other companies, including some of our
competitors.  Since we do not have long-term agreements with our
subcontractors, when demand for subcontractors to assemble, test or package
products is high, our subcontractors may decide to prioritize the orders of
other customers over our orders.  Since the time required to qualify a
different subcontractor to assemble, test or package our products can be
lengthy, if we have to find a replacement subcontractor we could experience
significant delays in shipments of our products, product shortages, a decrease
in the quality of our products, or an increase in product cost. Any product
shortages or quality assurance problems could increase the costs of manufacture,
assembly or testing of our products, which could cause our gross margin and
revenue to decline.

 

    Failure to
transition to new manufacturing process technologies could adversely affect our
operating results and gross margin.

 

    We use the
most advanced manufacturing process technology appropriate for our products that
is available from our third-party foundries. As a result, we continuously
evaluate the benefits of migrating our products to smaller geometry process
technologies in order to improve performance and reduce costs. We believe this
strategy will help us remain competitive.  Our current product
families are manufactured using 0.15 micron, 0.14 micron, 0.13 micron, 0.11
micron, 90 nanometer, 65 nanometer and 55 nanometer process
technologies.   Manufacturing process technologies are subject to
rapid change and require significant expenditures for research and development,
which could negatively impact our operating expenses and gross
margin.

 







23











    We have
experienced difficulty in migrating to new manufacturing processes in the past
and, consequently, have suffered reduced yields, delays in product deliveries
and increased expense levels. We may face similar difficulties, delays and
expenses as we continue to transition our new products to smaller geometry
processes. Moreover, we are dependent on our third-party manufacturers to invest
sufficient funds in new manufacturing techniques in order to have ample capacity
for all of their customers and to develop the techniques in a timely manner. Our
product cycles may also depend on our third-party manufacturers migrating to
smaller geometry processes successfully and in time for us to meet our customer
demands.  Some of our competitors own their manufacturing facilities
and may be able to move to a new state of the art manufacturing process more
quickly or more successfully than our manufacturing partners.  For
example, Intel has released a 45 nanometer chip for desktop computers which
it is manufacturing in its foundries.  In addition, in October 2008,
AMD and the Advanced Technology Investment Company, a technology investment
company backed by the government of Abu Dhabi, announced the establishment of a
U.S. headquartered semiconductor manufacturing company that will manufacture
AMD’s advance processors. If our suppliers fall behind our competitors in
manufacturing processes, the development and customer demand for our products
and the use of our products could be negatively impacted.  If we are
forced to use larger geometric processes in manufacturing a product than our
competition, our gross margin may be reduced.  The inability by us or
our third-party manufacturers to effectively and efficiently transition to new
manufacturing process technologies may adversely affect our operating results
and our gross margin.

 

    We rely on
third-party vendors to supply software development tools to us for the
development of our new products and we may be unable to obtain the tools
necessary to develop or enhance new or existing products.

 

    We rely on
third-party software development tools to assist us in the design, simulation
and verification of new products or product enhancements. To bring new products
or product enhancements to market in a timely manner, or at all, we need
software development tools that are sophisticated enough or technologically
advanced enough to complete our design, simulations and
verifications.  In the past, we have experienced delays in the
introduction of products as a result of the inability of then available software
development tools to fully simulate the complex features and functionalities of
our products. In the future, the design requirements necessary to meet consumer
demands for more features and greater functionality from our products may exceed
the capabilities of available software development
tools.  Unavailability of software development tools may result in our
missing design cycles or losing design wins, either of which could result in a
loss of market share or negatively impact our operating results.

 

    Because of
the importance of software development tools to the development and enhancement
of our products, a critical component of our product development efforts is our
partnerships with leaders in the computer-aided design industry, including
Cadence Design Systems, Inc. and Synopsys, Inc. We have invested significant
resources to develop relationships with these industry leaders and have often
assisted them in the definition of their new products. We believe that forming
these relationships and utilizing next-generation development tools to design,
simulate and verify our products will help us remain at the forefront of the 3D
graphics, communications and networking segments and develop products that
utilize leading-edge technology on a rapid basis. If these relationships are not
successful, we may be unable to develop new products or product enhancements in
a timely manner, which could result in a loss of market share, a decrease in
revenue or negatively impact our operating results.

 

    We sell our
products to a small number of customers and our business could suffer if we
lose any of these customers.

 

          
We have a limited number of customers and our sales are highly
concentrated.   For fiscal years 2009, 2008 and 2007, aggregate
sales to customers in excess of 10% of our total revenue accounted for
approximately 11% of total revenue from one customer and approximately 10% and
12% of our total revenue from another customer,
respectively.   Although a small number of our other customers
represent the majority of our revenue, their end customers include a large
number of original equipment manufacturers, or OEMs, and system integrators
throughout the world who, in many cases, specify the graphics supplier. Our
sales process involves achieving key design wins with leading PC, OEMs and major
system builders and supporting the product design into high volume production
with key contract equipment manufacturers, or CEMs, original design
manufacturers, or ODMs, add-in board and motherboard manufacturers. These design
wins in turn influence the retail and system builder channel that is serviced by
CEMs, ODMs, add-in board and motherboard manufacturers. Our distribution
strategy is to work with a small number of leading independent CEMs, ODMs,
add-in board and motherboard manufacturers, and distributors, each of which has
relationships with a broad range of system builders and leading PC OEMs. If we
were to lose sales to our PC OEMs, CEMs, ODMs, add-in board manufacturers and
motherboard manufacturers and were unable to replace the lost sales with sales
to different customers, if they were to significantly reduce the number of
products they order from us, or if we were unable to collect accounts receivable
from them, our revenue may not reach or exceed the expected level in any period,
which could harm our financial condition and our results of
operations.




 




 



24







 



       Any difficulties
in collecting accounts receivable, including from foreign customers, could harm
our operating results and financial condition.

  

    
Our
accounts receivable are highly concentrated and make us vulnerable to adverse
changes in our customers' businesses, and to downturns in the industry and the
worldwide economy.  Accounts receivable from significant customers,
those representing 10% or more of total accounts receivable aggregated
approximately 38% of our accounts receivable balance from three customers at
January 25, 2009 and approximately 12% of our accounts receivable balance from
one customer at January 27, 2008.

 

   
Difficulties in collecting accounts receivable could materially and adversely
affect our financial condition and results of operations. These difficulties are
heightened during periods when economic conditions worsen. We continue to work
directly with more foreign customers and it may be difficult to collect accounts
receivable from them. We maintain an allowance for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. This allowance consists of an amount identified for specific customers
and an amount based on overall estimated exposure. If the financial condition of
our customers were to deteriorate, resulting in an impairment in their ability
to make payments, additional allowances may be required, we may be required to
defer revenue recognition on sales to affected customers, and we may be required
to pay higher credit insurance premiums, any of which could adversely affect our
operating results. In the future, we may have to record additional reserves or
write-offs and/or defer revenue on certain sales transactions which could
negatively impact our financial results.



Risks
Related to Regulatory, Legal, Our Common Stock and Other Matters

 

    We are
subject to litigation arising from alleged defects in our previous generation
MCP and GPU products, which if determined adversely to us, could harm our
business.

 

    During the
second fiscal quarter of 2009, we recorded a $196.0 million charge against cost
of revenue to cover anticipated customer warranty, repair, return, replacement
and other associated costs arising from a weak die/packaging material set in
certain versions of our previous generation MCP and GPU products used in
notebook systems.  The previous generation MCP and GPU products that
are impacted were included in a number of notebook products that were shipped
and sold in significant quantities. Certain notebook configurations of these MCP
and GPU products are failing in the field at higher than normal
rates.  While we have not been able to determine a root cause for
these failures, testing suggests a weak material set of die/package combination,
system thermal management designs, and customer use patterns are contributing
factors. We continue to engage in discussions with our supply chain
regarding reimbursement to us for some or all of the costs we have incurred and
may incur in the future relating to the weak material set. We also continue
to seek to access our insurance coverage, which provided us with $8 million in
related reimbursement during fiscal year 2009. However, there can be no
assurance that we will recover any additional reimbursement. We continue to not
see any abnormal failure rates in any systems using NVIDIA products other than
certain notebook configurations. However, we are continuing to test and
otherwise investigate other products. There can be no assurance that we will not
discover defects in other MCP or GPU products.

 

    In September,
October and November 2008, several putative class action lawsuits were
filed against us, asserting various claims related to the impacted MCP and GPU
products.  Such lawsuits could result in the diversion of management’s
time and attention away from business operations, which could harm our business.
In addition, the costs of defense and any damages resulting from this
litigation, a ruling against us, or a settlement of the litigation could
adversely affect our cash flow and financial results.

 

    The ongoing
civil actions or any new actions relating to the market for GPUs could adversely
affect our business.

 

    In November
2006, we received a subpoena from the San Francisco Office of the Antitrust
Division of the United States Department of Justice, or DOJ, in connection with
the DOJ's investigation into potential antitrust violations related to GPUs and
cards. In October 2008, the DOJ formally notified us that the DOJ
investigation had been closed. No specific allegations were made against NVIDIA
during the investigation. 

 

    Several
putative civil complaints were filed against us by direct and indirect
purchasers of GPUs, asserting federal antitrust claims based on alleged price
fixing, market allocation, and other alleged anti-competitive agreements between
us and ATI Technologies, ULC., or ATI, and Advanced Micro Devices, Inc., or AMD,
as a result of its acquisition of ATI.  The indirect purchasers’
consolidated amended complaint also asserts a variety of state law antitrust,
unfair competition and consumer protection claims on the same allegations, as
well as a common law claim for unjust enrichment.

 







25











    In
September 2008, we executed a settlement agreement, or the Agreement, in
connection with the claims of the certified class of direct purchaser
plaintiffs.  The Agreement is subject to court approval and, if
approved, would dispose of all claims and appeals raised by the certified class
in the complaints against NVIDIA. In addition, in September 2008, we
reached a settlement agreement with the remaining individual indirect purchaser
plaintiffs that provides for a dismissal of all claims and appeals related to
the complaints raised by the individual indirect purchaser plaintiffs. This
settlement is not subject to the approval of the court. While we expect the
courts to approve the settlement agreement with the direct purchasers, there can
be no assurance that it will approved.  If the settlement agreement is
not approved we may be required to pay damages or penalties or have other
remedies imposed on us that could harm our business. In addition, additional
parties may bring claims against us relating to the potential antitrust
violations related to GPUs and cards. If additional claims are brought against
us, such lawsuits could result in the diversion of management’s time and
attention away from business operations, which could harm our business. In
addition, the costs of defense and any damages resulting from this litigation, a
ruling against us, or a settlement of the litigation could adversely affect our
cash flow and financial results.

 

    The matters
relating to the Board of Director’s review of our historical stock option
granting practices and the restatement of our consolidated financial statements
have resulted in litigation, which could harm our financial
results.

 

    In August
2006, we announced that the Audit Committee of our Board, with the assistance of
outside legal counsel, was conducting a review of our stock option practices
covering the time from our initial public offering in 1999, our fiscal year
2000, through June 2006. The Audit Committee reached the conclusion that
incorrect measurement dates were used for financial accounting purposes for
stock option grants in certain prior periods. As a result, we recorded
additional non-cash stock-based compensation expense, and related tax effects,
related to stock option grants.  Ten derivative complaints were filed
in state and federal court pertaining to allegations relating to stock option
grants. In September 2008, we entered into Memoranda of Understanding regarding
the settlement of the stockholder derivative lawsuits.  In November
2008, the definitive settlement agreements were concurrently filed in the
Chancery Court of Delaware and the United States District Court Northern
District of California and are subject to approval by both such
courts.  The settlement agreements do not contain any admission of
wrongdoing or fault on the part of NVIDIA, our board of directors or executive
officers.  While we expect the courts to approve the settlement
agreements, there can be no assurance that they will approved.  If the
settlement agreements are not approved we may be required to pay damages or
penalties or have other remedies imposed on us that could harm our
business.

 

    We are a
party to other litigation, including patent litigation, which, if determined
adversely to us, could adversely affect our cash flow and financial
results.

 

    We are a
party to other litigation as both a defendant and as a plaintiff.  For
example, we are engaged in litigation with Intel Corporation, Rambus Corporation
and with various parties related to our acquisition of 3dfx in 2001. Please
refer to Note 12 of the Notes to the Consolidated Financial Statements in
Part IV, Item 15 of this Form 10-K for further detail on these
lawsuits. There can be no assurance that any litigation to which we are a party
will be resolved in our favor. Any claim that is successfully decided against us
may cause us to pay substantial damages, including punitive damages, and other
related fees. Regardless of whether lawsuits are resolved in our favor or if we
are the plaintiff or the defendant in the litigation, any lawsuits to which we
are a party will likely be expensive and time consuming to defend or resolve.
Such lawsuits could also harm our relationships with existing customers and
result in the diversion of management’s time and attention away from business
operations, which could harm our business. Costs of defense and any damages
resulting from litigation, a ruling against us, or a settlement of the
litigation could adversely affect our cash flow and financial
results.

 

    Litigation to
defend against alleged infringement of intellectual property rights or to
enforce our intellectual property rights and the outcome of such litigation
could result in substantial costs to us.

 

    We expect
that as the number of issued hardware and software patents increases and as
competition intensifies, the volume of intellectual property infringement claims
and lawsuits may increase. We may in the future become involved in lawsuits or
other legal proceedings alleging patent infringement or other intellectual
property rights violations by us or by our customers that we have agreed to
indemnify them for certain claims of infringement.

