Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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 Quarterly Report on Form 10-Q 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, NVIDIA Quadro, Quadro, NVIDIA Quadro Plex, NVIDIA nForce, PureVideo, CUDA, Tesla, NVIDIA APX, PhysX, Ageia, Mental Images, Mental Ray, 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.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Item 6. Selected Financial Data" of our Annual Report on Form 10-K for the fiscal year ended January 25, 2009 and

Overview

Our Company

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphics processing unit, or the GPU. Our products are designed to generate realistic, interactive graphics on workstations, personal computers, game consoles and mobile devices. We serve the entertainment and consumer market with our GeForce products, the professional design and visualization market with our Quadro products, and the high-performance computing market with our Tesla 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 GoForce and APX mobile brands and products that support 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 NVIDIA 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-Q.

Recent Developments, Future Objectives and Challenges

GPU Business

Our market share in the total desktop standalone GPU segment grew from 63 percent to 69 percent from the fourth quarter of calendar 2008 to the first quarter of calendar 2009, as reported in Mercury Research's First Quarter PC Graphics Report in April 2009. In addition to graphics leadership, we are focusing on leading the industry with physics processing and evangelizing the benefits of utilizing the GPU for parallel computing.

Our PhysX engine and library is now available for PCs, game consoles and smart phones. Game developers can utilize PhysX to create environments using physics simulations that are dynamic, realistic and interactive. PhysX has been adopted by many of the video game industry's top companies.

Microsoft's DirectX Compute is a new GPU Computing application programming interface, or API, that runs on our current CUDA architecture under both Windows VISTA and Windows 7. DirectX Compute allows developers to harness the parallel computing power of our GPU's to create compelling computing applications in consumer and professional markets. As part of the DirectX Compute presentation at the Game Developer Conference (GDC) in March 2009, we demonstrated three such applications running on a GeForce GTX 280 GPU. We support languages and API's that enable developers to access the parallel processing power of the GPU. In addition to DirectX Compute and our CUDA C extensions, there are other programming models available including OpenCL. During the first quarter of fiscal year 2010, we released our OpenCL driver and software development kit to developers participating in our OpenCL software Early Access Program.

Professional Solutions Business

Corporate demand, which comprises a substantial percentage of the demand for professional workstation products, has not shown any significant signs of economic recovery. This appears to reflect ongoing constrained corporate budgets and redeployment and/or upgrade activity of older equipment by customers. Workstation product revenue currently comprises a significant portion of our total PSB revenue. Therefore, until corporate demand recovers, we expect this trend to continue to have a negative impact on our overall Company gross profit and gross margin, as the gross margin experienced by our PSB is generally higher than our overall Company gross margin.

During the first quarter of fiscal year 2010, five new consumer applications were launched that are accelerated by the CUDA architecture on our GPUs - Super LoiloScope Mars, for video editing, ArcSoft SimHD, for DVD image enhancement, Nero Move It and Cyberlink MediaShow Espresso, for video format conversion, and Motion DSP vReveal, for real-time video quality enhancement. We recently collaborated with a leading Chinese geophysical services provider to unveil the launch of a new Tesla-based hardware and seismic software suite that accelerates the performance of complex seismic data computation for oil and gas companies in China. We also collaborated with the investment banking division of a leading European financial institution to replace their CPU cores with a smaller cluster consisting of CPU servers and two Tesla GPU-based S1070 systems, which require significantly less power. Factoring the acceleration in processing times achieved using Tesla GPUs, the division is using almost 200 times less electricity than before.

MCP Business

We are currently focused on energizing the PC market by transforming Intel Atom PCs into a premium experience typically found in higher priced laptops and desktops. Our strategy is to combine the GeForceŽ 9400 GPU found in new desktop and notebook PCs with the Intel Atom CPU. This combination, which is code-named Ion, creates a platform that enables a premium PC experience in a small form factor - enabling netbooks, small form factor, all-in-one PCs to play rich media content and popular games in high definition.

