UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the fiscal year ended January 26, 202030, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
Commission file number: 0-23985
NVIDIA CORPORATIONCORPORATION
(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.) | ||||
2788 San Tomas Expressway
Santa Clara,, California95051
(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 | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, $0.001 par value per share | NVDA | 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 ☒ No ☐
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 ☐ No ☒
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ | ||||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 26, 201930, 2021 was approximately $102.15$467.25 billion (based on the closing sales price of the registrant's common stock as reported by the Nasdaq Global Select Market on July 26, 2019)30, 2021). This calculation excludes 2699 million 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 February 14, 2020March 11, 2022 was 612 million.2.51 billion.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for its 20202022 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K.
NVIDIA CORPORATION
TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our products, our planned financial and other announcements and attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD:
NVIDIA Twitter Account (https://twitter.com/nvidia)
NVIDIA CompanyCorporate Blog (http://blogs.nvidia.com)
NVIDIA Facebook Page (https://www.facebook.com/nvidia)
NVIDIA LinkedIn Page (http://www.linkedin.com/company/nvidia)
NVIDIA Instagram Page (https://www.instagram.com/nvidia)
In addition, investors and others can view NVIDIA videos on YouTube.YouTube (https://www.YouTube.com/nvidia).
The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this Annual Report on Form 10-K. These channels may be updated from time to time on NVIDIA's investor relations website.
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.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the filing date of this Annual Report on Form 10-K , and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
© 20202022 NVIDIA Corporation. All rights reserved. NVIDIA, the NVIDIA logo, GeForce, Quadro, Tegra, Tesla,BlueField, CUDA, CUDA-X, AI, GeForce Experience, GeForce GTX, GeForce NOW, GeForce RTX, G-SYNC, Jetson, Mellanox, DOCA, NGC, NVIDIA Clara, NVIDIA DesignWorks,AGX, NVIDIA DGX, NVIDIA DGX SUPERPOD, NVIDIA DRIVE, NVIDIA DRIVE Constellation, NVIDIA GameWorks,DRIVE Hyperion, NVIDIA GRID,EGX, NVIDIA HGX, NVIDIA Omniverse, NVIDIA RTX, NVIDIA VRWorks, NVLink, NVSwitch, Quadro RTX, SHIELD, and TensorRTvGPU are trademarks and/or registered trademarks of NVIDIA Corporation and / or its affiliates in the United States and/or other countries. Other company and product names may be trademarks of the respective companies with which they are associated. Features, pricing, availability, and specifications are subject to change without notice.
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PART I
ITEM 1. BUSINESS
Our Company
NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. Starting with aSince our original focus on PC graphics, we extended our focus in recent yearshave expanded to the revolutionary field of artificial intelligence, or AI.several other large and important computationally intensive fields. Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA has leveraged its GPU architecture to create platforms for scientific computing, artificial intelligence, or AI, data science, autonomous vehicles, or AV, robotics, and augmented and virtual reality, or VR, high performance computing, or HPC,AR and AI.VR.
The GPU was initially used to simulate human imagination, enabling the virtual worlds of video games and films. Today, it also simulates human intelligence, enabling a deeper understanding of the physical world. Its parallel processing capabilities, supported by up to thousands of computing cores, are essential to running deep learning algorithms. This form of AI, in which software writes itself by learning from large amounts of data, can serve as the brain of computers, robots and self-driving cars that can perceive and understand the world. GPU-powered deep learning continues to beis being adopted by thousands of enterprises to deliver services and featuresproducts that would have been impossible with traditional coding.
NVIDIA has a platform strategy, bringing together hardware systemand systems, software, programmable algorithms and libraries, systems, and services to create unique value for the markets we serve. While the computing requirements of these end markets are diverse, we address them with a unified underlying architecture leveraging our GPUs and software stacks. The programmable nature of our architecture allows us to support several multi-billion-dollar end markets with the same underlying technology by using a variety of software stacks developed either internally or by third party developers and partners. The large and growing number of developers across our platforms strengthens our ecosystem and increases the value of our platform to our customers.
Innovation is at our core. We have invested over $20$29 billion in research and development since our inception, yielding inventions that are essential to modern computing. Our invention of the GPU in 1999 defined modern computer graphics and established NVIDIA as the leader in visual computing.computer graphics. With our introduction of the CUDA programming model in 2006, we opened the parallel processing capabilities of theour GPU for general purpose computing. This approach significantly accelerates the performance of the most demanding high-performance computing, or HPC, applications in HPC in fields such as aerospace, bio-science research, mechanical and fluid simulations, and energy exploration. Today, our GPUs powerand networking accelerate many of the fastest supercomputers across the world. In addition, the massively parallel compute architecture of our GPUs and associated software are well suited for deep learning and machine learning, powering the era of AI. While traditional CPU-based approaches no longer deliver advances on the pace described by Moore’s Law, we deliver GPU performance improvements on a pace ahead of Moore’s Law, giving the industry a path forward.
Gamers choose NVIDIA GPUs to enjoy immersive, increasingly cinematic virtual worlds. GPUs also help underpin the world’s fastest growing spectator sport, eSports, which attracts hundreds of millions of viewers to watch top-quality gaming. A rapidlyIn addition to serving the growing genrenumber of Battle Royale games, suchgamers, the market for gaming GPUs is expanding as Fortnite, is also expandinga result of the gaming market.burgeoning population of live streamers, broadcasters, artists and creators.
Researchers use our GPUs to accelerate a wide range of important applications, from simulating molecular dynamics to weatherclimate forecasting. With support for more than over 6002,500 applications - including the top 15 HPC applications - NVIDIA GPUs enable some of the most promising areas of discovery, from weatherclimate prediction to materials science and from wind tunnel simulation to genomics. Including GPUs and networking, NVIDIA GPUs powerpowers over 70%, and 8 of the top two10, supercomputers inon the world, located at Oak Ridge and Lawrence Livermore National Laboratories in the United States, as well as the top supercomputers in Europe and Japan. In all, NVIDIA powers 136 of theglobal TOP500 supercomputers.list.
The world’s leading cloud service providers and consumer internet companies use our GPUs to enable, accelerate or enrich the services they deliver to billions of end-users, including search, recommendations, social networking, online shopping, live video, translation, AI assistants, navigation, and cloud computing.
A rapidly growing number of enterprises and startups across a broad range of industries use our GPUs for deep learning that meets, and in several cases surpasses, human perception, in fields ranging from radiologyAI software to precision agriculture. For example,bring automation to the products and services they build. The transportation industry is turning to our GPUsplatforms for autonomous driving; the healthcare industry is leveraging them for enhanced medical imaging and AI to enable autonomous vehicles, or AVs, with several hundred companiesaccelerated drug discovery; and organizations working with NVIDIA’s DRIVE platform.the financial services industry is using them for fraud detection.
Professional designers use our GPUs and software to create visual effects in movies, and design buildings and products ranging from soft drink bottlescell phones to commercial aircraft.
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Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.
Termination of the Arm Share Purchase Agreement
On February 8, 2022, NVIDIA and SoftBank Group Corp., or SoftBank, announced the termination of the Share Purchase Agreement whereby NVIDIA would have acquired Arm Limited, or Arm, from SoftBank. The parties agreed to terminate because of significant regulatory challenges preventing the completion of the transaction. We intend to record in operating expenses a $1.36 billion charge in the first quarter of fiscal year 2023 reflecting the write-off of the prepayment provided at signing in September 2020.
Our Businesses
We report our business results in two segments.
Our two reportable segments -Graphics segment includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro/NVIDIA RTX GPUs for enterprise workstation graphics; virtual GPU, and Tegra Processor - are based on a single underlying architecture. Our GPU product brands are aimed at specialized markets including GeForce for gamers; Quadro for designers; Tesla and DGX for AI data scientists and big data researchers; and GRIDor vGPU, software for cloud-based visual computing users. and virtual computing; automotive platforms for infotainment systems; and Omniverse software for building 3D designs and virtual worlds.
Our Tegra brand integrates an entire computer onto a single chip,Compute & Networking segment includes Data Center platforms and incorporates GPUssystems for AI, HPC, and multi-core CPUs to drive supercomputingaccelerated computing; Mellanox networking and interconnect solutions; automotive AI Cockpit, autonomous driving development agreements, and autonomous vehicle solutions; cryptocurrency mining processors, or CMP; Jetson for autonomous robots, drones,robotics and cars, as well as for game consolesother embedded platforms; and mobile gamingNVIDIA AI Enterprise and entertainment devices.
Our Markets
We specialize in markets in which GPU-based visual computing and acceleratedour computing platforms can provide tremendous throughputacceleration for applications. These platforms incorporate processors, systemsinterconnects, software, programmable algorithms, systems, and services to deliver value that is unique in the marketplace. From our proprietary processors, we createdvalue. Our platforms that address four large markets where our expertise is critical: Gaming, Data Center, Professional Visualization, Data Center, and Automotive.
