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, GoForce, Quadro, NVIDIA Quadro Plex, NVIDIA nForce, CUDA, Tesla, PhysX, ION, Tegra, 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 Tegra 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

During the second quarter of fiscal year 2010, we delivered our first 40nm GPUs to customers.

Microsoft's Direct Compute is a new GPU Computing application programming interface, or API, that runs on our current Compute Unified Device Architecture, or CUDA. Direct Compute allows developers to harness the parallel computing power of our GPUs to create compelling computing applications in consumer and professional markets. As part of the Direct 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 Direct 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.

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.

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 second quarter of fiscal year 2010, we launched our Quadro Plex SVS. Scalable visual computing is a platform for professionals who interact with 3D models and analyze large volumes of data. For Quadro, we also launched the OptiX ray tracing engine, part of a suite of application acceleration engines for software developers. This suite also includes engines for managing 3D data and scenes, scaling performance across multiple GPUs and real-time modeling of hyper-realistic physical and environmental effects.

During the second quarter of fiscal year 2010, we also announced that AMBER, one of the most popular molecular dynamics codes, was now accelerated by CUDA. AMBER is used by researchers in academia and pharmaceutical companies to research new drugs. Accelerated by CUDA, AMBER now runs up to 50 times faster on a GPU than on a CPU.

Commencing in the second quarter of fiscal year 2010, HP and Supermicro began carrying our Tesla computing solution products , joining a global list of OEMs, including Cray, Dell, HP Lenovo, SGI and Sun.

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.

During the first quarter of fiscal year 2010, 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 PCs into a premium experience typically found in higher priced laptops and desktops. Our strategy is to combine the ION mGPU found in new desktop and notebook PCs with the Intel Celeron, Core 2 Duo, or Atom CPUs. These combinations create a platform that enables a premium PC experience in a small form factor - enabling netbooks and all-in-one PCs to play rich media content and popular games in high definition, or HD.

At Computex 2009, our ION platform was awarded the Best Choice award. Of the 21 ION-related design wins we announced at Computex 2009, we are already shipping nine of them, and we expect the remaining 12 designs to ship in the third quarter of fiscal year 2010. We have announced five more design wins since Computex. Additionally, along with Adobe Systems Incorporated, or Adobe, we announced GPU acceleration for the Flash player, bringing Internet video to a new class of low-power PCs and Internet devices.

During the first half 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. During the second quarter of fiscal year 2010, it was revealed that Microsoft's new Zune HD product would be based on Tegra and we have started ramping up volume shipments of Tegra.

Warranty Accrual

During the second quarter of fiscal year 2010, we recorded an additional net warranty charge of $120.0 million against cost of revenue to cover anticipated customer warranty, repair, return, replacement and other costs arising from a weak die/packaging material set in certain versions of our previous generation products used in notebook systems. This charge included an additional accrual of $164.5 million for related estimated costs, offset by reimbursements from insurance carriers of $44.5 million that we recorded during the second quarter of fiscal year 2010. In July 2008, we recorded a $196.0 million charge against cost of revenue for the purpose of supporting the product repair costs of our affected customers around the world. Although the number of units that we estimate will be impacted by this issue remains consistent with our initial estimates in July 2008, the overall cost of remediation and repair of impacted systems has been higher than originally anticipated. The weak die/packaging material combination is not used in any of our products that are currently in production.

The previous generation 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 products are failing in the field at higher than normal rates. While we have not been able to determine with certainty 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 products in their notebook system designs. We intend to fully support our customers in their repair and replacement of these impacted 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. During the second quarter of fiscal year 2010, we recorded $44.5 million in related insurance reimbursements which partially offset the additional warranty charge of $164.5 million included in cost of revenue. Additionally, we received $8.0 million in reimbursements from insurance providers in 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 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. Please refer to Note 12 of the Notes to the Condensed Consolidated Financial Statements this Form 10-Q for further information regarding this litigation.

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 Tegra 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 $56.8 million and $256.2 million, respectively, for three and six months ended July 26, 2009, and total $80.8 million and $156.9 million, respectively, for the three and six months ended July 27, 2008, 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                 Six Months Ended
                                            July 26,         July 27,         July 26,         July 27,
                                              2009             2008             2009             2008
Revenue                                         100.0 %          100.0 %           100.0 %         100.0 %
Cost of revenue                                  79.8             83.2              76.0            67.5
Gross profit                                     20.2             16.8              24.0            32.5
Operating expenses
Research and development                         24.8             23.9              34.3            21.1
Sales, general and administrative                 9.5             10.4              13.4             9.1
Total operating expenses                         34.3             34.3              47.7            30.2
Operating income (loss)                         (14.1 )          (17.5 )           (23.7 )           2.3
Interest and other income, net                    0.4              1.0               0.6             0.9
Income (loss) before income tax expense
(benefit)                                       (13.7 )          (16.5 )           (23.1 )           3.2
Income tax expense (benefit)                     (0.2 )           (2.9 )            (1.8 )           0.5
Net income (loss)                               (13.5 )%         (13.6 )%          (21.3 )%          2.7 %