During the first quarter of fiscal year 2010, we saw signs of increased demand for our products designed for the mainstream AMD integrated desktop market as well as for our Ion products and other products that are designed for the Intel-based integrated notebook market.

During the first quarter of fiscal year 2010, we collaborated with Acer to introduce the Acer AspireRevo. The Acer AspireRevo is no larger than a typical hardcover book, but has a fully capable desktop with advanced graphics and several multimedia features.

Consumer Products Business

During the first quarter of fiscal year 2010, we demonstrated the Tegra 600 Series computer-on-a-chip that enables an always-on, always-connected HD netbook that can go days between battery charges.

Stock Option Purchase

In March 2009, we completed a cash tender offer for certain employee stock options. 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 had declined significantly during fiscal 2009, and all of the eligible options were "out-of-the-money" (i.e., had exercise prices above our then-current common stock price). Therefore, we provided an incentive to employees with an opportunity to obtain a cash payment for their eligible options, while reducing our existing overhang and potential stockholder dilution from such stock options. 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 tender offer.

All eligible options with exercise prices equal to or greater than $17.50 per share but less than $28.00 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 equal to or 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. A total of 28.5 million options were tendered under the offer for an aggregate cash purchase price of $78.1 million, which was paid in exchange for the cancellation of the eligible options. As a result of the tender offer, we incurred a charge of $140.2 million consisting of the remaining unamortized stock based compensation expense associated with the unvested portion of the options tendered in the offer, stock-based compensation expense resulting from amounts paid in excess of the fair value of the underlying options, plus associated payroll taxes and professional fees. The stock option purchase charge of $140.2 million relates to personnel associated with cost of revenue (for manufacturing personnel), research and development, and sales, general and administrative of $11.4 million, $90.5 million, and $38.3 million, respectively.

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 a operating segment basis for purposes of making operating decisions and assessing financial performance.

We 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 GoForce and APX mobile brands and products that support handheld 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, corporate marketing expenses and charges related to the stock option purchase, all of which total up to $199.4 million and $76.2 million for the three months ended April 26, 2009 and April 27, 2008, 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.

Results of Operations

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

                                                      Three Months Ended
                                                   April 26,        April 27,
                                                     2009              2008
        Revenue                                         100.0     %     100.0 %
          Cost of revenue                                71.4            55.4
        Gross margin                                     28.6            44.6
        Operating expenses:
          Research and development                       45.4            19.0
          Sales, general and administrative              17.9             8.1
        Total operating expenses                         63.3            27.1
        Income (loss) from operations                   (34.7 )          17.5
          Interest and other income, net                  0.9             0.9
        Income (loss) before income tax expense         (33.8 )          18.4
          Income tax expense (benefit)                   (3.5 )           3.1
        Net income (loss)                               (30.3 )   %      15.3 %

First Quarter of Fiscal Years 2010 and 2009

Revenue

Revenue was $664.2 million for the first quarter of fiscal year 2010, compared to $1.15 billion for the first quarter of fiscal year 2009, which represents a decrease of 42%. We expect revenue to increase slightly during the second quarter of fiscal year 2010 as compared to the first quarter of fiscal year 2010. A discussion of our revenue results for each of our operating segments is as follows:

GPU Business. GPU Business revenue decreased by 49% to $354.9 million in the first quarter of fiscal year 2010, compared to $701.5 million for the first quarter of fiscal year 2009. This decrease resulted from decreased sales of our desktop GPU, notebook GPU and memory products. Sales of our desktop GPU and memory products decreased approximately 48% and 64%, respectively, in fiscal year 2010 when compared to fiscal year 2009. These decreases were primarily due to the year-over-year decline in the Standalone Desktop market segment as reported in the May 2009 PC Graphics Report from Mercury Research. This decline was primarily driven by the decline in unit demand due to the recessionary conditions in the economy, a combination of market migration from desktop PCs towards notebook PCs and a shift in the mix of products sold towards lower priced products which negatively impacted the average sales price, or ASP, of our products. However, as an offset to these conditions, we maintained our leadership position in the Standalone Desktop market segment as reported in the May 2009 PC Graphics Report from Mercury Research which was driven primarily by our GeForce 9-based products. Sales of our notebook GPU products decreased by approximately 51% compared to the first quarter of fiscal year 2009. This decline was primarily driven by a combination of the decline in unit demand due to the recessionary conditions in the economy and a decline in the ASPs due to increased competition in the marketplace. Memory sales declined as a result of a decline in sales of our high-end desktop GPU products.

PSB. PSB revenue decreased by 48% to $106.1 million in the first quarter of fiscal year 2010, compared to $203.4 million for the first quarter of fiscal year 2009. Both ASPs and unit shipments of professional workstation products decreased primarily due to the decline in corporate spending as a result of the recessionary conditions in the economy. This appears to reflect ongoing constrained corporate budgets and redeployment and/or upgrade activity of older equipment by customers.

MCP Business. MCP Business revenue decreased by 4% to $186.4 million in the first quarter of fiscal year 2010, compared to $195.1 million for the first quarter of fiscal year 2009. The decrease resulted from a decline in the sale of our higher priced AMD-based platform products offset by an increase in sales of our Intel-based platform products as compared to the first quarter of fiscal year 2009. The increase in Intel-based product sales was driven by sales of our GeForce 9400M mGPU, which we launched in October 2008 along with Apple Inc. for their new lineup of Mac notebooks, and our new GeForce 9400 and 9300 mGPUs for Intel desktop PCs.

CPB. CPB revenue decreased by 72% to $11.9 million in the first quarter of fiscal year 2010, compared to $42.5 million for the first quarter of fiscal year 2009. The overall decrease in CPB revenue is primarily driven by a combination of decreases in revenue from our cell phone products, decreases in revenue from certain contractual development arrangements with Sony Computer Entertainment, or SCE, and a drop in royalties from SCE due to lower seasonal sales of PS3 Playstations.

Concentration of Revenue

Revenue from sales to customers outside of the United States accounted for 92% of total revenue for both the first quarter of fiscal year 2009 and the first quarter of fiscal year 2008. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the foreign contract equipment manufacturers, or CEMs', add-in board and motherboard manufacturers' revenue is attributable to end customers in a different location.

Revenue from significant customers, those representing 10% or more of total revenue aggregated approximately 22% of our total revenue from two customers for the first quarter of fiscal year 2010 and approximately 11% of our total revenue from another customer for the first quarter of fiscal year 2009.

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, less cost of revenue. Cost of revenue consists primarily of the cost of semiconductors purchased from subcontractors, including wafer fabrication, assembly, testing and packaging, manufacturing support costs, including labor and overhead associated with such purchases, final test yield fallout, inventory and warranty provisions and shipping costs. Cost of revenue also includes development costs for license, service arrangements and stock-based compensation related to personnel associated with manufacturing.

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Our gross margin is significantly impacted by the mix of products we sell. Product mix is often difficult to estimate with accuracy. Therefore, if we experience product transition challenges, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted.

Our overall gross margin was 28.6% and 44.6% for the first quarter of fiscal year 2010 and 2009, respectively. The decline in gross margin for the first quarter of fiscal year 2010 when compared to the first quarter of fiscal year 2009 was driven primarily by the decline in desktop GPU gross margin and the impact of the stock-based compensation charges related to the stock option purchase completed in March 2009. The decline in desktop GPU gross margin reflects the impact of ASP regression in our products caused by a combination of the recessionary conditions in the economy and increased competitive pricing pressures that we began to experience during the second quarter of fiscal year 2009. The ASP regression was also 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. These factors were further exacerbated in the first quarter of fiscal year 2010 as a result of losses we incurred selling certain older, transitioning products. These losses were only partially offset by a net benefit of approximately $8 million arising from a combination of new inventory write downs that we recorded during the first quarter of fiscal year 2010 offset by the sell-through of inventory that had previously been written down in the fourth quarter of 2009.