Gaming
Our gaming platforms leverage our GPUs and sophisticated software to enhance the gaming experience by improving the visualwith smoother, higher quality of graphics, increasing the frame rate for smoother gameplay and improving realism by incorporating the behavior of light and physical objects. These can be enjoyed independently or together to extend the gaming experience across platforms.
graphics. We developed NVIDIA RTX to bring next generation graphics and AI to games. NVIDIA RTX features ray tracing technology to enablefor real-time, cinematic-quality rendering in the RTX line-up of our gaming platforms.rendering. Ray tracing, which has long been used for special effects in the movie industry, is a computationally intensive technique that simulates the physical behavior of light to achieve greater realism in computer-generated scenes.
Our products for the gaming market include GeForce RTX and GeForce GTX GPUs for PC gaming SHIELD devices for gamingdesktop and streaming,laptop PCs, GeForce NOW cloud gaming for cloud-based gaming,playing PC games on underpowered devices, SHIELD for high quality streaming on TV, as well as platforms and development services for specialized console gaming devices.
Data Center
The NVIDIA accelerated computing platform addressesis focused on accelerating the most compute-intensive workloads, such as AI, data analytics, graphics and HPC applications.scientific computing, across hyperscale, cloud, enterprise, public sector, and edge data centers. The platform consists of our energy efficient GPUs, data processing units, or DPUs, interconnects and systems, our CUDA programming language, specificmodel, and a growing body of software libraries, such as cuDNNsoftware development kits, or SDKs, which are both integrated and TensorRT,sold standalone, application frameworks and innovations such as NVLink and NVSwitch interconnects, which enable application scalability across multiple GPUs.services.
In the field of AI, NVIDIA’s platform accelerates both deep learning and machine learning workloads. Deep learning is a computer science approach where neural networks are trained to recognize patterns from massive amounts of data in the form of images, sounds and text - in some instances better than humans.humans - and in turn provide predictions in production use cases. Machine learning is a related approach that leverages algorithms as well as data to learn how to make determinations or predictions, and is often used in data science. HPC, also referred to as scientific computing, uses numerical computational approaches to solve large and complex problems. For both AI and HPC applications, the
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NVIDIA accelerated computing platform greatly increases the performance and power efficiency of high-performance computers and data centers, as GPUs excel at parallel workloads.centers.
We are engaged with thousands of organizations working on AI in a multitude of industries, from automating tasks such as reading medical images,consumer product and service recommendations, to chatbots for the automation of or assistance with live customer interactions, to enabling fraud detection in financial services, to optimizing oil exploration and drilling. These organizations include the world’s leading consumer internet and cloud services companies, such as Amazon, Baidu, and Facebook, which are infusing AI in applications that enable highly accurate voice recognition and real-time translation; enterprises that are increasingly turning to AI to improve products and services; and startups seeking to implement AI in transformative ways across multiple industries. We partnered with industry leaders such as Amazon, Inc., or Amazon, Alphabet Inc., or Alphabet, International Business Machines Corporation, or IBM, Microsoft Corporation, or Microsoft, Oracle Corporation, or Oracle, SAP SE, and VMware Inc. to bring AI to enterprise users. We also have partnerships in transportation, retail, healthcare, and manufacturing, among others, to accelerate the adoption of AI.
Beyond GPUs, NVIDIA has expanded its data center processor portfolio to hundredsinclude DPUs, introduced in fiscal year 2021, and CPUs planned to ship in early fiscal year 2024. NVIDIA Bluefield DPU is supported by foundational data-center-infrastructure-on-a-chip software, or DOCA, that lets developers build software-defined, hardware-accelerated networking, security, storage and management applications for BlueField DPUs. Partners supporting Bluefield include many of conventional servers, comes fully integratedthe top security, storage and networking companies. We can optimize across the entire computing, networking and storage stack to deliver data center-scale computing solutions.
While our approach starts with hardware,powerful chips, what makes it a full-stack computing platform is our large body of software, developmentincluding the CUDA parallel programming model, the CUDA-X collection of application acceleration libraries, Application Programming Interfaces, or APIs, SDKs and tools, support for AI frameworks, and runs popular accelerated applications.domain-specific application frameworks. We also offer the NVIDIA GPU Cloud registry, or NGC, a comprehensive catalog of easy-to-use, optimized
software stacks across a range of domains including scientific computing, deep learning, and machine learning. With NGC, AI developers, researchers and data scientists can get started with the development of AI and HPC applications and deploy them on DGX systems, NGC-ready workstations or serversNVIDIA-Certified systems from our systems partners, or with NVIDIA’s cloud partnerspartners.
In addition to software that is delivered to customers as an integral part of our data center computing platform, we offer enterprise software products on a standalone basis as a perpetual license or subscription. Our enterprise software offerings include NVIDIA AI Enterprise, a comprehensive suite of enterprise-grade AI software; NVIDIA Fleet Command software-as-a-service for securely deploying and managing AI applications across distributed edge infrastructure; NVIDIA Base Command software-as-a-service for managing large-scale, multi-user and multi-team AI development workflows; and NVIDIA vGPU software products that enable powerful GPU performance for workloads ranging from graphics-rich virtual desktops and workstations to data science and AI.
Professional Visualization
We serve the Professional Visualization market by working closely with independent software vendors, or ISVs, to optimize their offerings for NVIDIA GPUs. Our GPU computing solutions enhance productivity and introduce new capabilities for critical workflows in many fields, such as Amazon, Google Cloud, Microsoft Azure, or Oracle Cloud.design and manufacturing and digital content creation. Design and manufacturing encompass computer-aided design, architectural design, consumer-products manufacturing, medical instrumentation, and aerospace. Digital content creation includes professional video editing and post-production, special effects for films, and broadcast-television graphics.
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Designers who build the products we use every day need the images that they view digitally to mirror reality. This requires simulating the most compute-intensive workloads, suchphysical behavior of light and materials, or physically-based rendering. NVIDIA Omniverse is a virtual world simulation and collaboration platform for 3D workflows that is available as artificial intelligence, deep learning,a software subscription for enterprise use and data science, can be runfree for individual use. Omniverse, VR and AR are being incorporated in a virtual machine.growing number of enterprise applications. Virtual car showrooms, surgical training, architectural walkthroughs, and bringing historical scenes to life all deploy these technologies, powered by our GPUs.
Automotive
NVIDIA’s Automotive market is comprised of cockpit AV platforms, AI cockpit and infotainment solutions, AV platforms, and associated development agreements. Leveraging our technology leadership in AI and building on our long-standing automotive relationships, we are delivering a fullcomplete end-to-end solution for the AV market under the DRIVE brand. NVIDIA has demonstrated multiple applications of AI within the car.car: AI can drive the car itself as a pilot in either partial or fully autonomous mode. AImode or it can also be a co-pilot, assisting the human driver inwhile creating a safer driving experience.
NVIDIA is working with several hundred partners in the automotive ecosystem including automakers, truck makers, tier-one suppliers, sensor manufacturers, automotive research institutions, HD mapping companies, and startups to develop and deploy AI systems for self-driving vehicles. Our unified AI computing architecture starts with training deep neural networks using our GPUs, and then running thema full perception, planning and control stack within the vehicle on the NVIDIA DRIVE computingHyperion platform. The DRIVE Hyperion platform consists of the high-performance, energy efficient hardware - DRIVE AGX andcomputing hardware, a reference sensor set that supports full self-driving capability as well as an open, modular software - includingDRIVE Software platform. We recently announced for future release the DRIVE Software platform that includes DRIVE Chauffeur – based on NVIDIA DRIVE AV forsoftware to enable autonomous driving, mapping and parking services; and Drive Concierge – based on NVIDIA DRIVE IX software for intelligent in-vehicle experiences and NVIDIA Omniverse Avatar software for real time conversational AI assistance. In addition, we offer a scalable simulation solution, NVIDIA DRIVE Constellation, for testing and validating a self-driving platform before commercial deployment. This end-to-end, software-defined approach allows cars to receive over-the-air updates to add new features and capabilities throughout the life of a vehicle.capability.
NVIDIA DRIVE can perceive and understand in real-time what'swhat is happening around the vehicle, precisely locate itself on an HD map, and plan a safe path forward. This advanced self-driving car platform combines deep learning, sensor fusion, and surround vision to change the driving experience. Our DRIVE platform scales from a palm-sized, energy-efficient module for automated highway-driving capabilities to a configuration with multiple systems aimed at enabling driverless cars. Our Xaviernewest system-on-a-chip, or SoC, Orin, which started shipping in 2018,fiscal year 2022, enables vehicles to use deep neural networks to process data from multiple cameras and sensors. It powers the DRIVE AutoPilot, NVIDIA’s Level 2+ automated driving solution, combining the DRIVE AV self-driving solution with the DRIVE IX cockpit software, including a visualization system for allowing the driver to see what the car sees and plans to do.