 

    An
unfavorable ruling in any such intellectual property related litigation could
include significant damages, invalidation of a patent or family of patents,
indemnification of customers, payment of lost profits, or, when it has been
sought, injunctive relief.

 

    In addition,
in the future, we may need to commence litigation or other legal proceedings in
order to: 

 








·  


assert
claims of infringement of our intellectual
property;









·  


enforce
our patents;










·  


protect
our trade secrets or know-how; or










·  


determine
the enforceability, scope and validity of the propriety rights of
others.




 

    If we have to
initiate litigation in order to protect our intellectual property, our operating
expenses may increase which could negatively impact our operating results. Our
failure to effectively protect our intellectual property could harm our
business.

 

    If
infringement claims are made against us or our products are found to
infringe a third parties’ patent or intellectual property, we or one of our
indemnified customers may have to seek a license to the third parties’ patent or
other intellectual property rights. However, we may not be able to obtain
licenses at all or on terms acceptable to us particularly from our competitors.
If we or one of our indemnified customers is unable to obtain a license from a
third party for technology that we use or that is used in one of our products,
we could be subject to substantial liabilities or have to suspend or discontinue
the manufacture and sale of one or more of our products.  We may also
have to make royalty or other payments, or cross license our technology. If
these arrangements are not concluded on commercially reasonable terms, our
business could be negatively impacted. Furthermore, the indemnification of a
customer may increase our operating expenses which could negatively impact our
operating results.

  







26











    Our ability
to compete will be harmed if we are unable to adequately protect our
intellectual property.

 

    We rely
primarily on a combination of patents, trademarks, trade secrets, employee and
third-party nondisclosure agreements, and licensing arrangements to protect our
intellectual property in the United States and internationally. We have numerous
patents issued, allowed and pending in the United States and in foreign
jurisdictions. Our patents and pending patent applications primarily relate to
our products and the technology used in connection with our products. We also
rely on international treaties, organizations and foreign laws to protect our
intellectual property. The laws of certain foreign countries in which our
products are or may be manufactured or sold, including various countries in
Asia, may not protect our products or intellectual property rights to the same
extent as the laws of the United States. This makes the possibility of piracy of
our technology and products more likely. We continuously assess whether and
where to seek formal protection for particular innovations and technologies
based on such factors as: 

 









·  


the
commercial significance of our operations and our competitors’ operations
in particular countries and
regions; 










·  


the
location in which our products are
manufactured;










·  


our
strategic technology or product directions in different countries; and
 










·  


the
degree to which intellectual property laws exist and are meaningfully
enforced in different
jurisdictions. 



 

    Our pending
patent applications and any future applications may not be approved. In
addition, any issued patents may not provide us with competitive advantages or
may be challenged by third parties. The enforcement of patents by others may
harm our ability to conduct our business. Others may independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property. Our failure to effectively protect our
intellectual property could harm our business.

 

    Government
investigations and inquiries from regulatory agencies could lead to enforcement
actions, fines or other penalties and could result in litigation against
us.

 

    In the past,
we have been subject to government investigations and inquiries from regulatory
agencies such as the DOJ and the SEC.  We may be subject to government
investigations and receive additional inquiries from regulatory agencies in the
future, which may lead to enforcement actions, fines or other
penalties.

 

    In addition,
litigation has often been brought against a company in connection with the
announcement of a government investigation or inquiry from a regulatory
agency.  For example, following the announcement of the DOJ
investigation, several putative civil complaints were filed against us. In
addition, following our Audit Committee’s investigation and the SEC’s
investigation concerning our historical stock option granting practices, ten
derivative complaints were filed in state and federal court pertaining to
allegations relating to stock option grants.  Please refer to Note 12
of the Notes to Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for further information regarding these lawsuits. Such lawsuits could
result in the diversion of management’s time and attention away from business
operations, which could harm our business. In addition, the costs of defense and
any damages resulting from litigation, a ruling against us, or a settlement of
the litigation could adversely affect our cash flow and financial
results.


 

    We are
subject to the risks of owning real property.

 

    In fiscal
year 2009, we used approximately $183.8 million of our cash to purchase real
property in Santa Clara, California that includes approximately 25 acres of land
and ten commercial buildings.  We also own real property in China and
India.  We have limited experience in the ownership and management of
real property and are subject to the risks of owning real property,
including:

 









·  


the
possibility of environmental contamination and the costs associated with
fixing any environmental
problems; 










·  


adverse
changes in the value of these properties, due to interest rate changes,
changes in the neighborhood in which the property is located, or other
factors;










·  


the
risk of loss if we decide to sell and are not able to recover all
capitalized costs;










·  


increased
cash commitments for the possible construction of a campus;
 










·  


the
possible need for structural improvements in order to comply with zoning,
seismic and other legal or regulatory
requirements; 










·  


increased
operating expenses for the buildings or the property or
both; 










·  


possible
disputes with third parties, such as neighboring owners or others, related
to the buildings or the property or both;
and










·  


the
risk of financial loss in excess of amounts covered by insurance, or
uninsured risks, such as the loss caused by damage to the buildings as a
result of earthquakes, floods and or other natural
disasters.



 







27











    Expensing
employee equity compensation adversely affects our operating results and could
also adversely affect our competitive position.


 

    Since
inception, we have used equity through our stock option plans and our employee
stock purchase program as a fundamental component of our compensation packages.
We believe that these programs directly motivate our employees and, through the
use of vesting, encourage our employees to remain with us. 

 


    In December
2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), or
SFAS No. 123(R), Share-based
Payment,
 which requires the measurement and recognition of
compensation expense for all stock-based compensation payments.  SFAS No.
123(R) requires that we record compensation expense for stock options and our
employee stock purchase plan using the fair value of those awards.
 Stock-based compensation expense resulting from our compliance with SFAS
No. 123(R), was $162.7 million, $133.4 million and $116.7 million for fiscal
years 2009, 2008 and 2007, respectively, which negatively impacted our operating
results.  Additionally, on February 11, 2009, we announced that our
Board of Directors approved a cash tender offer for certain employee stock
options. The tender offer commenced on February 11, 2009 and expired at 12:00
midnight (Pacific Time) on March 11, 2009. As of January 25, 2009, there were
approximately 33.1 million options eligible to participate in the tender offer.
If all these options were tendered and accepted in the offer, the aggregate cash
purchase price for these options would be approximately $92.0 million. As a
result of the tender offer, we may incur a non-recurring charge of up to
approximately $150.0 million if all of the unvested eligible options are
tendered. This charge would be reflected in our financial results for the first
fiscal quarter of fiscal year 2010 and represents stock-based compensation
expense, consisting of the remaining unamortized stock-based compensation
expense associated with the unvested portion of the eligible options tendered in
the offer, stock-based compensation expense resulting from amounts paid in
excess of the fair value of the underlying options, if any, plus associated
payroll taxes and professional fees. We are currently tallying information on
the number of options tendered under the offer to determine the actual aggregate
cash to be paid in exchange for the cancellation of the eligible options and the
non-recurring charge to be incurred pertaining to the unvested eligible options
that have been tendered. We believe that SFAS No. 123(R) will continue to
negatively impact our operating results.

 


    To the extent
that SFAS No. 123(R) makes it more expensive to grant stock options or to
continue to have an employee stock purchase program, we may decide to incur
increased cash compensation costs. In addition, actions that we may take to
reduce stock-based compensation expense that may be more severe than any actions
our competitors may implement and may make it difficult to attract retain and
motivate employees, which could adversely affect our competitive position as
well as our business and operating results.

 

    We may be
required to record a charge to earnings if our goodwill or amortizable
intangible assets become impaired, which could negatively impact our operating
results.

 

    Under
accounting principles generally accepted in the United States, we review our
amortizable intangible assets and goodwill for impairment when events or changes
in circumstances indicate the carrying value may not be recoverable. Goodwill is
tested for impairment at least annually. The carrying value of our goodwill or
amortizable assets may not be recoverable due to factors such as a decline in
stock price and market capitalization, reduced estimates of future cash flows
and slower growth rates in our industry or in any of our business units. For
example, during the twelve months ended January 25, 2009, our market
capitalization declined from approximately $14 billion to approximately $4
billion. Estimates of future cash flows are based on an updated long-term
financial outlook of our operations. However, actual performance in the
near-term or long-term could be materially different from these forecasts, which
could impact future estimates. For example, if one of our business units does
not meet its near-term and longer-term forecasts, the goodwill assigned to the
business unit could be impaired. We may be required to record a charge to
earnings in our financial statements during a period in which an impairment of
our goodwill or amortizable intangible assets is determined to exist, which may
negatively impact our results of operations.

 

    Our stock
price continues to be volatile and investors may suffer losses.

 

    Our stock has
at times experienced substantial price volatility as a result of variations
between our actual and anticipated financial results, announcements by us and
our competitors, or uncertainty about current global economic conditions. The
stock market as a whole also has experienced extreme price and volume
fluctuations that have affected the market price of many technology companies in
ways that may have been unrelated to these companies’ operating
performance.

 

    In the past,
securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. For
example, following our announcement in July 2008 that we would take a charge
against cost of revenue to cover anticipated costs and expenses arising from a
weak die/packaging material set in certain versions of our previous generation
MCP and GPU products and that we were revising financial guidance for our second
fiscal quarter of 2009, the trading price of our common stock
declined.  In September, October and November 2008, several putative
class action lawsuits were filed against us relating to this
announcement.  Please refer to Note 12 of the Notes to Consolidated
Financial Statements in Part IV, Item 15 of this Form 10-K for further
information regarding these lawsuits. Due to changes in the potential
volatility of our stock price, we may be the target of securities litigation in
the future. Such lawsuits could result in the diversion of management’s time and
attention away from business operations, which could harm our business. In
addition, the costs of defense and any damages resulting from litigation, a
ruling against us, or a settlement of the litigation could adversely affect our
cash flow and financial results. 

 







28











    Our operating
results may be adversely affected if we are subject to unexpected tax
liabilities.

 

    We are
subject to taxation by a number of taxing authorities both in the United States
and throughout the world. Tax rates vary among the jurisdictions in which we
operate. Significant judgment is required in determining our provision for our
income taxes as there are many transactions and calculations where the ultimate
tax determination is uncertain. Although we believe our tax estimates are
reasonable, any of the below could cause our effective tax rate to be materially
different than that which is reflected in historical income tax provisions and
accruals:










·  


the
jurisdictions in which profits are determined to be earned and
taxed;










·  


adjustments
to estimated taxes upon finalization of various tax
returns;










·  


changes
in available tax credits;










·  


changes
in share-based compensation
expense;










·  


changes
in tax laws, the interpretation of tax laws either in the United States or
abroad or the issuance of new interpretative accounting guidance
related to uncertain transactions and calculations where the tax treatment
was previously uncertain; and










·  


the
resolution of issues arising from tax audits with various tax
authorities.



 

    Should
additional taxes be assessed as a result of any of the above, our operating
results could be adversely affected. In addition, our future effective tax rate
could be adversely affected by changes in the mix of earnings in countries with
differing statutory tax rates, changes in tax laws or changes in the
interpretation of tax laws.

 

    Our failure
to comply with any applicable environmental regulations could result in a range
of consequences, including fines, suspension of production, excess inventory,
sales limitations, and criminal and civil liabilities.

 

    We are
subject to various state, federal and international laws and regulations
governing the environment, including restricting the presence of certain
substances in electronic products and making producers of those products
financially responsible for the collection, treatment, recycling and disposal of
those products. For example, we are subject to the European Union Directive on
Restriction of Hazardous Substances Directive, or RoHS Directive, that restricts
the use of a number of substances, including lead, and other hazardous
substances in electrical and electronic equipment in the market in the European
Union.    We could face significant costs and liabilities in
connection with the European Union Directive on Waste Electrical and Electronic
Equipment, or WEEE. The WEEE directs members of the European Union to enact
laws, regulations, and administrative provisions to ensure that producers of
electric and electronic equipment are financially responsible for the
collection, recycling, treatment and environmentally responsible disposal of
certain products sold into the market after August 15, 2005.

 

    It is
possible that unanticipated supply shortages, delays or excess non-compliant
inventory may occur as a result of the RoHS Directive, WEEE, and other
domestic or international environmental regulations. Failure to comply with any
applicable environmental regulations could result in a range of consequences
including costs, fines, suspension of production, excess inventory, sales
limitations, criminal and civil liabilities and could impact our ability to
conduct business in the countries or states that have adopted these types of
regulations.

 

    While we believe that
we have adequate internal control over financial reporting, if we or our
independent registered public accounting firm determines that we do not, our
reputation may be adversely affected and our stock price may
decline.> 

 

    Section 404 of
the Sarbanes-Oxley Act of 2002 requires our management to report on, and our
independent registered public accounting firm to audit, the effectiveness of our
internal control structure and procedures for financial reporting. We have an
ongoing program to perform the system and process evaluation and testing
necessary to comply with these requirements. However, the manner in which
companies and their independent public accounting firms apply these requirements
and test companies’ internal controls remains subject to some judgment. To date,
we have incurred, and we expect to continue to incur, increased expense and to
devote additional management resources to Section 404 compliance. Despite
our efforts, if we identify a material weakness in our internal controls, there
can be no assurance that we will be able to remediate that material weakness in
a timely manner, or that we will be able to maintain all of the controls
necessary to determine that our internal control over financial reporting is
effective. In the event that our chief executive officer, chief financial
officer or our independent registered public accounting firm determine that our
internal control over financial reporting is not effective as defined under
Section 404, investor perceptions of us may be adversely affected and could
cause a decline in the market price of our stock.