We will continue to focus on improving our gross margin by delivering cost effective product architectures, enhancing business processes and delivering profitable growth. As such, we expect gross margin to increase during the second quarter of fiscal year 2010 as compared to the first quarter of fiscal year 2010.

A discussion of our gross margin results for each of our operating segments is as follows:

GPU Business. The gross margin of our GPU business decreased during fiscal year 2010 as compared to fiscal year 2009. This decrease was primarily due to the ASP decline in our GeForce 9-based and previous generations of desktop products resulting from the recessionary conditions in the economy and increased competition. The ASP regression was also 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. These factors were further exacerbated in the first quarter of fiscal year 2010 as a result of losses we incurred selling certain older, transitioning products. This decrease in gross margins was only partially offset by a net benefit arising from a combination of new inventory write downs that we recorded during the first quarter of fiscal year 2010 offset by the sell-through of inventory that had previously been written down in the fourth quarter of 2009.

PSB. The gross margin of our PSB decreased during fiscal year 2010 as compared to fiscal year 2009. This decrease was primarily due to a decline in ASPs caused primarily by pricing pressure from an overall decline in corporate spending as a result of the recessionary conditions in the economy.

MCP Business. The gross margin of our MCP Business decreased slightly for the first quarter of fiscal year 2010 as compared to the first quarter of fiscal year 2009. This decrease was primarily due to a shift in product mix toward increased shipments of lower margin Intel-based and AMD-based platform products.

CPB. The gross margin of our CPB decreased for the first quarter of fiscal year 2010 as compared to the first quarter of fiscal year 2009. This decrease was due to a decline in the sales of our cell phone products and other handheld devices, the negative impact of approximately $10.0 million of additional inventory reserves taken during the quarter related to this business, as well as a drop in royalties from SCE.

Operating Expenses

                                                     Three Months Ended
                                                 April 26,      April 27,         $          %
                                                    2009           2008         Change     Change
                                                              (In millions)
Research and development expenses                $    301.8       $   218.8     $   83.0       38 %
Sales, general and administrative expenses            118.9            93.1         25.8       28 %
    Total operating expenses                     $    420.7       $   311.9     $  108.8       35 %
Research and development as a percentage of net
revenue                                                45.4  %         19.0 %
Sales, general and administrative as a
percentage of net revenue                              17.9  %          8.1 %

Research and Development

Research and development expenses were $301.8 million and $218.8 million during the first quarters of fiscal years 2010 and 2009, respectively, an increase of $83.0 million, or 38%. During the first quarter of fiscal year 2010, research and development expenses included stock-based compensation of $90.5 million related to the purchase of certain outstanding options that were tendered in March 2009. The increase in research and development expenses was also driven by an increase of $2.5 million in depreciation and amortization due to the impact of the property and equipment and intangible asset purchased since fiscal year 2009. These increases were offset by decreases that were primarily related to our cost reduction initiatives across several discretionary spending areas, which resulted in decreased expenses related to travel and entertainment by $2.4 million, development expenses by $4.1 million and computer software and equipment by $3.1 million. Additionally, stock-based compensation related to on-going vesting of equity awards during the first quarter of fiscal year 2010 decreased by $3.3 million primarily due to the cancellation of stock options as a result of the purchase of certain outstanding options that were tendered in March 2009. Salaries and benefits remained comparable during the periods as a result of a decline in the bonus and incentive expense for the first quarter of fiscal year 2010 offset by the growth in headcount in departments related to research and development functions by approximately 100 personnel.

In order to remain competitive, we anticipate that we will continue to devote substantial resources to research and development. 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 . . .