In fiscal year 2020,addition, we announced our next-generation SoC, Orin, targeting mass production in 2022.offer a scalable data center-based simulation solution, NVIDIA DRIVE Constellation running DRIVE Sim software, for testing and validating a self-driving platform before commercial deployment. NVIDIA's unique end-to-end, software-defined approach is designed for continuous innovation and continuous development, enabling cars to receive over-the-air updates to add new features and capabilities throughout the life of a vehicle.
Business Strategies
NVIDIA’s key strategies that shape our overall business approach include:
Advancing the GPUNVIDIA accelerated computing platform. The massive parallel processing capabilities of NVIDIA GPUsNVIDIA’s accelerated computing platform can solve complex problems in significantly less time and with lower power consumption than alternative computational approaches. Indeed, GPUsit can help solve problems that were previously deemed unsolvable. We work to deliver continued GPU performance leaps that outpace Moore’s Law by leveraging innovation across the architecture, chip design, system, and software layers. Our strategyWith our acquisition of Mellanox, we strengthened our end-to-end expertise in data center architectures, positioning us for a future when the data center is the new unit of computing. This full-stack innovation approach allows us to target markets where GPUs deliver order-of-magnitude performance advantages relative to legacy approaches. Our market platforms so farapproaches in our target markets, which include Gaming, Data Center, Professional Visualization, Data Center, and Automotive. While
the computing requirements of these end markets are diverse, we address them with a unified underlying architecture leveraging our GPUs and CUDA as the fundamental building blocks. The programmable nature of our architecture allows us to make leveraged investments in R&D: we can support several multi-billion dollarmulti-billion-dollar end markets with the same underlying technology by using a variety of software stacks developed either internally or by third party developers and partners. We utilize this platform approach in each of our target markets.
Extending our technology and platform leadership in AI. We provide a complete, end-to-end GPUaccelerated computing platform for deep learning and machine learning, addressing both training and inferencing. This includes GPUs, interconnects, systems, our CUDA programming language, algorithms, libraries, and systemother software. GPUs are uniquely suited to AI, and we will continue to add AI-specific features to our GPU architecture to further extend our leadership
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position. Our AI technology leadership is reinforced by our large and expanding ecosystem in a virtuous cycle. Our GPU platforms are available from virtually every major server maker and cloud service provider, as well as on our own AI supercomputer. There are over 1.6almost 3 million developers worldwide using CUDA and our other software tools to help deploy our technology in our target markets. We evangelize AI through partnerships with hundreds of universities and more than 3,600almost 10,000 startups through our Inception program. Additionally, our Deep Learning Institute provides instruction on the latest techniques on how to design, train, and deploy neural networks in applications using our accelerated computing platform.
Extending our technology and platform leadership in visual computing.computer graphics. We believe that visual computingcomputer graphics is fundamental to the continued expansion and evolution of computing. We apply our research and development resources to extending our leadership in visual computing, enabling us to enhance the user experience for consumer entertainment and professional visualization applications.applications, and create new virtual world and simulation capabilities. Our technologies are instrumental in driving gaming forward, as developers leverage our libraries and algorithms to create near-cinematic and VR experiences. Our close collaboration with game developers allows us to deliver an optimized gaming experience on our GeForce platform. Our computer graphics platforms leverage not only our industry-leading GeForce and NVIDIA RTX GPUs, but also optimized software stacks. For example, GeForce Experience gaming application further enhances each gamer’s experience by optimizing their PC’s settings, as well as enabling the recording and sharing of gameplay. Our Studio drivers enhance and accelerate a number of popular creative applications. Omniverse is real-time 3D design collaboration and virtual world simulation software that empowers artists, designers and creators to connect and collaborate in leading design applications. We also enable interactive graphics applications - such as games, movie and photo editing and design software - to be accessed by almost any device, almost anywhere, through our cloud platforms such as GRIDvGPU for enterprise and GeForce NOW for gaming.
Advancing the leading autonomous vehicle platform.We believe the advent of AV will soon revolutionize the transportation industry. In our view, AI is the key technology enabler of this opportunity, as the algorithms required for autonomous driving - such as perception, localization, and planning - are too complex for legacy hand-coded approaches and will run on multiple trained neural networks instead. Therefore, we providedprovide a full functionally safe AI-based hardware and software solution for the AV market under the DRIVE brand, which we are bringing to market through our partnerships with automotive original equipment manufacturers, or OEMs, tier-1 suppliers, and start-ups. Our AV solution also includes the GPU-based hardware required to train the neural networks before their in-vehicle deployment, as well as to re-simulate their operation prior to any over-the-air software updates. We believe our comprehensive, top-to-bottom and end-to-end approach will enable the transportation industry to solve the complex problems arising from the shift to autonomous driving.
Leveraging our intellectual property.property, or IP. We believe our intellectual propertyIP is a valuable asset that can be accessed by our customers and partners through licenseslicense and development agreements when they desire to build such capabilities directly into their own products, or have us do so through a custom development. Such license and development arrangements can further enhance the reach of our technology.
Sales and Marketing
Our sales strategy involves working with end customers and various industry ecosystems through our partner network. Our worldwide sales and marketing strategy is key to achieving our objective of providing markets with our high-performance and efficient GPUcomputing platforms and embedded system-on-a-chip, or SOC, platforms.software. Our sales and marketing teams, located across our global markets, work closely with end customers in each industry.and various industry ecosystems through our partner network. Our partner network incorporates each industry's respective OEMs, original device manufacturers, or ODMs, system builders, add-in board manufacturers, or AIBs, retailers/distributors, ISVs, internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants.
Members of our sales team have technical expertise and product and industry knowledge. We also employ a team of application engineers and solution architects to assist our partner network in designing, testing, and qualifying system designs that incorporate our platforms. We believe that the depth and quality of our design support are key to improving our partner network’s time-to-market, maintaining a high level of customer satisfaction, and fostering relationships that encourage our end customers and partner network to use the next generation of our products within each platform.
To encourage the development of applications optimized for our GPUs,platforms and software, we seek to establish and maintain strong relationships in the software development community. Engineering and marketing personnel engage with key software developers to promote and discuss our platforms, as well as to ascertain individual product requirements and solve technical problems.
Our developer program makes our products available to developers prior to launch in order to encourage the development of AI frameworks, Software Development Kits,SDKs, and Application Programming Interfaces, or APIs for software applications and game titles that are optimized for our platforms. Our Deep Learning Institute provides in-person and online training for developers in industries and organizations around the world to build AI and accelerated computing applications that leverage our GPU and CUDA platforms. We now have over 1.6 million registered developers across our platforms, including accelerated computing, gaming, deep learning, autonomous machines, and others.
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As NVIDIA’s business has evolved from a focus primarily on gaming products to broader markets, and from chips to platforms and complete systems to software, so, too, have our avenues to market. Thus, in addition to sales to customers in our partner network, certain of our platforms are also sold through e-tail channels, or direct to cloud service providers and enterprise customers.
Seasonality
Our GPU and Tegra processorcomputing platforms serve manya diverse set of markets fromsuch as consumer PC gaming, to enterprise workstations to government and cloud service provider data centers, although a majority of our revenue stems from the consumer industry.professional workstations, and automotive. Our consumer products typically see stronger revenue in the second half of our fiscal year. In addition, based on the production schedules of key customers, some of our products for notebooks orand game consoles typically generate stronger revenue in the second and third quarters, and weaker revenue in the fourth and first quarters. In fiscal year 2022, our demand exceeded our supply in several areas, and our revenue did not follow historical seasonal patterns. However, there can be no assurance that this trendthese trends will continue. Our fiscal year 2022 supply-constrained environment or historical seasonality trends may not repeat.
Manufacturing
We do not directly manufacture semiconductors used for our products. Instead, we utilize a fabless manufacturing strategy, 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 in such areas as fabrication, assembly, quality control and assurance, reliability, and testing. Additionally, we can avoid many of the significant costs and risks associated with owning and operating manufacturing operations. While we may directly procure certain raw materials used in the production of our products, such as substrates and a variety of components, our suppliers are responsible for procurement of the majoritymost 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 have placed non-cancellable inventory orders for certain products in advance of our historical lead times, paid premiums and provided deposits to secure future supply and capacity and may need to continue to do so in the future.