 







29












 

    We prepare
our consolidated financial statements in conformity with generally accepted
accounting principles in the United States.  These principles are
constantly subject to review and interpretation by the SEC and various bodies
formed to interpret and create appropriate accounting principles. A change in
these principles can have a significant effect on our reported results and may
even retroactively affect previously reported transactions.

 


 

    Our
certificate of incorporation and bylaws contain provisions that could make it
more difficult for a third party to acquire a majority of our outstanding voting
stock. These provisions include the following:

 








·  


the
ability of our Board to create and issue preferred stock without prior
stockholder approval; 










·  


the
prohibition of stockholder action by written
consent;










·  


a
classified Board; and










·  


advance
notice requirements for director nominations and stockholder
proposals.



 

    On March 5,
2000, we entered into an agreement with Microsoft in which we agreed to develop
and sell graphics chips and to license certain technology to Microsoft and its
licensees for use in the Xbox. Under the agreement, if an individual or
corporation makes an offer to purchase shares equal to or greater than 30% of
the outstanding shares of our common stock, Microsoft may have first and last
rights of refusal to purchase the stock. The Microsoft provision and the other
factors listed above could also delay or prevent a change in control of
NVIDIA.

 


 

    None.

 


 

    Our
headquarters complex is located in Santa Clara, California. During fiscal year
2009, we purchased property that includes approximately 25 acres of land and ten
commercial buildings in Santa Clara, California for approximately $194.8 million
of which we occupy four buildings, sublease two buildings, and four are
unoccupied.  Our original plans for the purchased property included
constructing a new campus on the site. We are currently re-evaluating those
plans. Additionally, our corporate campus is comprised of seven other leased
buildings with four used primarily as office buildings, one used as warehouse
space, and the other two used primarily as lab space. We also entered into a
lease for data center space in Santa Clara in fiscal year 2009.

 

    Outside of
Santa Clara, we lease space in Marina Del Rey, San Jose and San Francisco,
California; Austin and Houston, Texas; Beaverton and Portland, Oregon; Bedford,
Massachusetts; Bellevue and Bothell, Washington; Madison, Alabama; Durham, North
Carolina; Greenville, South Carolina; Salt Lake City, Utah; St. Louis, Missouri;
and Fort Collins and Boulder, Colorado. These facilities are used as design
centers and/or sales and administrative offices.

 

    Outside of
the United States, we lease space in Hsin Chu City, Taiwan; Tokyo, Japan; Seoul,
Korea; Beijing and Shanghai, China; Wanchai, and Shatin, New Territories, Hong
Kong; Mumbai, India; Paris, France; Moscow, Russia; Berlin and Munich, Germany;
Helsinki, Finland; Theale and London, United Kingdom; Melbourne, Australia;
Singapore; Uppsala, Sweden; and Zurich, Switzerland. These facilities are used
primarily to support our customers and operations and as sales and
administrative offices.  We also lease spaces in Wurselen, Germany;
Shenzhen, China; Neihu, Taiwan; and Bangalore and Pune, India, which are used
primarily as design centers.  Additionally, we own buildings in
Hyderabad, India and Shanghai, China which are being used primarily as research
and development centers.

 

    We believe
that we currently have sufficient facilities to conduct our operations for the
next twelve months, although we expect to lease additional facilities throughout
the world as our business requires. For additional information regarding
obligations under leases, see Note 12 of the Notes to the Consolidated Financial
Statements in Part IV, Item 15 of this Form 10-K under the
subheading “Lease Obligations,” which information is hereby incorporated by
reference.







 




 



30







 




 

    3dfx

 

    On December
15, 2000, NVIDIA and one of our indirect subsidiaries entered into an Asset
Purchase Agreement, or APA, to purchase certain graphics chip assets from
3dfx.  The transaction closed on April 18, 2001.  That
acquisition, and 3dfx's October 2002 bankruptcy filing, led to four lawsuits
against NVIDIA: two brought by 3dfx's former landlords, one by 3dfx's bankruptcy
trustee and the fourth by a committee of 3dfx's equity security holders in the
bankruptcy estate.

 

    Landlord
Lawsuits

 

    In May 2002,
we were served with a California state court complaint filed by the landlord of
3dfx’s San Jose, California commercial real estate lease, Carlyle Fortran Trust,
or Carlyle. In December 2002, we were served with a California state court
complaint filed by the landlord of 3dfx’s Austin, Texas commercial real estate
lease, CarrAmerica Realty Corporation, or CarrAmerica. The landlords both
asserted claims for, among other things, interference with contract, successor
liability and fraudulent transfer. The landlords sought to recover damages in
the aggregate amount of approximately $15 million, representing amounts then
owed on the 3dfx leases.  The cases were later removed to the United
States Bankruptcy Court for the Northern District of California when 3dfx filed
its bankruptcy petition and consolidated for pretrial purposes with an action
brought by the bankruptcy trustee. 

 

    In 2005, the
U.S. District Court for the Northern District of California withdrew the
reference to the Bankruptcy Court for the landlords’ actions, and on November
10, 2005, granted our motion to dismiss both landlords’
complaints.  The landlords filed amended complaints in early February
2006, and NVIDIA again filed motions to dismiss those claims. On September 29,
2006, the District Court dismissed the CarrAmerica action in its entirety and
without leave to amend.  On December 15, 2006, the District Court also
dismissed the Carlyle action in its entirety.  Both landlords filed
timely notices of appeal from those orders.  

 


On July
17, 2008, the United States Court of Appeals for the Ninth Circuit held oral
argument on the landlords' appeals.  On November 25, 2008, the Court of
Appeals issued its opinion affirming the dismissal of Carlyle’s complaint in its
entirety.  The Court of Appeals also affirmed the dismissal of most of
CarrAmerica’s complaint, but reversed the District Court’s dismissal of
CarrAmerica’s claims for interference with contractual relations and
fraud.  On December 8, 2008, Carlyle filed a Request for Rehearing
En Banc, which
CarrAmerica joined. That same day, Carlyle also filed a Motion for Clarification
of the Court’s Opinion.  On January 22, 2009, the Court of Appeals
denied the Request for Rehearing En Banc, but clarified its
opinion affirming dismissal of the claims by stating that CarrAmerica had
standing to pursue claims for interference with contractual relations, fraud,
conspiracy and tort of another, and remanding Carlyle’s case with instructions
that the District Court evaluate whether the Trustee had abandoned any claims,
which Carlyle might have standing to pursue.



The
District Court held a status conference in the CarrAmerica and Carlyle cases on
March 9, 2009.  That same day, 3dfx’s bankruptcy Trustee filed in the
bankruptcy court a Notice of Trustee’s Intention to Compromise Controversy with
Carlyle Fortran Trust.  According to that Notice, the Trustee would
abandon any claims it has against us for intentional interference with contract,
negligent interference with prospective economic advantage, aiding and abetting
breach of fiduciary duty, declaratory relief, unfair business practices and tort
of another, in exchange for which Carlyle will withdraw irrevocably its Proof of
Claim against the 3dfx bankruptcy estate and waive any further right of
distribution from the estate.  In light of the Trustee’s notice, the
District Court ordered the parties to seek a hearing on the Notice on or before
April 24, 2009, ordered Carlyle and CarrAmerica to file amended complaints by
May 10, 2009, and set a further Case Management Conference for May 18, 2009. We
continue to believe that there is no merit to Carlyle or CarrAmerica’s remaining
claims. 


 

    Trustee
Lawsuit

 

    In March
2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx’s
bankruptcy estate served his complaint on NVIDIA.  The Trustee’s
complaint asserts claims for, among other things, successor liability and
fraudulent transfer and seeks additional payments from us.  The
Trustee's fraudulent transfer theory alleged that NVIDIA had failed to pay
reasonably equivalent value for 3dfx's assets, and sought recovery of the
difference between the $70 million paid and the alleged fair value, which the
Trustee estimated to exceed $50 million.  The Trustee's successor
liability theory alleged NVIDIA was effectively 3dfx's legal successor and was
therefore responsible for all of 3dfx's unpaid liabilities.  This
action was consolidated for pretrial purposes with the landlord cases, as noted
above.

 

    On October
13, 2005, the Bankruptcy Court heard the Trustee’s motion for summary
adjudication, and on December 23, 2005, denied that motion in all material
respects and held that NVIDIA may not dispute that the value of the 3dfx
transaction was less than $108 million. The Bankruptcy Court denied the
Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA
was at least $108 million.

 







31











    In early
November 2005, after several months of mediation, NVIDIA and the Official
Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan
of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s
claims against us. This conditional settlement was subject to a confirmation
process through a vote of creditors and the review and approval of the
Bankruptcy Court. The conditional settlement called for a payment by NVIDIA of
approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6
million related to various administrative expenses and Trustee fees, and $25.0
million related to the satisfaction of debts and liabilities owed to the general
unsecured creditors of 3dfx. Accordingly, during the three month period ended
October 30, 2005, we recorded $5.6 million as a charge to settlement costs and
$25.0 million as additional purchase price for 3dfx.  The Trustee
advised that he intended to object to the settlement. The conditional settlement
never progressed substantially through the confirmation process.

 

    On December
21, 2006, the Bankruptcy Court scheduled a trial for one portion of the
Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA terminated the
settlement agreement on grounds that the Bankruptcy Court had failed to proceed
toward confirmation of the Creditors’ Committee’s plan. A non-jury trial began
on March 21, 2007 on valuation issues in the Trustee's constructive fraudulent
transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four
questions: (1) what did 3dfx transfer to NVIDIA in the APA?; (2) of what was
transferred, what qualifies as "property" subject to the Bankruptcy Court's
avoidance powers under the Uniform Fraudulent Transfer Act and relevant
bankruptcy code provisions?; (3) what is the fair market value of the "property"
identified in answer to question (2)?; and (4) was the $70 million that NVIDIA
paid "reasonably equivalent" to the fair market value of that property? The
parties completed post-trial briefing on May 25, 2007.

 

    On April 30,
2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which
it provided a detailed summary of the trial proceedings and the parties'
contentions and evidence and concluded that "the creditors of 3dfx were not
injured by the Transaction."  This decision did not entirely dispose
of the Trustee's action, however, as the Trustee's claims for successor
liability and intentional fraudulent conveyance were still
pending.  On June 19, 2008, NVIDIA filed a motion for summary judgment
to convert the Memorandum Decision After Trial to a final
judgment.  That motion was granted in its entirety and judgment was
entered in NVIDIA’s favor on September 11, 2008. The Trustee filed a Notice of
Appeal from that judgment on September 22, 2008, and on September 25, 2008,
NVIDIA exercised its election to have the appeal heard by the United States
District Court, where the appeal is pending.

 

    While the
conditional settlement reached in November 2005 never progressed through the
confirmation process, the Trustee’s case still remains pending
appeal.  As such, we have not reversed the accrual of $30.6 million -
$5.6 million as a charge to settlement costs and $25.0 million as additional
purchase price for 3dfx – that we recorded during the three months ended October
30, 2005, pending resolution of the appeal of the Trustee’s case. We do not
believe the resolution of this matter will have a material impact on our results
of operations or financial position.

 

    The Equity
Committee Lawsuit

 

    On December
8, 2005, the Trustee filed a Form 8-K on behalf of 3dfx, disclosing the terms of
the conditional settlement agreement between NVIDIA and the Creditor’s
Committee. Thereafter, certain 3dfx shareholders filed a petition with the
Bankruptcy Court to appoint an official committee to represent the claimed
interests of 3dfx shareholders. The court granted that petition and appointed an
Equity Securities Holders’ Committee, or the Equity Committee. The Equity
Committee thereafter sought and obtained an order granting it standing to bring
suit against NVIDIA, for the benefit of the bankruptcy estate, to compel NVIDIA
to pay the stock consideration then unpaid from the APA, and filed its own
competing plan of reorganization/liquidation. The Equity Committee’s plan
assumes that 3dfx can raise additional equity capital that would be used to
retire all of 3dfx’s debts, and thus to trigger NVIDIA's obligation to pay six
million shares of stock consideration specified in the APA. NVIDIA contends,
among other things, that such a commitment is not sufficient and that its
obligation to pay the stock consideration had long before been extinguished. On
May 1, 2006, the Equity Committee filed its lawsuit for declaratory relief to
compel NVIDIA to pay the stock consideration. In addition, the Equity Committee
filed a motion seeking Bankruptcy Court approval of investor protections for
Harbinger Capital Partners Master Fund I, Ltd., an equity investment fund that
conditionally agreed to pay no more than $51.5 million for preferred stock in
3dfx. The hearing on that motion was held on January 18, 2007, and the
Bankruptcy Court approved the proposed protections. 

 

    After the
Bankruptcy Court denied our motion to dismiss on September 6, 2006, the Equity
Committee again amended its complaint, and NVIDIA moved to dismiss that amended
complaint as well. On December 21, 2006, the Bankruptcy Court granted the motion
as to one of the Equity Committee’s claims, and denied it as to the others.
However, the Bankruptcy Court also ruled that NVIDIA would only be required to
answer the first three causes of action by which the Equity Committee seeks
determinations that (1) the APA was not terminated before 3dfx filed for
bankruptcy protection, (2) the 3dfx bankruptcy estate still holds some rights in
the APA, and (3) the APA is capable of being assumed by the bankruptcy
estate.