Three and six months ended July 26, 2009 and July 27, 2008

Revenue

Revenue was $776.5 million for our second quarter of fiscal year 2010, compared to $892.7 million for our second quarter of fiscal year 2009, which represents a decrease of 13%. Revenue was $1.44 billion for the first half of fiscal year 2010 and $2.05 billion for the first half of fiscal year 2009, which represented a decrease of 30%. We expect revenue to increase during the third quarter of fiscal year 2010 as compared to the second 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 26% to $372.4 million in the second quarter of fiscal year 2010, compared to $503.5 million for the second quarter of fiscal year 2009. This decrease resulted from decreased sales of our desktop GPU and notebook GPU products. Sales of our desktop GPU products decreased approximately 9% in second quarter of fiscal year 2010 when compared to second quarter of fiscal year 2009. The decline in the sale of desktop GPU products was primarily driven by increased pricing pressures in the marketplace for our mainstream products due to the recessionary conditions in the economy. This decrease was partially offset by a slight increase in the volume of shipments and an improvement in the average selling prices, or ASPs, of our high-end desktop GPU products. Sales of our notebook GPU products decreased by approximately 57% compared to the second quarter of fiscal year 2009. This decline was primarily driven by a combination of the decline in unit demand and in the ASPs due to the recessionary conditions in the economy as well as increased competition in the marketplace.

GPU Business revenue decreased by 40% to $727.3 million for the first half of fiscal year 2010 compared to $1.20 billion for the first half of fiscal year 2009. The decrease was primarily the result of decreased sales across our desktop and notebook GPU product categories. Sales of our desktop GPU products decreased approximately 33% and sales of our notebook GPU products decreased by approximately 54% as compared to the first half of fiscal year 2009. These decreases were primarily due to share losses in the Standalone Notebook segment, partially offset by share gains in the Standalone Desktop segments during the first half of fiscal year 2010 compared to fiscal year 2009 as reported in the August PC Graphics 2009 Report from Mercury Research. Although, we continue to maintain our leadership position in the Standalone Desktop segment, sales of our desktop GPU products decreased as a result of the overall decline in unit demand and the pricing pressures in the marketplace for our mainstream products due to the recessionary conditions in the economy. Our share losses in the Standalone Notebook segment were primarily as a result of increased competition in the marketplace, which drove pricing pressure that negatively impacted the ASPs of our notebook GPU products.

PSB. PSB revenue decreased by 35% to $116.6 million in the second quarter of fiscal year 2010, compared to $179.7 million for the second quarter of fiscal year 2009. PSB revenue decreased by 42% to $222.8 million for the first half of fiscal year 2010 as compared to $383.1 million for the first half of fiscal year 2010. Both the 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 increased by 42% to $237.4 million in the second quarter of fiscal year 2010, compared to $166.8 million for the second quarter of fiscal year 2009. The increase resulted from an increase in the sale of our Intel-based platform products of approximately 234% offset by a decrease in sales of our AMD-based platform products of approximately 12% as compared to the second quarter of fiscal year 2009. The increase in product sales for PCs with Intel CPUs was driven by sales of our ION products. The decrease in AMD platform products is driven by our share loss in this platform as AMD continues to market their own product line in place of ours.

MCP Business revenue increased by 17% to $423.9 million for the first half of fiscal year 2010 as compared to $361.9 million for first half of fiscal year 2009. The increase was a result of approximately 136% increase in sales of our Intel-based platform products offset by a decrease in the sales of our AMD-based platform products by approximately 24% as compared to the first half of fiscal year 2009. The increase in Intel-based product sales was driven by sales of our ION products. The decrease in AMD-based platform products is driven by our share loss in this platform as AMD continues to market their own product line in place of ours.

CPB. CPB revenue increased by 33% to $46.2 million in the second quarter of fiscal year 2010, compared to $34.6 million for the second quarter of fiscal year 2009. The overall increase in CPB revenue is primarily driven by an increase in sales of our embedded products. CPB revenue decreased by 25% to $58.0 million for the first half of fiscal year 2010 as compared to $77.1 million for the first half 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 and a drop in royalties from game console related products in the comparative periods.

Concentration of Revenue

Revenue from sales to customers outside of the United States and other Americas accounted for 86% and 89% of total revenue for the second quarter of fiscal years 2010 and 2009, respectively, and 84% and 91% for the first half of fiscal years 2010 and 2009, respectively. 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', 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 12% of our total revenue from one customer for the second quarter and first half of fiscal year 2010. Revenue from significant customers, those representing 10% or more of total revenue, aggregated approximately 13% and 21% of our total revenue from one customer and two customers for the second quarter and first half of fiscal year 2009, respectively.

Gross Profit and Gross Margin

Gross profit consists of total revenue, net of allowances, less cost of revenue. . . .