We utilize industry-leading suppliers, such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co. Ltd, to produce our semiconductor wafers. We then utilize independent subcontractors, such as Advanced Semiconductor Engineering, Inc., Amkor Technology, BYD Auto Co. Ltd., Hon Hai Precision Industry Co., Ltd., JSI Logistics Ltd., King Yuan Electronics Co., Ltd., andOmni Logistics, LLC, Siliconware Precision Industries Company Ltd., and Wistron Corporation to perform assembly, testing, and packaging of most of our products and platforms. We use contract manufacturers such as Flex Ltd., Jabil Inc., and Universal Scientific Industrial Co., Ltd., to manufacture our standard and custom adapter card products and switch systems, and Fabrinet to manufacture our cables. We purchase substrates from IbidenCo.Ibiden Co. Ltd., Kinsus Interconnect Technology Corporation, and Unimicron Technology Corporation, and memory from Micron Technology, Samsung Semiconductor, Inc., or Samsung, and SK Hynix. We often consign key components or materials such as the GPU, SoC, memory, and integrated circuit to the contract manufacturers.
We typically receive semiconductor products from our subcontractors, perform incoming quality assurance and configuration using test equipment purchased from industry-leading suppliers such as Advantest America Inc., and then ship the semiconductors to contract equipment manufacturers, or CEMs,such as BYD Auto Co. Ltd. and Hon Hai Precision Industry Co., distributors, motherboard and AIBadd-in card, or AIC, customers from our third-party warehousewarehouses in Hong Kong.Kong, Israel, and the United States. Generally, these manufacturers assemble and test the boards based on our design kit and test specifications, and then ship our products to retailers, system builders, or OEMs as motherboard and AIBAIC solutions.
Competition
The market for our products is intensely competitive and is characterized by rapid technological change and evolving industry standards. We believe that the principal competitive factors in this market are performance, breadth of product offerings, access to customers and partners and distribution channels, software support, conformity to industry standard 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 and partners 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 lower priced 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 comes from companies that provide or intend to provide GPUs, embedded SOCs,SoCs, and other accelerated, and AI computing processor products.products, and providers of semiconductor-based high-performance interconnect products based on InfiniBand, Ethernet, Fibre Channel and proprietary technologies. Some of our
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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. We expect an increasingly competitive environment in the future.
Our current competitors include:
•suppliers and licensors designing discrete and integrated GPUs, custom chips and other accelerated computing solutions, including chipsets that incorporate 3D graphics, or HPC, such as Advanced Micro Devices, or AMD, and Intel Corporation, or Intel, and Xilinx, Inc.;Intel;
•large internet services companies with internal teams designing chips that incorporates HPC orincorporate accelerated computing functionality as part of their internal solutions or platforms, such as Alibaba Group, Alphabet, Inc.; and Amazon;
•suppliers of SoC products that are embedded into automobiles, autonomous machines, and gaming devices, such as Ambarella, Inc., AMD, Broadcom Inc., Intel, Qualcomm Incorporated, Renesas Electronics Corporation, Samsung, and Xilinx, Inc.Samsung, or companies with internal teams designing SoC products for internal use, such as Tesla Motors.Motors; and
•suppliers of interconnect, switch and cable solutions such as AMD, Applied Optoelectronics, Inc., Arista Networks, Broadcom, Cisco, HP, Intel, Juniper Networks, Inc., Lumentum Holdings, and Marvell Technology Group, as well as internal teams of system vendors and large internet services companies such as Alphabet and Amazon.
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 propertyIP in the United States and internationally. Our currently issued patents have expiration dates from March 2020February 2022 to October 2039.June 2045. 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.IP. 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 propertyIP rights to the same extent as the laws of the United States. This decreased protection 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;
•the degree to which intellectual propertyIP laws exist and are meaningfully enforced in different jurisdictions; and
•the commercial significance of our operations and our competitors' operations in particular countries and regions.
We have also licensed technology from third parties and expect to continue to enter into such license agreements.
Our worldwide business activities are subject to various laws, rules, and regulations of the United States as well as of foreign governments. Our acquisitions may be subject to government regulatory reviews, and the cost to comply with such regulations or costs incurred where regulatory challenges prevent the completion of an acquisition could have a material impact on our business. On February 8, 2022, we announced the termination of the Share Purchase Agreement by which we would have acquired Arm due to significant regulatory challenges preventing the completion of the transaction and expect to incur a $1.36 billion charge in the first quarter of fiscal year 2023. Compliance with laws, rules, and regulations has not otherwise had a material effect upon our capital expenditures, results of operations, or competitive position and we do not currently anticipate material capital expenditures for environmental control facilities. Compliance with existing or future governmental regulations, including, but not limited to, those pertaining to IP ownership and infringement, taxes, import and export requirements and tariffs, anti-corruption, business acquisitions, foreign exchange controls and cash repatriation restrictions, data privacy requirements, competition and antitrust, advertising, employment, product regulations, cybersecurity, environmental, health and safety requirements, the responsible use of AI, climate change, cryptocurrency, and consumer laws, could increase our costs, impact our competitive position, and otherwise may have a material adverse impact on our business, financial condition and results of operations in subsequent periods. Refer to “Item 1A. Risk Factors” for a discussion of these potential impacts.
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Environmental, Social and Corporate Governance
NVIDIA invents computing technologies that improve lives and address global challenges. We integrate sound environmental, social and corporate governance, or ESG, principles and practices into every aspect of the Company. The Nominating and Corporate Governance Committee of our Board of Directors is responsible for reviewing and discussing with management our practices concerning ESG. We undertake an annual analysis to ensure that our ESG priorities remain aligned with stakeholder expectations, market trends, and business risks and opportunities. These issues are important for our continued business success and reflect the topics of highest concern to NVIDIA and our stakeholders.
The following section provides an overview of some of these principles and practices. More information can be found on the Corporate Social Responsibility section of our website and in our annual Corporate Social Responsibility Report, or CSR Report. Information contained on our website or in our annual CSR Report is not incorporated by reference into this or any other report we file with the Securities and Exchange Commission, or the SEC. Refer to “Item 1A. Risk Factors” for a discussion of risks and uncertainties we face related to ESG.
Climate Change
In the area of sustainability, we address our climate impacts across our product lifecycle and assess risks, including current and emerging regulations and market impacts.
In our CSR Report, we report several metrics related to our environmental impact, our most recent full reporting year being fiscal year 2021, with our fiscal year 2022 metrics expected to be published in May 2022. There has been no material impact to capital expenditures, our results of operations or competitive position associated with global sustainability regulations, compliance, or costs from sourcing renewable energy. By the end of fiscal year 2025, our goal is to purchase or generate enough renewable energy to match 100% of our global electricity usage for our offices and data centers.
Whether it is creation of technology to power next-generation laptops or designs to support high-performance supercomputers, improving energy efficiency is important in our research, development, and design processes. GPUs are inherently more energy efficient than other forms of computing because they are optimized for throughput and performance per watt rather than absolute performance. GPU servers are approximately 40x more energy efficient than traditional CPU servers for AI workloads. The power efficiency of our products is evidenced by our continued strong presence on the Green500 list of the most energy-efficient systems. We powered 23 of the top 25 systems on the November 2021 Green500 list.
We plan to build Earth-2, an AI supercomputer dedicated to predicting the impacts of climate change. The system will build a digital twin of the Earth on our Omniverse platform, enable scientists to do ultra-high-resolution climate modeling, and put mitigation and adaptation tools into the hands of cities and nations so they can act with more urgency.
Human Capital Management
We believe that our employees are our greatest assets, and they play a key role in creating long-term value for our stakeholders. As of January 26, 2020,30, 2022, we had 13,77522,473 employees 9,823 of whomin 32 countries. 16,242 were engaged in research and development and 3,952 of whom6,231 were engaged in sales, marketing, operations, and administrative positions.
To be competitive and execute our business strategy successfully, we must recruit, develop, and retain talented employees, including qualified executives, scientists, engineers, and technical and non-technical staff.
The demand for talent in new markets such as AI and deep learning, is increasingly competitive. With differentiated hiring strategies for university, professional, executive, and for diversity, we have been successful in attracting top talent to NVIDIA.
We attract global talent from universities, collaborations with college programs, professional organization affiliations, industry conferences, community resource group participation, direct sourcing and outreach. Our employees play an important part in recruiting, with over 39% of our new hires coming from employee referrals.
Development and Retention
To date,support employee advancement, we provide opportunities to learn on-the-job through training programs, one on one coaching and ongoing feedback. We have a rich library of live and on-demand learning experiences that include workshops, panel discussions, and speaker forums. We curate learning paths focused on our most common
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development needs and constantly upgrade our offerings to ensure that our employees are exposed to the most current programs and technologies available. We offer tuition reimbursement programs to subsidize educational programs and advanced certifications. We encourage internal mobility through career coaching that advises employees on developmental activities and pursuing internal transfer opportunities. We have implemented specifically designed mentoring and development programs for women and employees from traditionally underrepresented groups to ensure widespread readiness for future advancement.