 

    Because of
the trial of the Trustee's fraudulent transfer claims against NVIDIA, the Equity
Committee's lawsuit did not progress substantially in 2007.  On July
31, 2008, the Equity Committee filed a motion for summary judgment on its first
three causes of action.  On September 15, 2008, NVIDIA filed a
cross-motion for summary judgment.  On October 24, 2008, the Court
held a hearing on the parties’ cross-motions for summary judgment.  On
January 6, 2009, the Bankruptcy Court issued a Memorandum Decision granting
NVIDIA’s motion and denying the Equity Committee’s motion, and entered an Order
to that effect on January 30, 2009. On February 27, 2009, the Bankruptcy Court
entered judgment in favor of NVIDIA. The Equity Committee has waived its right
to appeal by stipulation entered on February 18, 2009, and the judgment is now
final.

 







32











    Proceedings,
SEC inquiry and lawsuits related to our historical stock option granting
practices

 

    In June 2006,
the Audit Committee of the Board of NVIDIA ("Audit Committee"), began a review
of our stock option practices based on the results of an internal review
voluntarily undertaken by management. The Audit Committee, with the assistance
of outside legal counsel, completed its review on November 13, 2006 when the
Audit Committee reported its findings to our full Board. The review covered
option grants to all employees, directors and consultants for all grant dates
during the period from our initial public offering in January 1999 through June
2006. Based on the findings of the Audit Committee and our internal review, we
identified a number of occasions on which we used an incorrect measurement date
for financial accounting and reporting purposes.

 

    We
voluntarily contacted the SEC regarding the Audit Committee’s
review.  In late August 2006, the SEC initiated an inquiry related to
our historical stock option grant practices. In October 2006, we met with the
SEC and provided it with a review of the status of the Audit Committee’s review.
In November 2006, we voluntarily provided the SEC with additional documents. We
continued to cooperate with the SEC throughout its inquiry.  On
October 26, 2007, the SEC formally notified us that the SEC's investigation
concerning our historical stock option granting practices had been terminated
and that no enforcement action was recommended.

 

    Concurrently
with our internal review and the SEC’s inquiry, since September 29, 2006, ten
derivative cases have been filed in state and federal courts asserting claims
concerning errors related to our historical stock option granting practices and
associated accounting for stock-based compensation expense. These complaints
have been filed in various courts, including the California Superior Court,
Santa Clara County, the United States District Court for the Northern District
of California, and the Court of Chancery of the State of Delaware in and for New
Castle County. The California Superior Court cases were subsequently
consolidated as were the cases pending in the Northern District of California.
All of the cases purport to be brought derivatively on behalf of NVIDIA against
members of our Board and several of our current and former officers and
directors. Plaintiffs in these actions allege claims for, among other things,
breach of fiduciary duty, unjust enrichment, insider selling, abuse of control,
gross mismanagement, waste, and constructive fraud. The Northern District of
California action also alleges violations of federal provisions, including
Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. The plaintiffs
seek to recover for NVIDIA, among other things, damages in an unspecified
amount, rescission, punitive damages, treble damages for insider selling, and
fees and costs. Plaintiffs also seek an accounting, a constructive trust and
other equitable relief.

 

    On August 5,
2007, our Board authorized the formation of a Special Litigation Committee to
investigate, evaluate, and make a determination as to how NVIDIA should proceed
with respect to the claims and allegations asserted in the underlying derivative
cases brought on behalf of NVIDIA. The Special Litigation Committee has made
substantial progress in completing its work, but has not yet issued a
report.


    Between June
2007 and September 2008 the parties to the actions engaged in settlement
discussions, including four mediation sessions before the Honorable Edward
Infante (Ret.).  On September 22, 2008, we disclosed that we had
entered into Memoranda of Understanding regarding the settlement of all
derivative actions concerning our historical stock option granting
practices.  On November 10, 2008, the definitive settlement agreements
were concurrently filed in the Chancery Court of Delaware and the United States
District Court for the Northern District of California and are subject to
approval by both such courts.  The settlement agreements do not
contain any admission of wrongdoing or fault on the part of NVIDIA, our board of
directors or executive officers.  The terms of the settlement
agreements include, among other things, the agreement by the board of directors
to continue and to implement certain corporate governance changes;
acknowledgement of the prior amendment of certain options through re-pricings
and limitations of the relevant exercise periods; an agreement by Jen-Hsun
Huang, our president and chief executive officer, to amend additional options to
increase the aggregate exercise price of such options by $3.5 million or to
cancel options with an intrinsic value of $3.5 million; an $8.0 million cash
payment by our insurance carrier to NVIDIA; and an agreement to not object to
attorneys’ fees to be paid by NVIDIA to plaintiffs’ counsel of no more than
$7.25 million, if approved by the courts.  On January 24, 2009, a
Notice of Pendency and Settlement of Shareholder Derivative Actions was mailed
to shareholders of record and posted on www.nvidia.com.  On
March 11, 2009, a final settlement hearing was held in the Delaware Chancery
Court and, on the same date, the Court entered a Final Order and
Judgment, which approved the requested attorneys' fees and dismissed the
Delaware action with prejudice.  The final approval hearing in the Northern
District of California is scheduled for March 17,
2009. 








33











    Department of
Justice Subpoena and Investigation, and Civil Cases

 

    On November
29, 2006, we received a subpoena from the San Francisco Office of the Antitrust
Division of the United States Department of Justice, or DOJ, in connection with
the DOJ's investigation into potential antitrust violations related to GPUs and
cards.   On October 10, 2008, the DOJ formally notified us that
the DOJ investigation has been closed. No specific allegations were made against
NVIDIA during the investigation.

 

    As of January
25, 2009, over 50 civil complaints have been filed against us. The majority of
the complaints were filed in the Northern District of California, several were
filed in the Central District of California, and other cases were filed in
several other Federal district courts.  On April 18, 2007, the
Judicial Panel on Multidistrict Litigation transferred the actions currently
pending outside of the Northern District of California to the Northern District
of California for coordination of pretrial proceedings before the Honorable
William H. Alsup.  By agreement of the parties, Judge Alsup will
retain jurisdiction over the consolidated cases through trial or other
resolution.

 

    In the
consolidated proceedings, two groups of plaintiffs (one putatively representing
all direct purchasers of GPUs and the other putatively representing all indirect
purchasers) filed consolidated, amended class-action complaints. These
complaints purport to assert federal antitrust claims based on alleged price
fixing, market allocation, and other alleged anti-competitive agreements between
us and ATI Technologies, ULC., or ATI, and Advanced Micro Devices, Inc., or AMD,
as a result of its acquisition of ATI.  The indirect purchasers’
consolidated amended complaint also asserts a variety of state law antitrust,
unfair competition and consumer protection claims on the same allegations, as
well as a common law claim for unjust enrichment.

 

    Plaintiffs
filed their first consolidated complaints on June 14, 2007.  On July
16, 2007, we moved to dismiss those complaints.  The motions to
dismiss were heard by Judge Alsup on September 20, 2007.  The court
subsequently granted and denied the motions in part, and gave the plaintiffs
leave to move to amend the complaints.  On November 7, 2007, the court
granted plaintiffs’ motion to file amended complaints, ordered defendants to
answer the complaints, lifted a previously entered stay on discovery, and set a
trial date for January 12, 2009.  Plaintiffs filed motions for class
certification on April 24, 2008.  We filed oppositions to the motions
on May 20, 2008.  On July 18, 2008, the court ruled on Plaintiffs’
class certification motions.  The court denied class certification for
the proposed class of indirect purchasers.  The court granted in part
class certification for the direct purchasers but limited the direct purchaser
class to individual purchasers that acquired graphics processing cards products
directly from NVIDIA or ATI from their websites between December 4, 2002 and
November 7, 2007.  

 

    On
September 16, 2008, we executed a settlement agreement, or the Agreement,
in connection with the claims of the certified class of direct purchaser
plaintiffs approved by the court.  Pursuant to the Agreement, NVIDIA
has paid $850,000 into a $1.7 million fund to be made available for payments to
the certified class. We are not obligated under the Agreement to pay plaintiffs’
attorneys’ fees, costs, or make any other payments in connection with the
settlement other than the payment of $850,000. The Agreement is subject to court
approval and, if approved, would dispose of all claims and appeals raised by the
certified class in the complaints against NVIDIA.  A final settlement
approval hearing is scheduled for March 26, 2009.  Because the Court
certified a class consisting only of a narrow group of direct purchasers, the
Agreement does not resolve any claims that other direct purchasers may
assert.  In addition, on September 9, 2008, we reached a settlement
agreement with the remaining individual indirect purchaser plaintiffs pursuant
to which NVIDIA paid $112,500 in exchange for a dismissal of all claims and
appeals related to the complaints raised by the individual indirect purchaser
plaintiffs. This settlement is not subject to the approval of the court.
Pursuant to the settlement, the individual indirect purchaser plaintiffs in the
complaints have dismissed their claims and withdrawn their appeal of the class
certification ruling.  Because the Court did not certify a class of
indirect purchasers, this settlement agreement resolves only the claims of those
indirect purchasers that were named in the various
actions.

 

    Rambus
Corporation

 

    On July 10,
2008, Rambus Corporation, or Rambus, filed suit against NVIDIA Corporation,
asserting patent infringement of 17 patents claimed to be owned by Rambus.
Rambus seeks damages, enhanced damages and injunctive relief.  The
lawsuit was filed in the Northern District of California in San Jose,
California.  On July 11, 2008, NVIDIA filed suit against Rambus in the
Middle District of North Carolina asserting numerous claims, including antitrust
and other claims.  NVIDIA seeks damages, enhanced damages and
injunctive relief.  Rambus has since dropped two patents from its
lawsuit in the Northern District of California.  The two cases have
recently been consolidated into a single action in the Northern District of
California.  A case management conference in the case pending in the
Northern District of California is scheduled for March 30, 2009.  On
November 6, 2008, Rambus filed a complaint alleging a violation of 19 U.S.C.
Section 1337 based on a claim of patent infringement against NVIDIA and 14 other
respondents with the U.S. International Trade Commission, or ITC.  The
complaint seeks an exclusion order barring the importation of products that
allegedly infringe nine Rambus patents.  The ITC has instituted the
investigation.  NVIDIA intends to pursue its offensive and defensive
cases vigorously.

 

    Product
Defect Litigation and Securities Cases

 

    In
September, October and November 2008, several putative consumer class
action lawsuits were filed against us, asserting various claims arising from a
weak die/packaging material set in certain versions of our previous generation
MCP and GPU products used in notebook systems.  Most of the lawsuits
were filed in Federal Court in the Northern District of California, but three
were filed in state court in California, in Federal Court in New York, and in
Federal Court in Texas.  Those three actions have since been removed
or transferred to the United States District Court for the Northern District of
California, San Jose Division, where all of the actions now are currently
pending.  The various lawsuits are titled Nakash v. NVIDIA Corp., Feinstein v. NVIDIA Corp.,
Inicom Networks, Inc. v.
NVIDIA Corp. and Dell, Inc. and Hewlett Packard
, Olivos v. NVIDIA Corp., Dell, Inc. and Hewlett
Packard
, Sielicki v.
NVIDIA Corp. and Dell, Inc.
, Cormier v. NVIDIA Corp.,
National Business Officers
Association, Inc. v. NVIDIA Corp.
, and West v. NVIDIA
Corp
.  The First Amended Complaint was filed on October 27,
2008, which no longer asserted claims against Dell, Inc.  The various
complaints assert claims for, among other things, breach of warranty, violations
of the Consumer Legal Remedies Act, Business & Professions Code sections
17200 and 17500 and other consumer protection statutes under the laws of various
jurisdictions, unjust enrichment, and strict liability.

 







34











   The
District Court has entered orders deeming all of the above cases related
under the relevant local rules.  On December 11, 2008, NVIDIA filed a
motion to consolidate all of the aforementioned consumer class action
cases.  The District Court held a case management conference for the
above cases on February 23, 2009.  On February 26, 2009, the District
Court consolidated the cases, as well as two other cases pending against
Hewlett-Packard, under the caption “The NVIDIA GPU Litigation” and ordered the
plaintiffs to file lead counsel motions by March 2, 2009.  On March 2,
2009, several of the parties filed motions for appointment of lead counsel and
briefs addressing certain related issues.  A hearing on appointment of
lead counsel is scheduled for March 23, 2009.  The District Court also
ordered that a consolidated amended complaint be filed on or before May 6,
2009.




  In September 2008, three
putative securities class actions, or the Actions, were filed in the United
States District Court for the Northern District of California arising out of our
announcements on July 2, 2008, that we would take a charge against cost of
revenue to cover anticipated costs and expenses arising from a weak
die/packaging material set in certain versions of our previous generation MCP
and GPU products and that we were revising financial guidance for our second
quarter of fiscal year 2009. The Actions purport to be brought on behalf of
purchasers of NVIDIA stock and assert claims for violations of Sections 10(b)
and 20(a) of the Securities Exchange Act of 1934, as amended. On October 30,
2008, the Actions were consolidated under the caption In re NVIDIA Corporation Securities
Litigation
, Civil Action No. 08-CV-04260-JW (HRL). Lead Plaintiffs and
Lead Plaintiffs' Counsel were appointed on December 23, 2008. On February 6,
2009, co-Lead Plaintiff filed a Writ of Mandamus with the Ninth Circuit Court of
Appeals challenging the designation of co-Lead Plaintiffs' Counsel. On February
19, 2009, co-Lead Plaintiff filed with the District Court, a motion to stay the
District Court proceedings pending resolution of the Writ of Mandamus by the
Ninth Circuit. On February 24, 2009, Judge Ware granted the stay. The Writ is
still pending in the Court of Appeals. W
e intend
to take all appropriate action with respect to the above cases.



        Intel
Corporation



        On
February 17, 2009, Intel Corporation filed suit against NVIDIA Corporation,
seeking declaratory and injunctive relief relating to a licensing agreement that
the parties signed in 2004.  The lawsuit was filed in Delaware
Chancery Court.  Intel seeks an order from the Court declaring that
the license does not extend to certain future NVIDIA chipset products, and
enjoining NVIDIA from stating that it has licensing rights for these products.
The lawsuit seeks no damages from NVIDIA.  If Intel successfully
obtains such a court order, we could be unable to sell our MCP products for use
with Intel processors and our competitive position would be
harmed.   NVIDIA’s response to the Intel complaint is currently
due on March 23, 2009.  NVIDIA disputes Intel’s positions and intends
to vigorously defend the case.




       No
matters were submitted to a vote of our security holders during the fourth
quarter of fiscal year 2009.






 




 



35







 









 

    Our common
stock is traded on the NASDAQ Global Select Market under the symbol
NVDA. Public trading of our common stock began on January 22, 1999. Prior to
that, there was no public market for our common stock. As of March 10,
2009,
we had approximately 460
registered
stockholders, not
including those shares held in
street or nominee name. The following table sets forth for the periods indicated
the high and low sales price for our common stock as quoted on the
NASDAQ Global Select Market:

 




































































































































































 
 

High

 
 

Low

 

Fiscal
year ending January 31, 2010

 
 
 
 
 
 


First
Quarter (through March 10, 2009)


 


$




9.97


 
 


$




7.21


 
 
 
 
 
 
 
 

Fiscal
year ended January 25, 2009

 
 
 
 
 
 


Fourth
Quarter


 


$




9.45


 
 


$




5.75


 


Third
Quarter


 


$




14.12


 
 


$




5.97


 


Second
Quarter


 


$




25.35


 
 


$




10.70


 


First
Quarter


 


$




27.59


 
 


$




17.31


 
 
 
 
 
 
 
 
 
 


Fiscal
year ended January 27, 2008


 
 
 
 
 
 
 
 


Fourth
Quarter


 


$




38.20


 
 


$




22.33


 


Third
Quarter (1)


 


$




39.67


 
 


$




27.00


 


Second
Quarter (1)


 


$




31.89


 
 


$




21.47


 


First
Quarter (1)


 


$




23.27


 
 


$




18.69


 






(1) 
Reflects a three-for-two stock split effective on September 10,
2007.



Dividend
Policy

 

    We have never
paid and do not expect to pay cash dividends for the foreseeable
future.



Issuer
Purchases of Equity Securities

 

    During fiscal
year 2005, we announced that our Board of Directors, or Board, had authorized a
stock repurchase program to repurchase shares of our common stock, subject to
certain specifications, up to an aggregate maximum amount of $300
million.  During fiscal year 2007, the Board further approved an
increase of $400 million to the original stock repurchase program. In fiscal
year 2008, we announced a stock repurchase program under which we may
purchase up to an additional $1.0 billion of our common stock over a three year
period through May 2010. On August 12, 2008, we announced that our Board further
authorized an additional increase of $1.0 billion to the stock repurchase
program. As a result of these increases, we have an ongoing authorization from
the Board, subject to certain specifications, to repurchase shares of our common
stock up to an aggregate maximum amount of $2.7 billion through May
2010. 

 

    The
repurchases will be made from time to time in the open market, in privately
negotiated transactions, or in structured stock repurchase programs, and may be
made in one or more larger repurchases, in compliance with the Securities
Exchange Act of 1934, or the Exchange Act, Rule 10b-18, subject to market
conditions, applicable legal requirements, and other factors. The program does
not obligate NVIDIA to acquire any particular amount of common stock and the
program may be suspended at any time at our discretion. As part of our
share repurchase program, we have entered into, and we may continue to enter
into, structured share repurchase transactions with financial institutions.
These agreements generally require that we make an up-front payment in exchange
for the right to receive a fixed number of shares of our common stock upon
execution of the agreement, and a potential incremental number of shares of our
common stock, within a pre-determined range, at the end of the term of the
agreement.

 

    During the
three months ended January 25, 2009, we did not enter into any structured share
repurchase transactions or otherwise purchase any shares of our common stock.
During fiscal year 2009, we entered into structured share repurchase
transactions to repurchase 29.3 million shares for $423.6 million, which we
recorded on the trade date of the transactions.  Through fiscal year
2009, we have repurchased an aggregate of 90.9 million shares under our stock
repurchase program for a total cost of $1.46 billion.  As of
January 25, 2009, we are authorized, subject to certain specifications, to
repurchase shares of our common stock up to an additional amount of $1.24
billion through May 2010.   

 

    Additionally,
during fiscal year 2009, we granted approximately 17.9 million stock options
under the 2007 Equity Incentive Plan. Please refer to Note 2 of the Notes to the
Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for further information regarding stock-based compensation and
stock options granted under our equity incentive program.




 



36







 




 

Stock
Performance Graphs

 

    The following
graph compares the cumulative total stockholder return for our common stock, the
S & P 500 Index and the S & P 500 Semiconductors Index for the five
years ended January 25, 2009. The graph assumes that $100 was invested on
January 25, 2004 in our common stock or on January 31, 2004 in each of the S
& P 500 Index and the S & P Semiconductors Index. Total return assumes
reinvestment of dividends in each of the indices indicated. We have never paid
cash dividends on our common stock. Our results are calculated on fiscal
year-end basis and each of the S & P 500 Index and the S & P
Semiconductors Index are calculated on month-end basis. Total return is based on
historical results and is not intended to indicate future
performance.

    FIVE YEARS STOCK PERFORMANCE GRAPH










































































































 
 

1/25/2004

 
 

1/30/2005

 
 

1/29/2006

 
 

1/28/2007

 
 

1/27/2008

 
 

1/25/2009

 


NVIDIA
Corporation


 


$




100.00


 
 


$




99.09


 
 


$




200.30


 
 


$




272.59


 
 


$




324.17


 
 


$




100.17


 


S
& P 500


 


$




100.00


 
 


$




106.23


 
 


$




117.26


 
 


$




134.28


 
 


$




131.17


 
 


$




80.50


 


S
& P Semiconductors


 


$




100.00


 
 


$




75.16


 
 


$




86.90


 
 


$




81.82


 
 


$




76.25


 
 


$




45.17


 



*$100
invested on January 25, 2004 in stock or index, including reinvestment of
dividends.  Indexes calculated on month-end basis.







 




 



37







 



 

 The
following graph compares the cumulative total stockholder return for our common
stock, the S & P 500 Index and the S & P 500 Semiconductors Index for
the period commencing with our initial public offering through the year ended
January 25, 2009. The graph assumes that $100 was invested at our initial public
offering on January 21, 1999 in our common stock or on December 31, 1998 in each
of the S & P 500 Index and the S & P Semiconductors Index. Total return
assumes reinvestment of dividends in each of the indices indicated. We have
never paid cash dividends on our common stock. Our results are calculated on
fiscal year-end basis and each of the S & P 500 Index and the S & P
Semiconductors Index are calculated on month-end basis. Total return is based on
historical results and is not intended to indicate future
performance. 
                                                                                   

TEN YEARS STOCK PERFORMANCE GRAPH






























































































































































































 
 

1/21/1999

 
 

1/31/1999

 
 

1/30/2000

 
 

1/28/2001

 
 

1/27/2002

 
 

1/24/2003

 
 

1/25/2004

 
 

1/30/2005

 
 

1/29/2006

 
 

1/28/2007

 
 

1/27/2008

 
 

1/25/2009

 


NVIDIA
Corporation


 


 $




100.00


 
 


 $




158.33


 
 


 $




311.46


 
 


 $




846.88


 
 


 $




2,182.33


 
 


 $




339.00


 
 


 $




769.67


 
 


 $




762.67


 
 
 


 $




1,541.67


 
 


 $




2,098.00


 
 


 $




2,495.00




$ 771.00


 


S&P
500


 


 $




100.00


 
 


 $




104.18


 
 


 $




114.96


 
 


 $




113.93


 
 


 $




95.53


 
 


 $




73.54


 
 


 $




98.97


 
 


 $




105.13


 
 
 


 $




116.05


 
 


 $




132.89


 
 


 $




129.82




$ 79.67


 


S&P
Semiconductors


 


 $




100.00


 
 


 $




119.64


 
 


 $




180.33


 
 


 $




145.17


 
 


 $




112.96


 
 


 $




50.00


 
 


 $




99.52


 
 


 $




74.79


 
 
 


 $




86.48


 
 


 $




81.43


 
 


 $




75.88




$ 45.49


 



*$100
invested on January 21, 1999 in stock or December 31, 1998, in index, including
reinvestment of dividends.  Indexes calculated on month-end
basis.





 



38







 






 

The
following selected financial data should be read in conjunction with our
financial statements and the notes thereto, and with Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” The
consolidated statements of operations data for the years ended January 25, 2009,
January 27, 2008 and January 28, 2007 and the consolidated balance sheet data as
of January 25, 2009 and January 27, 2008 have been derived from and should be
read in conjunction with our audited consolidated financial statements and the
notes thereto included elsewhere in this Annual Report on Form 10-K. The
consolidated statement of operations data for the years ended January 29, 2006
and January 30, 2005 and the consolidated balance sheet data for the year ended
January 28, 2007, January 29, 2006 and January 30, 2005 are derived from audited
consolidated financial statements and the notes thereto which are not included
in this Annual Report on Form 10-K.


































































































































































































 
 

Year
Ended

 
 
 

January
25,

 

January
27,

 

January
28,

 

January
29,

 

January
30,

 
 
 

2009

(B)

 

2008

(C)

 

2007

(C,D)

 

2006

(E)

 

2005

 
 
 

(In
thousands, except per share data)

 

Consolidated
Statement of Operations Data:

 
 
 
 
 
 
 
 
 
 
 


Revenue


 


$




3,424,859


 


$




4,097,860


 


$




3,068,771


 


$




2,375,687


 


$




2,010,033


 


Income
(loss) from operations


 


$




(70,700








$




836,346


 


$




453,452


 


$




336,664


 


$




95,176


 


Net
income (loss)


 


$




(30,041








$




797,645


 


$




448,834


 


$




301,176


 


$




88,615


 


Basic
net income (loss) per share


 


$




(0.05





$




1.45


 


$




0.85


 


$




0.59


 


$




0.18


 


Diluted
net income (loss) per share


 


$




(0.05








$




1.31


 


$




0.76


 


$




0.55


 


$




0.17


 


Shares
used in basic per share computation (A)


 
 


548,126


 
 


550,108


 
 


528,606


 
 


509,070


 
 


498,186


 


Shares
used in diluted per share computation (A)


 
 


548,126


 
 


606,732


 
 


587,256


 
 


548,556


 
 


527,436


 




 



















































































































































 
 

January
25,

 

January
27,

 

January
28,

 

January
29,

 

January
30,

 
 
 

2009

 

2008

 

2007

 

2006

 

2005

 
 
 

(In
thousands)

 

Consolidated
Balance Sheet Data:

 
 
 
 
 
 
 
 
 
 
 


Cash,
cash equivalents and marketable securities


 


$




1,255,390


 


$




1,809,478


 


$




1,117,850


 


$




950,174


 


$




670,045


 


Total
assets


 


$




3,350,727


 


$




3,747,671


 


$




2,675,263


 


$




1,954,687


 


$




1,663,551


 


Capital
lease obligations, less current portion


 


$




25,634


 


$




-


 


$




-


 


$




-


 


$




-


 


Total
stockholders’ equity


 


$




2,394,652


 


$




2,617,912


 


$




2,006,919


 


$




1,495,992


 


$




1,221,091


 


Cash
dividends declared per common share


 


$




-


 


$




-


 


$




 -


 


$




-


 


$




-


 



 

(A)
Reflects a three-for-two stock-split effective September 10, 2007 and a
two-for-one stock-split effective April 6, 2006. 

(B)
Fiscal year 2009 includes $196.0 million for a warranty charge against cost of
revenue arising from a weak die/packaging material set; a benefit of $8.0
million received from an insurance provider as reimbursement for some of the
claims towards the warranty cost arising from a weak die/packaging material set;
$18.9 million for a non-recurring charge resulting from the termination of a
development contract related to a new campus construction project we have put on
hold and $8.0 million for restructuring charges.

(C)
Fiscal years 2008 and 2007 include a charge of $4.0 million and $13.4 million
towards in-process research and development expense related to our purchase of
Mental Images Inc. and PortalPlayer Inc., respectively, that had not yet reached
technological feasibility and have no alternative future use.

(D)
Fiscal year 2007 included a charge of $17.5 million associated with a
confidential patent licensing arrangement.

(E)
Fiscal year 2006 included a charge of $14.2 million related to settlement costs
associated with two litigation matters, 3dfx and American Video Graphics, LP, or
AVG. 





 




 



39







 




 

    The following
discussion and analysis of our financial condition and results of operations
should be read in conjunction with “Item 1A. Risk Factors”, “Item 6. Selected
Financial Data”, our Consolidated Financial Statements and related Notes
thereto, as well as other cautionary statements and risks described elsewhere in
this Annual Report on Form 10-K, before deciding to purchase, hold or sell
shares of our common stock.



Overview



Our
Company

 

    NVIDIA
Corporation is the worldwide leader in visual computing technologies and the
inventor of the graphic processing unit, or the GPU, a high-performance
processor which generates realistic, interactive graphics on workstations,
personal computers, game consoles, and mobile devices. Our products are designed
to generate realistic, interactive graphics on consumer and professional
computing devices. We serve the entertainment and consumer market with our
GeForce graphics products, the professional design and visualization market with
our Quadro graphics products, the high-performance computing market with our
Tesla computing solutions products, and the handheld computing market with our
Tegra computer-on-a-chip products. We have four major product-line operating
segments: the GPU business, the professional solutions business, or PSB, the
media and communications processor, or MCP, business, and the consumer products
business, or CPB.