To evaluate employee sentiment and engagement, we use pulse surveys, a suggestion box, and an anonymous third-party platform. Pulse surveys help us gain insight into employee experience and provide ideas so that we can prioritize areas to take action. The suggestion box is an always-on, interactive tool where employees share their thoughts about making our company a better place to work. The anonymous third-party platform is designed to protect the identity of the reporter and provide a mechanism for reporters to follow an investigation and receive responses.
In fiscal year 2022, our overall turnover rate was 4.9%.
Compensation, Benefits, and Well-Being
Our compensation program rewards performance and is structured to encourage employees to invest in the Company’s future. Employees receive equity, except where unavailable due to local regulations, that is tied to the value of our stock price and vests over time to retain employees while simultaneously aligning their interests with those of our stockholders.
We offer comprehensive benefits to support our employees’ and their families’ physical health, well-being and financial health, including 401(k) programs in the U.S., statutory pension programs outside the U.S., our employee stock purchase program, flexible work hours and time off, and programs to address mental health, stress, and time-management challenges. We evaluate our benefit offerings globally and are committed to providing tailored benefits based on community needs, including assistance for military members, additional mental health benefits, and support for new birth parents, and those who wish to become parents.
Diversity and Inclusion
We believe that diverse teams fuel innovation, and we are committed to creating an inclusive culture that supports all employees, regardless of gender, gender identity or expression, veteran status, race, ethnicity, or ability.
We have increased our efforts to recruit, develop, and retain a more diverse workforce with a focus on those historically underrepresented in the technology field, including women, Black/African American, and Hispanic/Latino candidates.
Other efforts we have been or are undertaking include:
•Expanded recruiting teams and deepened our college pipeline to engage more diverse students and partnering with minority-serving institutions and professional organizations;
•Supported the development of women employees to build a pipeline of future leaders;
•Supported underrepresented employees through our 11 internal community resource groups;
•Providing training and education to managers and peers on how to foster a supportive environment; and
•Measuring year over year progress and providing leadership visibility on diversity efforts.
As of January 30, 2022, our global workforce was 80% male, 19% female, and 1% not incurred significant expenses relateddeclared and 6% of our workforce in the United States was composed of Black or African American and Hispanic or Latino employees.
Health and COVID-19
We support our people and their families in making their health and safety a top priority. During fiscal year 2022 and the COVID-19 pandemic, we continued our global protocols to environmental regulatory compliance matters.keep our workforce safe. For essential labs and offices that remain open, we maintained appropriate safety protocols and social distancing guidelines. We have also made some of our offices accessible based on a clearly defined set of metrics while adhering to government guidelines. Steps we took to support employees include:
•Providing work from home support, including reimbursement for home office equipment and certain work from home expenses;
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•Enhanced health coverage, including-COVID-19 testing, vaccine costs and support, expanded mental health resources and virtual care offerings, and care for those with COVID-19;
•Learning and development resources on how to lead and manage remotely; and
•Opportunities for employees to socially connect with one another virtually.
We will continue a flexible work environment and have instituted Company-wide “rest days” for employees to recharge.
Information About Our Executive Officers
The following sets forth certain information regarding our executive officers, their ages and positions as of February 14, 2020:
March 11, 2022:
| Name | Age | Position | ||||||||||||
| Jen-Hsun Huang | President and Chief Executive Officer | |||||||||||||
| Colette M. Kress | Executive Vice President and Chief Financial Officer | |||||||||||||
| Ajay K. Puri | Executive Vice President, Worldwide Field Operations | |||||||||||||
| Debora Shoquist | Executive Vice President, Operations | |||||||||||||
| Timothy S. Teter | Executive Vice President and General Counsel | |||||||||||||
Jen-Hsun Huang co-founded NVIDIA in 1993 and has served as our President, Chief Executive Officer and a member of the Board of Directors since our inception. From 1985 to 1993, Mr. Huang was employed at LSI Logic Corporation, a computer chip manufacturer, where he held a variety of positions including as Director of Coreware, the business unit responsible for LSI's SOC. 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.
Colette M. Kress joined NVIDIA in 2013 as Executive Vice President and Chief Financial Officer. Prior to NVIDIA, Ms. Kress most recently served as Senior Vice President and Chief Financial Officer of the Business Technology and Operations Finance organization at Cisco Systems, Inc., a networking equipment company, since 2010. At Cisco, Ms. Kress was responsible for financial strategy, planning, reporting and business development for all business segments, engineering and operations. From 1997 to 2010 Ms. Kress held a variety of positions at Microsoft Corporation, a software company, including, beginning in 2006, Chief Financial Officer of the Server and Tools division, where Ms. Kress was responsible for financial strategy, planning, reporting and business development for the division. Prior to joining Microsoft, Ms. Kress spent eight years at Texas Instruments Incorporated, a semiconductor company, where she held a variety of finance positions. Ms. Kress holds a B.S. degree in Finance from University of Arizona and an M.B.A. degree from Southern Methodist University.
Ajay K. Puri joined NVIDIA in 2005 as Senior Vice President, Worldwide Sales and became Executive Vice President, Worldwide Field Operations in 2009. Prior to NVIDIA, he held positions in sales, marketing, and general management over a 22-year career at Sun Microsystems, Inc., a computing systems company. Mr. Puri previously held marketing, management consulting, and product development positions at Hewlett-Packard Company, an information technology company, Booz Allen Hamilton Inc., a management and technology consulting company, and Texas Instruments Incorporated. Mr. Puri holds a B.S.E.E. degree from the University of Minnesota, an M.S.E.E. degree from the California Institute of Technology and an M.B.A. degree from Harvard Business School.
Debora Shoquist joined NVIDIA in 2007 as Senior Vice President of Operations and in 2009 became Executive Vice President of Operations. Her role has since expanded with responsibility added for Facilities in 2013, and for Information Technology in 2015. Prior to NVIDIA, Ms. Shoquist served from 2004 to 2007 as Executive Vice President of Operations at JDS Uniphase Corp., a provider of communications test and measurement solutions and optical products for the telecommunications industry. She served from 2002 to 2004 as Senior Vice President and General Manager of the Electro-Optics business at Coherent, Inc., a manufacturer of commercial and scientific laser equipment. Previously, she worked at Quantum Corp., a data protection company, as President of the Personal Computer Hard Disk Drive Division, and at Hewlett-Packard Corp. Ms. Shoquist holds a B.S. degree in Electrical Engineering from Kansas State University and a B.S. degree in Biology from Santa Clara University.
Timothy S. Teter joined NVIDIA in 2017 as Senior Vice President, General Counsel and Secretary and became Executive Vice President, General Counsel and Secretary in February 2018. Prior to NVIDIA, Mr. Teter spent more than two decades at the law firm of Cooley LLP. He was most recently a partner at Cooley,LLP, where he focused on litigating patent and technology related matters. Prior to attending law school, he worked as an engineer at Lockheed Missiles and Space Company. Mr. Teter holds a B.S. degree in Mechanical Engineering from the University of California at Davis and a J.D. degree from Stanford Law School.
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Available Information
Our annual reports 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, as
amended, are available free of charge on or through our web site,website, 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. The SEC’s website, http://www.sec.gov, contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our web site and the information on it or connected to it are not a part of this Annual Report on Form 10-K.
ITEM 1A. RISK FACTORS
In evaluating NVIDIA, and our business, the following risk factors should be considered in addition to the other information in this Annual Report on Form 10-K. Before you buy ourPurchasing or owning NVIDIA common stock you should know that making such aninvolves investment involves risks including, but not limited to, the risks described below. Any one of the following risks could harm our business, financial condition, results of operations or reputation, which could cause our stock price to decline, and you may lose all or a part of your investment. Additional risks, trends and uncertainties not presently known to us or that we currently believe are immaterial may also harm our business, financial condition, results of operations or reputation.
Risks Related to Our Business, Industry and PartnersMarkets
If we fail to meet the evolving needs of our markets, or to identify new products, services or technologies, our revenue and financial results may be adversely impacted.
Our strategic and business success depends on our ability toto:
•timely identify emerging industry changes, and to develop new (oror enhance our existing)existing products, services and technologies that meet the evolving needs of these markets. Such activities may require considerablemarkets;
•expand the ecosystem for our products and technologies;
•accurately forecast demand in our businesses;
•meet customer safety and compliance standards, which are subject to change;
•manage product, software, and service lifecycles to maintain customer and end user satisfaction;
•develop infrastructure needed to scale our business, including related to our acquisitions, customer support, e-commerce and IP licensing capabilities; and
•complete technical, financial, compliance, sales and marketing investments. investments for some of the above activities.
We devote significant resources to themake considerable investments in research and development of technologies and business offerings in markets where we have a limited operating history, such as the automotive and data center markets, which presents additional risks to our business. We must also continue to develop the infrastructure needed to scale our business in these areas, including customer service and support. We also must meet customer safety and compliance standards, which are subject to change. Additionally, we continue to make considerable investments in research and development, which may not produce significantmeaningful revenue for several years, if at all. If our investments are unsuccessful and we fail to develop new products, services and technologies, or if we focus on technologies thatthey do not become widely adopted, our business, revenue, financial condition and results of operations could be adversely affected.
Achieving design wins, which is important to our success in several businesses, may involve a lengthy process and depend on our ability to anticipate features and functionality that customers will demand. Unanticipated changes in industry standards or disruptive technological innovation could render our products incompatible with products developed by other companies. If our products are not in compliance with prevailing industry and safety standards, our customers may not incorporate our products into their design strategies. Failure to obtain a particular design win may prevent us from obtaining future design wins in subsequent generations. Furthermore, a design win does not guarantee revenue.
We cannot assure youensure that our strategic direction will result in innovative products and technologies that provide value to our customers partners and ultimately, our shareholders.partners. If we fail to anticipate the changing needs of our target markets and emerging technology trends, or if we do not appropriately adapt that strategyour strategies as market conditions evolve, in a timely manner to exploit potential market opportunities, our business will be harmed.
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Competition in our current and target markets could prevent us from growing our revenue.
Our target markets remain extremely competitive, and we expect competition tomay intensify as current competitors expand theirwith expanding and changing product and/orand service offerings, industry standards, continue to evolve, customer needs, changenew entrants and new competitors enter these markets.consolidations. Our competitors’ products, services and technologies, such as the high-end discrete GPUs offered by Intel and AMD, may be less costly,cheaper or may offer superiorprovide better functionality or better features than ours, which may result among other things, in lower than expected selling prices for our products. In addition, someSome of our competitors operate and maintain their own fabrication facilities, have longer operating histories, larger customer bases, more comprehensive intellectual property, or IP portfolios and patent protections, new designs and more design wins, and greater financial, sales, marketing and distribution resources than we do. These competitors may be able to more effectively identify and capitalize upon opportunities in new markets and end user customer trends, more quickly transition their products, including semiconductor products, to increasingly smaller line width geometries, and obtainsecure sufficient foundry capacity and packaging materials during a supply-constrained environment, which could harm our business. In our networking business, some of our customers are also integrated circuit and switch suppliers and have in-house expertise and internal development capabilities similar to ours. Licensing our technology and supporting such customers entails the transfer of IP rights that may enable such customers to develop their own solutions to replace those we are providing. If we are unable to successfully compete in our target markets,and respond to changes in our target markets or introduce new offerings to meet the needs of this competitive environment, including in significant international markets such as China, demand for our products, services and technologies could decrease, which would cause our revenue to declinedecline.
Risks Related to Demand, Supply and Manufacturing
If we fail to estimate customer demand properly, there may be a mismatch between supply and demand, and our financial results could be harmed.
Demand for our products is based on many factors, including our product introductions and transitions, time to market, competitor product releases and announcements, competing technologies, and other factors, all of which can impact the timing and volume of our revenue. We sell many of our products through channel partners, who sell to retailers, distributors, and/or end customers. As a result, the decisions made by our channel partners, retailers and distributors in response to changing market conditions and demand for our products could impact our ability to properly forecast demand.
GPUs have use cases in addition to their designed and marketed use case, such as for digital currency mining, including blockchain-based platforms such as Ethereum. It is difficult for us to estimate with any reasonable degree of precision the past or current impact of cryptocurrency mining, or forecast the future impact of cryptocurrency mining, on demand for our products. Volatility in the cryptocurrency market, including new compute technologies, price changes in cryptocurrencies, government cryptocurrency policies and regulations, new cryptocurrency standards, and changes in the method of verifying blockchain transactions, have impacted and can in the future impact cryptocurrency mining and demand for our products, and can further impact our ability to estimate demand for our products. Changes to cryptocurrency standards and processes including, but not limited to, the pending Ethereum 2.0 standard may decrease the usage of GPUs for Ethereum mining as well as create increased aftermarket resales of our GPUs, impact retail prices for our GPUs, increase returns of our products in the distribution channel, and may reduce demand for our new GPUs. We have introduced Lite Hash Rate, or LHR, GeForce GPUs with limited Ethereum mining capability and increased the supply of CMP in an effort to address demand from gamers and direct miners to CMP. However, if attempts in the aftermarket to improve the hash rate capabilities of our LHR cards are successful, our gaming cards may become more attractive to miners, increasing demand for our gaming GPUs and limiting our ability to supply our gaming cards to non-mining customers. We cannot predict whether our strategy of using LHR cards and CMP will achieve our desired outcome. In addition, our products may be resold on the unauthorized “gray market,” which also makes demand forecasting difficult. Gray market products compete with our distribution channels.
Consumer and enterprise behavior during the COVID-19 pandemic, such as increased demand for our Gaming, Data Center, and workstation products, has made it more difficult for us to estimate future demand. These challenges may continue in the future when the effects of the pandemic subside.
Our manufacturing lead times are very long and in some cases, extend to be twelve months or longer, which requires us to make estimates of customers’ future demand. We have revised our process for purchasing supply as a result of the worldwide supply shortages impacting the semiconductor industry. Our inventory and purchase commitments reflect our demand expectations for our future quarters and long-term supply and capacity needs. These conditions could lead to a significant mismatch between supply and demand, giving rise to product shortages or excess inventory. Demand for our products may be perishable or may disappear, which would make our demand forecast more uncertain and cause us to lose market share, perhaps permanently. To shorten shipment lead times, we may build finished products and carry inventory for anticipated demand that does not materialize. We may not be able to reduce our resultsinventory purchase commitments if customers cancel or defer orders or choose to purchase from our competitors. We may write-down our
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inventory to suffer. In addition, the competitive landscapelower of cost or net realizable value or excess inventory, and we could experience a reduction in average selling prices if we incorrectly forecast product demand.
Situations that may result in excess inventory or related impairments include:
•changes in business and economic conditions resulting in decreased consumer confidence, including downturns in our target markets has changedand/or overall economy and changes in the credit market;
•higher incidence of inventory obsolescence because of rapidly changing technology or customer requirements;
•new product introductions resulting in less demand for existing products or inconsistent spikes in demand due to unexpected end use cases;
•increase in demand for competitive products, including competitive actions;
•fluctuations in demand for our products related to cryptocurrency mining; or
•decrease in future demand, decrease in the cost of supply chain materials, or changes in the design of future products where we have entered into long-term supply commitments, including prepayments, particularly to the extent we are placing orders well in advance of our historical lead times and/or before the design of those products is final.
Conversely, if we underestimate our customers' demand for our products, our foundry partners may not have adequate lead-time or capacity to increase production and we may not be able to obtain sufficient inventory to fill orders on a timely basis. We may also face supply constraints caused by natural disasters or other events. 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. If we fail to fulfill our customers’ orders on a timely basis, or at all, our customer relationships could be damaged, we could lose revenue and market share and our reputation could be damaged.
In periods of shortages impacting the semiconductor industry and/or limited supply or capacity in our supply chain, as we are in today, we have placed and may continue to evolve dueplace non-cancellable inventory orders in advance of our historical lead times, and pay premiums and/or provide deposits to secure future supply and capacity. For example, while we previously placed orders with approximately six months’ lead time, we have begun placing orders at least twelve months in advance. Our inventory and purchase commitments reflect our demand expectations for our future quarters and long-term supply and capacity needs. However, we may not be able to accurately predict when such periods of shortage will end, nor do we know whether those inventory orders accurately address our current and future demand needs. These actions may increase our product costs and trigger significant excess inventory or other charges if there is a trend toward consolidation, which could lead to fewer customers, partners,partial or suppliers, any ofcomplete reduction in long-term demand for our products or if such demand is served by our competitors, which could negatively affect our financial results.
We depend on third parties and their technology to manufacture, assemble, test, and/package or packagedesign our products, which reduces our control over product quantity and quality, manufacturing yields, development, enhancement and product delivery schedule and could harm our business.