 

    Our GPU
business is comprised primarily of our GeForce products that support desktop and
notebook personal computers, or PCs, plus memory products. Our PSB is comprised
of our NVIDIA Quadro professional workstation products and other professional
graphics products, including our NVIDIA Tesla high-performance computing
products. Our MCP business is comprised of NVIDIA nForce core logic and
motherboard GPU, or mGPU products. Our CPB is comprised of our Tegra and GoForce
mobile brands and products that support netbooks, personal navigation devices,
or PNDs, handheld personal media players, or PMPs, personal digital assistants,
or PDAs, cellular phones and other handheld devices. CPB also includes license,
royalty, other revenue and associated costs related to video game consoles and
other digital consumer electronics devices.  Original equipment
manufacturers, original design manufacturers, add-in-card manufacturers, system
builders and consumer electronics companies worldwide utilize our processors as
a core component of their entertainment, business and professional
solutions.

 

    We were
incorporated in California in April 1993 and reincorporated in Delaware in April
1998. Our headquarter facilities are in Santa Clara, California. Our Internet
address is www.nvidia.com. The
contents of our website are not a part of this Form 10-K.



Recent
Developments, Future Objectives and Challenges

 

    GPU
Business

 

    Our GPU
business is comprised primarily of our GeForce products that support desktop and
notebook PCs, plus memory products. During fiscal year 2009, we launched several
new GPUs in the GeForce family, including the GeForce 9600 GT, the GeForce
9800 GX2, and the GeForce 9800 GTX.  We also launched the GeForce GTX
280 and 260 GPU products, which represent the second generation of our unified
architecture and, based on a variety of benchmarks and resolutions, deliver
approximately 50 percent more gaming performance than our GeForce 8800 Ultra
GPU. We also launched the GeForce GTX 295 and GeForce GTX 285 which were
designed based on Compute Unified Device Architecture, or CUDA,
technology.  The GeForce GTX 295 is among the world’s fastest dual GPU
solutions featuring the power of two GeForce GTX 200 GPUs on a single card. The
GeForce GTX 285 is among the world’s most powerful single GPU solution and works
efficiently in complex DirectX 10 environments with extreme HD resolutions. We
also shipped notebook products from the GeForce 100M Series, which includes the
GeForce G105M and the GeForce G110M to meet the performance demands of today’s
visual computing applications.  The GeForce G105M is over 55
percent faster than our previous product in its segment, while the GeForce
G110M is 35 percent faster than our previous mainstream GPU.

 

    In fiscal
year 2009, we completed our acquisition of Ageia Technologies, Inc., or Ageia,
an industry leader in gaming physics technology. We believe that the combination
of the GPU and physics engine brands results in an enhanced visual experience
for the gaming world. Subsequent to our acquisition of Ageia, we launched
the GeForce 9800 GTX+, GeForce 9800 GT, and GeForce 9500 GT GPUs, which provide
support for our PhysX physics engine and CUDA parallel processing across a wide
range of price segments.

 







40











    Our share of
the standalone desktop GPU category decreased from 64% to 63% in fiscal year
2009, according to the December 2007 and December 2008 PC Graphics Report from
Mercury Research, respectively. Our share of the standalone notebook category
decreased from 75% to 63%, according to the December 2007 and December 2008 PC
Graphics Report from Mercury Research, respectively, due to increased
competition in the marketplace. During fiscal year 2009, our revenue from
Desktop GPU products declined approximately 29% compared to fiscal year 2008.
This decline was driven primarily as a result of a decline of over 20% in the
number of units of Desktop GPU products that we sold, while average selling
prices of our Desktop GPU products were flat to slightly lower in fiscal year
2009 when compared to fiscal year 2008. We believe that some portion of the
decline in our Desktop GPU unit sales reflects a shift in consumer preference
towards notebook PCs and away from desktop PCs, and that the overall global
economic recessionary climate also contributed to the decline. As such, we noted
that unit sales of our Notebook GPU products increased over 10% during fiscal
year 2009 when compared to fiscal year 2008. However, the overall global
economic recessionary climate contributed to a significant decline in the demand
for total graphics during the fourth quarter of fiscal year 2009. If consumer
preferences towards notebook PCs, and away from desktop PCs, continue or
escalate, we may see further declines in sales of our Desktop GPU products. In
addition, if the global economic climate does not recover during fiscal year
2010, or deteriorates further, we may see consumer preferences move towards
lower-priced notebook PCs, which may negatively impact sales of our Notebook PC
products.

 

    Professional
Solutions Business

 

    Our PSB is
comprised of our Quadro professional workstation products and other professional
graphics products, including our NVIDIA Tesla high-performance computing
products. During fiscal year 2009, we launched several new Quadro solutions,
including the Quadro FX 3600M Professional, and the Quadro Plex D Series, a
dedicated desk side Visual Computing System, or VCS, system that also can be
configured (using two Quadro Plex D systems) for a 3U configuration. We also
launched five new Quadro FX notebook GPUs that spanned from ultra-high
performance to ultra mobility, as well as the Quadro CX accelerator for Adobe’s
Creative Suite 4, or Adobe CS4, content creation software.

 

    During fiscal
year 2009, we also launched the Tesla C1060 computing processor and the Tesla
S1070 computing system. Tesla is a new family of GPU computing products that
delivers processing capabilities for high-performance computing applications,
and marks our entry into the high-performance computing industry. The Tesla
family also consists of the C870 GPU computing processor, the D870 Deskside
Supercomputer and the S870 1U Computing Server. We believe we are in an era of
GPU computing, where our Compute Unified Device Architecture, or CUDA, parallel
processing architecture can accelerate compute-intensive applications by
significant multiples over that of a CPU alone. NVIDIA CUDA is a general purpose
parallel computing architecture that leverages the parallel compute engine
in our graphics processing units to solve many complex computational
problems in a fraction of the time required on a CPU. In order to program using
the CUDA architecture, developers can, today, use C, one of the most widely used
high-level programming languages, which can then be run at great performance on
a CUDA enabled processor. We expect other languages to be supported in the
future, including FORTRAN and C++. With CUDA, we are able to speed up general
purpose compute-intensive applications like we do for 3D graphics
processing.  Developers are able to speed-up algorithms in areas
ranging from nano molecular dynamics to image processing, medical image
reconstruction and derivatives modeling for financial risk
analysis.  Many PC OEMs now offer high performance computing solutions
with Tesla for use by customers around the world. Researchers use CUDA to
accelerate their time-to-discovery, and popular off-the-shelf software packages
are now CUDA accelerated.

 

    We have
achieved a leading position in the professional graphics category by providing
innovative GPU technology, software, and tools that integrate the capabilities
of our GPU with a broad array of visualization
products.  

 

    MCP
Business

 

    Our MCP business is
comprised of NVIDIA nForce core logic and NVIDIA GeForce mGPU
products.   Our NVIDIA nForce and GeForce mGPU families of products
address the core logic market.  During fiscal year 2008, we announced
a new technology named Hybrid SLI, which combines a powerful yet
energy-efficient engine with our multi-GPU SLI technology. During fiscal year
2009, we shipped Hybrid SLI DirectX 10, or DX10, mGPUs – the GeForce 8000 GPU
series.  We also extended the reach of SLI technology into the
performance category with the launch of our overclockable NVIDIA nForce 790i
Ultra SLI MCP for Intel processors.
 We also launched SLI for Intel
Broomfield CPU platforms. 

 

    In fiscal
year 2009, we also launched the GeForce 9400M mGPU along with Apple, Inc., or
Apple, for their new lineup of Mac notebooks. The GeForce 9400M integrates three
complex chips – the northbridge, the input-output network processor, and the
GeForce GPU into a single chip and, as a result, significantly improves
performance over Intel integrated graphics.  Apple’s MacBook and
MacBook Air notebook computers come standard with the GeForce 9400M. Apple’s
MacBook Pro notebook computer comes standard with the hybrid combination of two
GeForce GPUs - a GeForce 9400M for maximum battery life and a GeForce 9600M
GT for high performance mode.  We also launched the GeForce 9400
and 9300 mGPUs for Intel desktop PCs.  These new mGPUs set a new
price/performance standard for integrated graphics by combining the power of
three different chips into one highly compact and efficient GPU.

 

    Additionally,
in fiscal year 2009, we announced the NVIDIA Ion Platform, which combines the
GeForce 9400 GPU with the Intel Atom CPU. The combination enables netbooks,
small form factor and all-in-one PCs to play rich media and popular games in
high definition. 




 




 



41







 



   
Consumer Products Business

 

   
Our CPB is comprised of our Tegra and GoForce mobile brands and products that
support netbooks, PMPs, PDAs, cellular phones and other handheld devices. This
business also includes license, royalty, other revenue and associated costs
related to video game consoles and other digital consumer electronics
devices.

 

    During fiscal
year 2009, we launched the NVIDIA Tegra APX 2500 computer-on-a-chip. In February
2009, we announced the NVIDIA Tegra APX 2600 computer-on-a-chip and that we have
worked closely with Google Inc., or Google, and the Open Handset Alliance to
utilize Android, an open mobile phone software stack, with the NVIDIA
Tegra series. During fiscal year 2009, we also launched the NVIDIA Tegra
600 and 650 products, which are small, advanced, highly-integrated visual
computer-on-a-chip products. These products feature enhanced multimedia
functionality and deliver many times the power efficiency of competing
products.



  
We also introduced GeForce 3D Vision, a high-definition 3D stereo solution for
the home. 3D Vision is a combination of high-tech wireless glasses, a high-power
infrared emitter and advanced software that transforms hundreds of PC games into
full stereoscopic 3D.



  
Restructuring Charges



  
On September 18, 2008, we announced a workforce reduction to allow for
continued investment in strategic growth areas, which was completed in the third
quarter of fiscal year 2009. As a result, we eliminated approximately 360
positions worldwide, or about 6.5% of our global workforce.  During
fiscal year 2009, expenses associated with the workforce reduction, which were
comprised primarily of severance and benefits payments to these employees,
totaled $8.0 million. We anticipate that the expected decrease in operating
expenses from this action will be offset by continued investment in strategic
growth areas.



  
Product Defect



  
Our products are complex and may contain defects or experience failures due to
any number of issues in design, fabrication, packaging, materials and/or use
within a system. If any of our products or technologies contains a defect,
compatibility issue or other error, we may have to invest additional research
and development efforts to find and correct the issue.  Such efforts
could divert our management’s and engineers’ attention from the development of
new products and technologies and could increase our operating costs and reduce
our gross margin. In addition, an error or defect in new products or releases or
related software drivers after commencement of commercial shipments could result
in failure to achieve market acceptance or loss of design wins. Also, we may be
required to reimburse customers, including for customers’ costs to repair or
replace the products in the field. A product recall or a significant number of
product returns could be expensive, damage our reputation and could result in
the shifting of business to our competitors. Costs associated with correcting
defects, errors, bugs or other issues could be significant and could materially
harm our financial results.



  
In July 2008, we recorded a $196.0 million charge against cost of revenue to
cover anticipated customer warranty, repair, return, replacement and other
associated costs arising from a weak die/packaging material set in certain
versions of our previous generation MCP and GPU products used in notebook
systems. All of our newly manufactured products and all of our products that are
currently shipping in volume have a different material set that we believe is
more robust.

 

  
The previous generation MCP and GPU products that are impacted were included in
a number of notebook products that were shipped and sold in significant
quantities. Certain notebook configurations of these MCP and GPU products are
failing in the field at higher than normal rates. While we have not been able to
determine a root cause for these failures, testing suggests a weak material set
of die/package combination, system thermal management designs, and customer use
patterns are contributing factors. We have worked with our customers to develop
and have made available for download a software driver to cause the system fan
to begin operation at the powering up of the system and reduce the thermal
stress on these chips. We have also recommended to our customers that they
consider changing the thermal management of the MCP and GPU products in their
notebook system designs. We intend to fully support our customers in their
repair and replacement of these impacted MCP and GPU products that fail, and
their other efforts to mitigate the consequences of these failures.



   We continue to engage in
discussions with our supply chain regarding reimbursement to us for some or all
of the costs we have incurred and may incur in the future relating to the weak
material set. We also continue to seek to access our insurance coverage, which
provided us with $8.0 million in related reimbursement during fiscal year
2009. 
However, there
can be no assurance that we will recover any additional reimbursement. We
continue to not see any abnormal failure rates in any systems using NVIDIA
products other than certain notebook configurations. However, we are continuing
to test and otherwise investigate other products. There can be no assurance that
we will not discover defects in other MCP or GPU products.
 
       





 




 



42







 




  
In September, October and November 2008, several putative class action
lawsuits were filed against us, asserting various claims related to the impacted
MCP and GPU products.  Please refer to Note 12 of the Notes to the
Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for further information regarding this litigation.

 

  
Common Stock

 

  
At the Annual Meeting of Stockholders held on June 19, 2008, our stockholders
approved an increase in our authorized number of shares of common stock to
2,000,000,000. The par value of our common stock remained unchanged at $0.001
per share.