We do not manufacture the silicon waferssemiconductors used for our GPUs and Tegra processorsproducts and do not own or operate a wafer fabrication facility. Instead, we are dependentWe depend on industry-leading foundries such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co. Ltd., to manufacture our semiconductor wafers using their fabrication equipment and techniques. Similarly, weWe do not directly assemble, test or package our products, but instead rely oncontract with independent subcontractors. We doalso rely on third-party software development tools to assist us in the design, simulation and verification of new products or product enhancements. The design requirements necessary to meet consumer demands for greater functionality from our products may exceed the capabilities of available software development tools. While we may enter into long-term supply and capacity commitments, we may not have long-term commitment contracts with these foundries or subcontractors. As a result, webe able to secure sufficient commitments for capacity to address our business needs. We face several significant risks which could have an adverse effect onadversely affect our ability to meet customer demand and/orand scale our supply chain, negatively impact longer-term demand for our products and services, and adversely affect our business operations, gross margin, revenue and/or financial results, including:
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•failure by our foundries to develop, obtain or successfully implement high quality leading-edge process technologies, including transitions to smaller geometry process technologies such as advanced process node technologies and memory designs needed to manufacture our products profitably or on a timely basis;products;
•loss of a supplier and additional expense and/or production delays as a result of qualifying a new foundry or subcontractor and commencing volume production or testing in the event of a loss of or a decision to add or change a supplier;
•delays in product shipments, shortages, a decrease in product quality and/or higher expenses in the event our subcontractors or foundries prioritize our competitors’ orders over our orders or otherwise.ours; and
If our products contain significant defects, we could incur significant expenses to remediate such defects, our reputation could be damaged, and we could lose market share.
Our productshardware and software product offerings are complex and may contain defects or security vulnerabilities, or experience failures or unsatisfactory performance due to any number of issues in design, fabrication, packaging, materials and/or use within a system. These risks may increase as our products are introduced into new devices, markets, technologies and applications including into the automotive market, or as new versions are released. Some errors in our products or services may only be discovered after a product or service has been shipped or used by customers or the end users of such product.used. Undiscovered vulnerabilities in our products or services could expose our end customers or end users to hackers or other unscrupulous third parties who develop and deploy viruses, worms and other malicious software programs that could attack our products or services. FailureDefects or failure of our products to perform to specifications or other product defects, could lead to substantial damage to the products we sell directly to customers,or the end product in which our device has been integrated by OEMs, ODMs, AIBs and Tier 1 automotive suppliers, and to the user of such end product. Any such defect may cause us to incur significant warranty, support and repair or replacement costs write offas part of a product recall or otherwise, write-off the value of related inventory, cause us to lose market share, and divert the attention of our engineering personnel from our product development efforts to find and correct the issue. In addition, anAn 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, and harm to our relationships with existing and prospective customers and partners and harm consumers’ perceptions of our brand. Also, webrand, which would in turn negatively impact our business operations, gross margin, revenue and/or financial results. We may be required to reimburse our customers, partners or consumers, including for costs to repair or replace products in the field. A product recall, including automotive recalls or a recall due to a bug in our products, or a significant number of product returns could be expensive, damage our reputation, harm our ability to attract new customers, result in the shifting of business to our competitors and result in litigation against us, such as product liability suits. If a product liability claim is brought against us, the cost of defending the claim could be significant and would divert the efforts of our technical and management personnel and harm our business. Further, our business liability insurance may be inadequate or future coverage may be unavailable on acceptable terms, which could adversely impact our financial results.
Risks Related to Our Global Operating Business
We are subject to risks and uncertainties associated with international operations, including adverse economic conditions, which may harm our business.
We conduct our business and have offices worldwide. Our semiconductor wafers are manufactured, assembled, tested and packaged by third parties located outside of the United States and we generated 84% of our revenue for fiscal year 2022 from sales outside of the United States. The global nature of our business subjects us to a number of risks and uncertainties, which could have a material adverse effect on our business, financial condition and results of operations, including:
•domestic and international economic and political conditions between countries in which we do business;
•differing legal standards with respect to protection of IP and employment practices;
•domestic and international business and cultural practices that differ;
•disruptions to capital markets and/or currency fluctuations; and
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•natural disasters, acts of war or other military actions, terrorism, public health issues, and other catastrophic events.
Adverse changes in global, regional or local economic conditions, including recession or slowing growth, changes or uncertainty in fiscal, monetary, or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT infrastructure, increases in unemployment, and lower consumer confidence and spending, periodically occur. More recently, increased inflation may impact supply, employee, facilities and infrastructure costs. To the extent such inflation continues, increases or both, it may reduce our margins and have a material adverse effect on our financial performance.
Economic and industry uncertainty or changes could have adverse, wide-ranging effects on our business and financial results, including:
•decrease in demand for our products, services and technologies and those of our customers or licensees;
•the inability of our suppliers to deliver on their supply commitments to us;
•our customers’ or our licensees’ inability to supply products to customers and/or end users;
•the insolvency of key suppliers, distributors, customers or licensees;
•limits on our ability to forecast operating results and make business decisions;
•difficulties in obtaining capital;
•reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations;
•lead to consolidation or strategic alliances among other equipment manufacturers, which could adversely affect our ability to compete effectively; and
•increased credit and collectability risks, higher borrowing costs or reduced availability of capital markets, reduced liquidity, adverse impacts on our suppliers, failures of counterparties including financial institutions and insurers, asset impairments, and declines in the value of our financial instruments.
We have engineering, sales support operations and manufacturing located in Israel. The State of Israel and companies with business in Israel have been and could in future be the subject of an economic boycott. Other countries have and may continue in the future restrict business with the State of Israel and companies with Israeli operations. Such laws and policies may have adverse effect on our business, financial condition and results of operations.
Climate change may have a long-term impact on our business.
Climate change may have an increasingly adverse impact on our business and those of our customers, partners and vendors. Water and energy availability and reliability in the communities where we conduct business is critical. We have facilities in regions that may be vulnerable to the impacts of extreme weather events. Extreme heat and wind coupled with dry conditions in Northern California may lead to power safety shut offs due to wildfire risk. These measures can have adverse implications for our Santa Clara, California headquarter offices and data centers, including impairing the ability of our employees to work effectively. Climate change, its impact on our supply chain and critical infrastructure worldwide, and its potential to increase political instability in regions where we, our customers, partners and our vendors do business, may disrupt our business and may cause us to experience higher attrition, losses and costs to maintain or resume operations. Although we maintain a program of insurance coverage for a variety of property, casualty, and other risks, the types and amounts of insurance we obtain vary depending on availability and cost. Some of our policies have large deductibles and broad exclusions, and our insurance providers may be unable or unwilling to pay a claim. Losses not covered by insurance may be large, which could harm our results of operations and financial condition.
Our operations, products and services, as well as those of our suppliers and customers, may also be subject to climate-related laws, regulations and lawsuits. Regulations such as carbon taxes, fuel or energy taxes, and pollution limits could result in greater direct costs, including costs associated with changes to manufacturing processes or the procurement of raw materials used in manufacturing processes, increased levels of capital expenditures to improve facilities and equipment, and higher compliance and energy costs to reduce emissions, as well as greater indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that are passed on to us. These costs and restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our
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operations and product design activities. Stakeholder groups may find us insufficiently responsive to the implications of climate change, and therefore we may face legal action or reputational harm. We may not achieve our stated goal to source 100% of our global electricity use from renewable energy by the end of fiscal year 2025, which could harm our reputation, or we may incur additional, unexpected costs to achieve such a goal. We may also experience contractual disputes due to supply chain delays arising from climate change-related disruptions, which could result in increased litigation and costs.
We also face risks related to business trends that may be influenced by climate change concerns. We may face decreased demand for computationally powerful but energy intensive products, such as our GPUs, despite their energy efficient design and operation, and/or increased consumer or customer expectations around the energy efficiency of our products, could negatively impact our business.
We may not be able to realize the potential benefits of business investments or acquisitions, and we may not be able to successfully integrate acquisition targets, which could hurt our ability to grow our business, develop new products or sell our products.
We have and may continue to acquire and invest in businesses that offer products, services and technologies that we believe will help expand or enhance our existing strategic objectives.
Acquisitions or investments involve significant challenges and risks and could impair our ability to grow our business, develop new products or sell our products and ultimately could have a negative impact on our financial results. Given that our resources are limited, if we pursue a particular transaction, we may limit our ability to enter into other transactions that could help us achieve our strategic objectives. If we are unable to timely complete acquisitions, including due to delays and challenges in obtaining regulatory approvals, we may be unable to pursue other transactions, we may not be able to retain critical talent from the target company, technology may evolve and make the acquisition less attractive, and other changes can take place which could reduce the anticipated benefits of the transaction and negatively impact our business. For example, on February 8, 2022, NVIDIA and SoftBank announced the termination of the Share Purchase Agreement whereby NVIDIA would have acquired Arm from SoftBank. The parties agreed to terminate because of significant regulatory challenges preventing the completion of the transaction. We intend to record in operating expenses a $1.36 billion charge in the first quarter of fiscal year 2023 reflecting the write-off of the prepayment provided at signing in September 2020. In addition, to the extent that our perceived ability to consummate acquisitions has been harmed, future acquisitions may be more difficult, complex or expensive. Further, if we hold investments in publicly traded companies, they could create volatility in our results and may generate losses up to the value of the investment.