Dependence
on PC market



  
We derive and expect to continue to derive the majority of our revenue from
the sale or license of products for use in the desktop PC and notebook PC
markets, including professional workstations. A reduction in sales of PCs, or a
reduction in the growth rate of PC sales, may reduce demand for our
products.  Changes in demand for our products could be large and
sudden.  During fiscal year 2009, sales of our desktop GPU products
decreased approximately 29% compared to fiscal year 2008. These decreases
were primarily due to the Standalone Desktop and Standalone Notebook GPU market
segment decline as reported in the PC Graphics December 2008 Report from Mercury
Research.  Since PC manufacturers often build inventories during periods of
anticipated growth, they may be left with excess inventories if growth slows or
if they incorrectly forecast product transitions. In these cases, PC
manufacturers may abruptly suspend substantially all purchases of additional
inventory from suppliers like us until their excess inventory has been absorbed,
which would have a negative impact on our financial results.



Seasonality



  
Our industry is largely focused on the consumer products market. Historically,
we have seen stronger revenue in the second half of our fiscal year than in
the first half of our fiscal year, primarily due to back-to-school and
holiday demand. This seasonal trend did not occur in fiscal year
2009.  Revenue in the second half of fiscal year 2009 declined by 33%
when compared to revenue from the first half of fiscal year 2009. The current
recessionary economic environment has created substantial uncertainty in our
business. There can be no assurance that the historical seasonal trend will
resume in the future.

 

Subsequent
Event



    Tender
Offer



    On February
11, 2009, we announced that our Board of Directors approved a cash tender
offer for certain employee stock options. The tender offer commenced on
February 11, 2009 and expired at 12:00 midnight (Pacific Time) on March 11,
2009. The tender offer applied to outstanding stock options held by employees
with an exercise price equal to or greater than $17.50 per share. None of the
non-employee members of our Board of Directors or our officers who file reports
under Section 16(a) of the Securities Exchange Act of 1934, including our
former Chief Financial Officer, Marvin D. Burkett, were eligible to participate
in the Offer. All eligible options with exercise prices less than $28.00
per share, but not less than $17.50 per share were eligible to receive a cash
payment of $3.00 per option in exchange for the cancellation of the eligible
option. All eligible options with exercise prices greater than $28.00 per share
were eligible to receive a cash payment of $2.00 per option in exchange for the
cancellation of the eligible option.

 

We use
equity to promote employee retention and provide an incentive vehicle valued by
employees that is also aligned to stockholder interest. However, our stock price
has declined significantly over the past year, and all of our eligible options
are “out-of-the-money” (i.e., have exercise prices above our stock
price).  Therefore, we provided an incentive to employees with an
opportunity to obtain cash payment for their eligible options. Also, the tender
offer is expected to increase the number of shares available for
issuance under our 2007 Equity Incentive Plan to the extent eligible options
were tendered in this tender offer. The tender offer is also expected to reduce
the potential dilution to our stockholders that is represented by outstanding
stock options, which become additional outstanding shares of our common stock
upon exercise.

 

  
As of January 25, 2009, there were approximately 33.1 million options eligible
to participate in the tender offer. If all these options were tendered and
accepted in the offer, the aggregate cash purchase price for these options would
be approximately $92.0 million. As a result of the tender offer,
we may incur a non-recurring charge of up to approximately $150.0 million
if all of the unvested eligible options are tendered. This charge would be
reflected in our financial results for the first fiscal quarter of fiscal
year 2010 and represents stock-based compensation expense, consisting of the
remaining unamortized stock-based compensation expense associated with the
unvested portion of the eligible options tendered in the offer, stock-based
compensation expense resulting from amounts paid in excess of the fair value of
the underlying options, if any, plus associated payroll taxes and professional
fees.

 

  
We are currently tallying information on the number of options tendered under
the offer to determine the actual aggregate cash to be paid in exchange for the
cancellation of the eligible options and the non-recurring charge to be incurred
pertaining to the unvested eligible options that have been
tendered.

 







43











Critical
Accounting Policies and Estimates

 

   Management’s discussion
and analysis of financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue, cost of revenue,
expenses and related disclosure of contingencies. On an on-going basis, we
evaluate our estimates, including those related to revenue recognition, cash
equivalents and marketable securities, accounts receivable, inventories, income
taxes, goodwill, stock-based compensation, warranty liabilities, litigation,
investigation and settlement costs and other contingencies. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and
liabilities.

 

   We believe the following
critical accounting policies affect our significant judgments and estimates used
in the preparation of our consolidated financial statements. Our management has
discussed the development and selection of these critical accounting policies
and estimates with the Audit Committee of our Board of Directors, or
Board.  The Audit Committee has reviewed our disclosures relating to
our critical accounting policies and estimates in this Annual Report on Form
10-K.  

 

  
Revenue Recognition

 

   Product
Revenue
 

 

  
We recognize revenue from product sales when persuasive evidence of an
arrangement exists, the product has been delivered, the price is fixed and
determinable, and collection is reasonably assured. For most sales, we use a
binding purchase order and in certain cases we use a contractual agreement as
evidence of an arrangement. We consider delivery to occur upon shipment provided
title and risk of loss have passed to the customer based on the shipping terms.
At the point of sale, we assess whether the arrangement fee is fixed and
determinable and whether collection is reasonably assured. If we determine that
collection of a fee is not reasonably assured, we defer the fee and recognize
revenue at the time collection becomes reasonably assured, which is generally
upon receipt of payment.

 

  
Our policy on sales to certain distributors, with rights of return, is to
defer recognition of revenue and related cost of revenue until the distributors
resell the product.



  
We record estimated reductions to revenue for customer programs at the time
revenue is recognized. Our customer programs primarily involve rebates, which
are designed to serve as sales incentives to purchasers of our
products.  We account for rebates in accordance with Emerging Issues
Task Force Issue 01-9, or EITF 01-09, Accounting for Consideration Given
by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)

and, as such, we accrue for 100% of the potential rebates and do not apply a
breakage factor. Rebates typically expire six months from the date of the
original sale, unless we reasonably believe that the customer intends to claim
the rebate. Unclaimed rebates are reversed to revenue upon expiration of the
rebate.

 

  
Our customer programs also include marketing development funds, or MDFs. We
account for MDFs as either a reduction of revenue or an operating expense in
accordance with EITF 01-09. MDFs represent monies paid to retailers, system
builders, original equipment manufacturers, distributors and add-in card
partners that are earmarked for market segment development and expansion and
typically are designed to support our partners’ activities while also promoting
our products. Depending on market conditions, we may take actions to increase
amounts offered under customer programs, possibly resulting in an incremental
reduction of revenue at the time such programs are offered.

 

  
We also record a reduction to revenue by establishing a sales return allowance
for estimated product returns at the time revenue is recognized, based primarily
on historical return rates. However, if product returns for a particular fiscal
period exceed historical return rates we may determine that additional sales
return allowances are required to properly reflect our estimated exposure for
product returns.



   License and Development
Revenue
 

 

        For
license arrangements that require significant customization of our intellectual
property components, we generally recognize this license revenue using the
percentage-of-completion method of accounting over the period that services are
performed. For all license and service arrangements accounted for under the
percentage-of-completion method, we determine progress to completion based on
actual direct labor hours incurred to date as a percentage of the estimated
total direct labor hours required to complete the project. We periodically
evaluate the actual status of each project to ensure that the estimates to
complete each contract remain accurate. A provision for estimated losses on
contracts is made in the period in which the loss becomes probable and can be
reasonably estimated. Costs incurred in advance of revenue recognized are
recorded as deferred costs on uncompleted contracts. If the amount billed
exceeds the amount of revenue recognized, the excess amount is recorded as
deferred revenue. Revenue recognized in any period is dependent on our progress
toward completion of projects in progress. Significant management judgment and
discretion are used to estimate total direct labor hours. Any changes in or
deviations from these estimates could have a material effect on the amount of
revenue we recognize in any period.









44











  
Accounts Receivable

 

  
We maintain an allowance for doubtful accounts receivable for estimated losses
resulting from the inability of our customers to make required payments.
Management determines this allowance, which consists of an amount identified for
specific customer issues as well as an amount based on overall estimated
exposure. Our accounts receivable are highly concentrated and make us vulnerable
to adverse changes in our customers' businesses, and to downturns in the
industry and the worldwide economy.  For example, one customer
accounted for approximately 18% of our accounts receivable balance at January
25, 2009, and we continue to work directly with more foreign customers and it
may be difficult to collect accounts receivable from them. Our overall estimated
exposure excludes significant amounts that are covered by credit insurance and
letters of credit. If the financial condition of our customers, the financial
institutions providing letters of credit, or our credit insurance carrier were
to deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required that could adversely affect our operating
results. This risk is heightened during periods when economic conditions worsen,
such as the current period when the worldwide economy is experiencing a
downturn. The current financial turmoil affecting the banking system and
financial markets and the possibility that financial institutions may
consolidate or go out of business have resulted in a tightening in the credit
markets, a low level of liquidity in many financial markets, and extreme
volatility in fixed income, credit, currency and equity markets. There could be
a number of follow-on effects from the credit crisis on our business, including
inability of customers, including channel partners, to obtain credit to finance
purchases of our products and/or customer, insolvencies and failure of financial
institutions, which may negatively impact our financial results. Furthermore,
there can be no assurance that we will be able to obtain credit insurance in the
future. Our current credit insurance agreement expires on December 31,
2009.



  
As of January 25, 2009, our allowance for doubtful accounts receivable was $1.1
million and our gross accounts receivable balance was $336.8 million. Of the
$336.8 million, $94.5 million was covered by credit insurance and $5.3 million
was covered by letters of credit. If the financial condition of our customers
were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required and we may have to record
additional reserves or write-offs on certain sales transactions in the future.
Factors impacting the allowance include the level of gross receivables, the
financial condition of our customers and the extent to which balances are
covered by credit insurance or letters of credit. As a percentage of our gross
accounts receivable balance, our allowance for doubtful accounts receivable has
ranged between 0.1% and 0.3% during fiscal years 2009 and 2008,
respectively. As of January 25, 2009, our allowance for doubtful accounts
receivable represented the high end of this range, at 0.3% of our gross accounts
receivable balance.

 

    Inventories

   

   
Inventory
cost is computed on an adjusted standard basis; which approximates actual cost
on an average or first-in, first-out basis. We write down our inventory for
estimated lower of cost or market, obsolescence or unmarketable inventory equal
to the difference between the cost of inventory and the estimated market value
based upon assumptions about future demand, future product purchase commitments,
estimated manufacturing yield levels and market conditions. If actual market
conditions are less favorable than those projected by management, or if our
future product purchase commitments to our suppliers exceed our forecasted
future demand for such products, additional future inventory write-downs may be
required that could adversely affect our operating results. For example, during
the fourth quarter of fiscal year 2009, we recorded new inventory write-downs of
approximately $50.0 million, which was approximately five to ten times higher
than the level of inventory reserves we recorded during the first three quarters
of fiscal year 2009, reflecting a significant decline in our forecasted future
demand for the related products. This increased level of inventory reserves had
a negative impact on our gross margin and our results of operations. If actual
market conditions are more favorable, we may have higher gross margins when
products are sold, however, sales to date of such products have not had a
significant impact on our gross margin. Inventory reserves once established are
not reversed until the related inventory has been sold or scrapped. As of
January 25, 2009, our inventory reserve was $86.9 million. As a percentage of
our gross inventory balance, our inventory reserve has ranged between 7.8% and
13.9% during fiscal years 2009 and 2008. As of January 25, 2009, our inventory
reserve represented the high end of this range at 13.9% of our gross inventory
balance.









45











     Warranty
Liabilities



   
Cost of revenue includes the estimated cost of product warranties that are
calculated at the point of revenue recognition. Under limited circumstances, we
may offer an extended limited warranty to customers for certain
products.  Our products are complex and may contain defects or
experience failures due to any number of issues in design, fabrication,
packaging, materials and/or use within a system. If any of our products or
technologies contains a defect, compatibility issue or other error, we may have
to invest additional research and development efforts to find and correct the
issue.  Such efforts could divert our management’s and engineers’
attention from the development of new products and technologies and could
increase our operating costs and reduce our gross margin. In addition, an error
or defect in new products or releases or related software drivers after
commencement of commercial shipments could result in failure to achieve market
acceptance or loss of design wins. Also, we may be required to reimburse
customers, including our customers’ costs to repair or replace products in the
field. A product recall or a significant number of product returns could be
expensive, damage our reputation and could result in the shifting of business to
our competitors. Costs associated with correcting defects, errors, bugs or other
issues could be significant and could materially harm our financial
results.



   
In July 2008, we recorded a $196.0 million charge against cost of revenue to
cover anticipated customer warranty, repair, return, replacement and other
associated costs arising from a weak die/packaging material set in certain
versions of our previous generation MCP and GPU products used in notebook
systems. The MCP and GPU products that are impacted were included in a number of
notebook products that were shipped and sold in significant quantities. Certain
notebook configurations of these MCP and GPU products are failing in the field
at higher than normal rates. While we have not been able to determine a root
cause for these failures, testing suggests a weak material set of die/package
combination, system thermal management designs, and customer use patterns are
contributing factors. We intend to fully support our customers in their repair
and replacement of these impacted MCP and GPU products that fail, and their
other efforts to mitigate the consequences of these failures. We continue to not
see any abnormal failure rates in any systems using NVIDIA products other than
certain notebook configurations. However, we are continuing to test and
otherwise investigate other products. There can be no assurance that we will not
discover defects in other MCP or GPU products.



  
 Determining the amount of the $196.0 million charge related to this issue
required management to make estimates and judgments based on historical
experience, test data and various other assumptions including estimated field
failure rates that we believe to be reasonable under the circumstances. The
results of these judgments formed the basis for our estimate of the total charge
to cover anticipated customer warranty, repair, return and replacement and other
associated costs. However, if actual repair, return, replacement and other
associated costs and/or actual field failure rates exceed our estimates, we may
be required to record additional reserves, which would increase our cost of
revenue and materially harm our financial results.



  
 Income Taxes

 

Statement
of Financial Accounting Standards No. 109, or SFAS No. 109, Accounting for Income Taxes,
establishes financial accounting and reporting standards for the effect of
income taxes. In accordance with SFAS No. 109, we recognize federal, state
and foreign current tax liabilities or assets based on our estimate of taxes
payable or refundable in the current fiscal year by tax jurisdiction. We also
recognize federal, state and foreign deferred tax assets or liabilities, as
appropriate, for our estimate of future tax effects attributable to temporary
differences and carryforwards; and we record a valuation allowance to reduce any
deferred tax assets by the amount of any tax benefits that, based on available
evidence and judgment, are not expected to be realized.

 

   
United States income tax has not been provided on earnings of our non-U.S.
subsidiaries to the extent that such earnings are considered to be permanently
reinvested.

 

    Our
calculation of current and deferred tax assets and liabilities is based on
certain estimates and judgments and involves dealing with uncertainties in the
application of complex tax laws. Our estimates of current and deferred tax
assets and liabilities may change based, in part, on added certainty or finality
to an anticipated outcome, changes in accounting standards or tax laws in the
United States, or foreign jurisdictions where we operate, or changes in other
facts or circumstances. In addition, we recognize liabilities for potential
United States and foreign income tax contingencies based on our estimate of
whether, and the extent to which, additional taxes may be due. If we determine
that payment of these amounts is unnecessary or if the recorded tax liability is
less than our current assessment, we may be required to recognize an income tax
benefit or additional income tax expense in our financial statements,
accordingly.

 

    As of
January 25, 2009, we had a valuation allowance of $92.5 million. Of
the total valuation allowance, $5.3 million relates to state tax attributes
acquired in certain acquisitions for which realization of the related deferred
tax assets was determined not likely to be realized due, in part, to potential
utilization limitations as a result of stock ownership changes, and $87.2
million relates to state and foreign deferred tax assets that management
determined not likely to be realized due, in part, to projections of future
taxable income. To the extent realization of the deferred tax assets related to
certain acquisitions becomes more-likely-than-not, recognition of these acquired
tax benefits would be reported as a reduction to income tax expense in
accordance with the recent accounting pronouncement, Statement of Financial
Accounting Standards No. 141(R), or SFAS No. 141(R), Business Combinations, issued
by the FASB in December 2007.  We would also recognize an income tax
benefit during the period that the realization of the deferred tax assets
related to state or foreign tax benefits of $87.2 million becomes
more-likely-than-not.

 

    In accordance
with Statement of Financial Accounting Standards No. 123(R), or SFAS No.
123(R), Share Based
Payment
, our deferred tax assets do not include the excess tax benefit
related to stock-based compensation that are a component of our federal and
state net operating loss and research tax credit carryforwards in the amount of
$588.7 million as of January 25, 2009. Consistent with prior years, the excess
tax benefit reflected in our net operating loss and research tax credit
carryforwards will be accounted for as a credit to stockholders’ equity, if and
when realized.  In determining if and when excess tax benefits have
been realized, we have elected to do a with-and-without approach with respect to
such excess tax benefits. We have also elected to ignore the indirect tax
effects of stock-based compensation deductions for financial and accounting
reporting purposes, and specifically to recognize the full effect of the
research tax credit in income from continuing operations.

 







46











    On January
29, 2007, we adopted FASB Interpretation No. 48, or FIN 48, Accounting for Uncertainty in Income
Taxes,
issued in July 2006. FIN 48 applies to all tax positions related
to income taxes subject to SFAS No. 109. Under FIN 48 we recognize the benefit
from a tax position only if it is more-likely-than-not that the position would
be sustained upon audit based solely on the technical merits of the tax
position. The cumulative effect of adoption of FIN 48 did not result in a
material adjustment to our tax liability for unrecognized income tax benefits.
Our policy to include interest and penalties related to unrecognized tax
benefits as a component of income tax expense did not change as a result of
implementing the FIN 48. Please refer to Note 13 of these Notes to the
Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K for additional information. 

 

    Goodwill

 

  
Our impairment review process compares the fair value of the reporting
unit in which the goodwill resides to its carrying value.  We
determined that our reporting units are equivalent to our operating segments or
components of an operating segment for the purposes of completing
our Statement of Financial Accounting Standards No. 142, or SFAS No. 142,
Goodwill and Other Intangible
Assets
, impairment test.  We utilize a two-step approach to testing
goodwill for impairment. The first step tests for possible impairment by
applying a fair value-based test. In computing fair value of our reporting
units, we use estimates of future revenues, costs and cash flows from such
units. The second step, if necessary, measures the amount of such impairment by
applying fair value-based tests to individual assets and liabilities. Goodwill
is subject to our annual impairment test during the fourth quarter of our fiscal
year, or earlier if indicators of potential impairment exist, using a fair
value-based approach.  We completed our most recent annual impairment
test during the fourth quarter of fiscal year 2009 and concluded that there was
no impairment.  This assessment is based upon a discounted cash flow
analysis and analysis of our market capitalization. The estimate of cash flow is
based upon, among other things, certain assumptions about expected future
operating performance such as revenue growth rates and operating margins used to
calculate projected future cash flows, risk-adjusted discount rates, future
economic and market conditions, and determination of appropriate market
comparables. Our estimates of discounted cash flows may differ from actual cash
flows due to, among other things, economic conditions, changes to our business
model or changes in operating performance. Additionally, certain estimates of
discounted cash flows involve businesses with limited financial history and
developing revenue models, which increase the risk of differences between the
projected and actual performance. Significant differences between these
estimates and actual cash flows could materially affect our future financial
results. These factors increase the risk of differences between projected and
actual performance that could impact future estimates of fair value of all
reporting units. In addition, determining the number of reporting units and
the fair value of a reporting unit requires us to make judgments and involves
the use of significant estimates and assumptions. We also make judgments and
assumptions in allocating assets and liabilities to each of our reporting units.
We base our fair value estimates on assumptions we believe to be reasonable but
that are unpredictable and inherently uncertain.    The
long-term financial forecast represents the best estimate that we have at this
time and we believe that its underlying assumptions are reasonable. However,
actual performance in the near-term and longer-term could be materially
different from these forecasts, which could impact future estimates of fair
value of our reporting units and may result in a charge to earnings in future
periods due to the potential for a write-down of goodwill in connection with
such tests.



   
Cash Equivalents and Marketable Securities



    Fair
Value

    

    In the
current market environment, the assessment of the fair value of debt instruments
can be difficult and subjective. The volume of trading activity of certain debt
instruments has declined, and the rapid changes occurring in today’s financial
markets can lead to changes in the fair value of financial instruments in
relatively short periods of time. Statement of Financial Accounting Standards
No. 157, or SFAS No. 157, Fair
Value Measurements,
establishes three levels of inputs that may be used
to measure fair value. Please refer to Note 17 of the Notes to the
Consolidated Financial Statements in Part IV, Item 15 of this
Form 10-K. We measure our cash equivalents and marketable securities at
fair value. The fair values of our financial assets and liabilities are
determined using quoted market prices of identical assets or quoted market
prices of similar assets from active markets. Level 1 valuations are
obtained from real-time quotes for transactions in active exchange markets
involving identical assets. Level 2 valuations are obtained from quoted
market prices in active markets involving similar assets. Level 3 valuations are
based on unobservable inputs to the valuation methodology and include our own
data about assumptions market participants would use in pricing the asset or
liability based on the best information available under the
circumstances. Each level of input has different levels of subjectivity and
difficulty involved in determining fair value. While most of our cash
equivalents and marketable securities are valued based on Level 2 inputs, the
valuation of our holdings of the Reserve International Liquidity Fund, Ltd., or
International Reserve Fund are classified as a Level 3 input due to the inherent
subjectivity and the significant judgment involved in its valuation. Total
financial assets at fair value classified within Level 3 were 3.7% of total
assets on our Consolidated Balance Sheet as of January 25, 2009.

 







47











    Other Than Temporary Impairment

 

    We account
for our investment instruments in accordance with Statement of Financial
Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities.
All of our cash equivalents and marketable
securities are treated as “available-for-sale” under SFAS No. 115. All of
our available-for-sale investments are subject to a periodic impairment review.
Investments are considered to be impaired when a decline in fair value is judged
to be other-than-temporary when the resulting fair value is significantly below
cost basis and/or the significant decline has lasted for an extended period of
time. The evaluation that we use to determine whether a marketable security is
impaired is based on the specific facts and circumstances present at the time of
assessment, which include the consideration of general market conditions, the
duration and extent to which fair value is below cost, and our intent and
ability to hold an investment for a sufficient period of time to allow for
recovery in value.  We also consider specific adverse conditions
related to the financial health of and business outlook for an investee,
including industry and sector performance, changes in technology, operational
and financing cash flow factors, and changes in an investee’s credit rating.
Investments that we identify as having an indicator of impairment are subject to
further analysis to determine if the investment is other than temporarily
impaired, in which case we write down the investment to its estimated fair
value. During fiscal year 2009, we recorded other than temporary impairment
charges of $9.9 million. These charges include $5.6 million related to what we
believe is an other than temporary impairment of our investment in the money
market funds held by the International Reserve Fund; $2.5 million related to a
decline in the value of publicly traded equity securities and $1.8 million
related to debt securities held by us that were issued by companies that have
filed for bankruptcy as of January 25, 2009.

 

    Stock-based
Compensation

 

    Effective
January 30, 2006, we adopted the provisions of SFAS No. 123(R), which establishes
accounting for stock-based awards exchanged for employee services. Accordingly,
stock-based compensation cost is measured at grant date, based on the fair value
of the awards, and is recognized as expense over the requisite employee service
period. Stock-based compensation expense recognized during fiscal years 2009,
2008 and 2007 was $162.7 million, $133.4 million and $116.7 million,
respectively, which consisted of stock-based compensation expense related to
stock options and our employee stock purchase plan. Please refer to Note 2 of
the Notes to the Consolidated Financial Statements in Part IV, Item 15
of this Form 10-K for further information.

 

    We elected to
adopt the modified prospective application method as provided by SFAS No.
123(R), beginning January 30, 2006. We recognize stock-based compensation
expense using the straight-line attribution method. We estimate the value of
employee stock options on the date of grant using a binomial model. The
determination of fair value of share-based payment awards on the date of grant
using an option-pricing model is affected by our stock price as well as
assumptions regarding a number of highly complex and subjective variables. These
variables include, but are not limited to, the expected stock price volatility
over the term of the awards, actual and projected employee stock option exercise
behaviors, vesting schedules, death and disability probabilities, expected
volatility and risk-free interest. Our management determined that the use of
implied volatility is expected to be more reflective of market conditions and,
therefore, could reasonably be expected to be a better indicator of our expected
volatility than historical volatility. The risk-free interest rate assumption is
based upon observed interest rates appropriate for the term of our employee
stock options. The dividend yield assumption is based on the history and
expectation of dividend payouts. We began segregating options into groups for
employees with relatively homogeneous exercise behavior in order to calculate
the best estimate of fair value using the binomial valuation model.

 

    Using the
binomial model, the fair value of the stock options granted under our stock
option plans have been estimated using the following assumptions during the year
ended January 25, 2009:

 

































Weighted
average expected life of stock options (in years)


 
 


3.6
- 5.8


 


Risk
free interest rate


 
 


1.7%
- 3.7




%




Volatility


 
 


52%
- 105




%




Dividend
yield


 
 


-


 


 

 For our employee stock purchase
plan we continue to use the Black-Scholes model. The fair value of the shares
issued under the employee stock purchase plan has been estimated using the
following assumptions during year ended January 25, 2009:

 

































Weighted
average expected life of stock options (in years)


 
 


0.5
- 2.0


 


Risk
free interest rate


 
 


1.6%
- 2.4




%




Volatility


 
 


62%
- 68




%




Dividend
yield


 
 


-


 


 

    SFAS No.
123(R) also requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. Forfeitures were estimated based on historical experience. If
factors change and we employ different assumptions in the application of SFAS
No. 123(R) in future periods, the compensation expense that we record under SFAS
No. 123(R) may differ significantly from what we have recorded in the current
period.




 




 



48







 




Litigation,
Investigation and Settlement Costs

 

    From time to
time, we are involved in legal actions and/or investigations by regulatory
bodies. We are aggressively defending our current litigation matters for which
we are responsible. However, there are many uncertainties associated with any
litigation or investigations, and we cannot be certain that these actions or
other third-party claims against us will be resolved without costly litigation,
fines and/or substantial settlement payments. If that occurs, our business,
financial condition and results of operations could be materially and adversely
affected. If information becomes available that causes us to determine that a
loss in any of our pending litigation, investigations or settlements is
probable, and we can reasonably estimate the loss associated with such events,
we will record the loss in accordance with accounting principles generally
accepted in the United States. However, the actual liability in any such
litigation or investigations may be materially different from our estimates,
which could require us to record additional costs.

 

Results
of Operations

 

    The following
table sets forth, for the periods indicated, certain items in our consolidated
statements of operations expressed as a percentage of
revenue. 

 












































































 
 

Year
Ended

 
 
 

January
25, 2009

 

January
27, 2008

 

January
28, 2007

 


Revenue


 
 


100.0





%





100.0




%




100.0




%




Cost
of revenue


 
 


65.7


 


54.4


 


57.6


 


Gross
profit


 
 


34.3


 


45.6


 


42.4


 


Operating
expenses:


 
 
 
 
 
 
 
 


Research
and development


 
 


25.0


 


16.9