Risks related to acquisitions or strategic investments include, but are not limited to:
•difficulty in integrating the technology, products, or operations and integrating and retaining the employees of the acquired business;
•diversion of capital and other resources, including management’s attention;
•assumption of liabilities and incurring amortization expenses, impairment charges to goodwill or write-downs of acquired assets;
•integrating accounting, forecasting and controls, procedures and reporting cycles;
•coordinating and integrating operations, particularly in countries in which we do not currently operate;
•difficulty in realizing a satisfactory return and uncertainties to realize the benefits of an acquisition or strategic investment, if at all;
•difficulty or inability in obtaining governmental, regulatory approval or restrictions or other consents and approvals or financing;
•Stock price impact, fines, fees or reputation harm if we are unable to obtain regulatory approval for an acquisition or are otherwise unable to close an acquisition;
•legal proceedings initiated as a result of an acquisition or investment;
•potential issuances of debt to finance our acquisitions, resulting in increased debt, increased interest expense, and compliance with debt covenants or other restrictions;
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•the potential for our acquisitions to result in dilutive issuances of our equity securities;
•the potential variability of the amount and form of any performance-based consideration;
•negative changes in general economic conditions in the regions or the industries in which we or our target operate;
•potential failure of our due diligence processes to identify significant issues with the assets or company in which we are investing or are acquiring; and
•impairment of relationships with, or loss of our or our target’s employees, vendors and customers, as a result of our acquisition or investment.
System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our stock price and damage our reputation.
Security breaches, computer malware, social-engineering attacks, denial-of-service attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, and other cyber-attacks are increasingly sophisticated, making it more difficult to successfully detect, defend against them or implement adequate preventative measures.
For example, on February 23, 2022, we became aware of a security incident involving unauthorized access to our network by a group of independent criminal threat actors, not affiliated with any government or political cause. The threat actors obtained NVIDIA network credentials and through deception, obtained two-factor authentication capability and access to our network. The threat actors misappropriated certain NVIDIA proprietary information, including NVIDIA source code, and leaked some of that information online. Upon learning of the security incident, we engaged in remedial and preventative actions, rotated all NVIDIA network credentials to prevent further unauthorized access, hardened our network, analyzed the information that the threat actors exfiltrated, and notified law enforcement and other authorities.
Cyber-attacks, including ransomware attacks by organized criminal threat actors, nation-states, and nation-state-supported actors, may become more prevalent and severe. Our ability to recover from ransomware attacks may be limited if our backups have been affected by the attack, or if restoring from backups is delayed or not feasible.
Threat actors, sophisticated nation-states, and nation-state-supported actors now engage and are expected to continue to engage in cyber-attacks. Due to increasing geopolitical conflicts, we and the third parties upon which we rely may be vulnerable to a heightened risk of cyber-attacks. Furthermore, we rely on products and services provided by third party suppliers to operate certain critical business systems, including without limitation, cloud-based infrastructure, encryption and authentication technology, employee email, and other functions, which exposes us to supply-chain attacks or other business disruptions. We cannot guarantee that third parties and infrastructure in our supply chain or our partners’ supply chains have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems, including our products and services, or the third-party information technology systems that support our services. Our ability to monitor these third parties’ information security practices is limited, and these may not have adequate information security measures in place. In addition, if one of our third-party suppliers suffers a security breach, our response may be limited or more difficult because we may not have direct access to their systems, logs and other information related to the security breach.
To defend against cyber-attacks, we must continuously engineer more secure products and enhance security and reliability features, which is expected to result in increased expenses. We must also continue to develop our security measures, ensure our suppliers have appropriate security measures in place, and continue to meet the evolving security requirements of our customers. We may not always be able to detect vulnerabilities in our security controls, systems or software, including third-party software we have installed, as such threats and techniques change frequently and may not be detected until after a security incident has occurred. Further, we may experience delays in developing and deploying remedial measures designed to address identified vulnerabilities.
Breaches of our security measures, along with reported or perceived vulnerabilities or unapproved dissemination of proprietary information or sensitive or confidential data about us or third parties could expose us and the parties affected to a risk of loss or misuse of this information, potentially resulting in litigation and subsequent liability, regulatory inquiries or actions, damage to our brand and reputation or other harm to our business. If we or a third party we rely on experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, including government enforcement actions, additional reporting requirements and/or oversight, restrictions on processing data, litigation, indemnification obligations, reputational harm, diversion of funds, financial
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loss, loss of data, material disruptions in our systems and operations, supply chain, and ability to produce, sell and distribute our goods and services, and other similar harms. Inability to fulfill orders, delayed sales, lower margins or lost customers as a result of these disruptions could adversely affect our financial results, stock price and reputation.
Business disruptions could harm our business,operations, lead to a decline in revenuesrevenue and increase our costs.
Our worldwide operations could be disrupted by earthquakes, telecommunications failures,natural disasters and extreme weather conditions, power or water shortages, outages attelecommunications failures, cloud service providers, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, cyber-attacks,provider outages, terrorist attacks, medicalor acts of violence, political and/or civil unrest, acts of war or other military actions, epidemics or pandemics and other natural or man-made disasters and catastrophic events or climate change. The occurrence of any of these disruptions could harm our business and result in significant losses, a decline in revenue and an increase in our costs and expenses. Any of these business disruptions could require substantial expenditures and recovery time in order to fully resume operations.events. Our corporate headquarters, a large portion of our current data center capacity, and a portion of our research and development activities are located in California, and other critical business operations, finished goods inventory, and some of our suppliers are located in Asia, near major earthquake faults known for seismic activity. In addition, a large portion of our current data center capacity is located in California, making our operations vulnerable to natural disasters such as earthquakes, wildfires, or other business disruptions occurring in these geographical areas. The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including Taiwan, China, Hong Kong, and Korea. Additionally, a significant portion of our finished goods product distribution occurs through Hong Kong. Geopolitical change or changes in government regulations and policies in the United States or abroad may result in changing regulatory requirements, trade policies, import duties and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability. In particular, revisions to laws or regulations or their
We receive a significant amount of our revenue from a limited number of customers within our partner network and our revenue could be adversely affected if we lose or are prevented from selling to any of these customers.
We receive a significant amount of our revenue from a limited number of customers within our distribution and partner network. With several of these distributors and partners, we are selling multiple target market platforms through their channels. For fiscal year 2020, 11% of our total revenue was from one customer, Dell. Our operating results in the foreseeable
way. Because most of our sales are made on a purchase order basis, which permits our customers tocan cancel, change or delay product purchase commitments with little or no notice to us and without penalty;
our customers may purchase products from our competitors; or
and our partners may discontinue sales or lose market share in the markets for which they purchase our products.
If we are unable to attract, retain and motivate our executives and key employees, we may not be able to execute our business strategy effectively.may be harmed.
To be competitive and execute our business strategy successfully, we must attract, retain and motivate our executives and key employees. Theemployees and recruit and develop diverse talent. Labor is subject to external factors that are beyond our control, including our industry’s highly competitive market for highly skilled workers and leaders, in our industry is extremely competitive. In particular, hiring qualified executives, scientists, engineers, technical staffcost inflation, the COVID-19 pandemic and researchworkforce participation rates. We also must recruit and development personnel is critical to our business. Additionally, changesdevelop diverse talent. Changes in immigration and work permit laws and regulations or thein their administration or interpretation of such laws or regulations could impair our ability to attract and retain highly qualified employees. If we are less successful
in our recruiting efforts, or if we cannot retain key employees, our ability to develop and deliver successful products and servicesbusiness may be adversely affected. Additionally, competitionCompetition for personnel results in increased costs in the form of cash and stock-based compensation. The interpretation and applicationWe also must retain the key personnel hired as a result of employment related laws to our workforce practices may result in increased operating costs and less flexibility in how we meetacquisitions, or it could reduce the anticipated benefits of those transactions. We are highly dependent on the services of our workforce needs. Effective succession planning is also important to our long-term success.longstanding executive team. Failure to ensure effective succession planning, transfer of knowledge and smooth transitions involving executives and key employees could hinder our strategic planning and execution.execution and long-term success.
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Our business is dependent upon the proper functioning of our business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.
We rely upon internal processes and information systems to support key business functions, including our assessment of internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. The efficient operation of these processes and systems is critical and they need to be scalable to support our growth, including for acquisitions of other businesses. We expect in the first quarter of fiscal year 2023 to commence implementation of accounting and consolidation functionality related to a new enterprise resource planning, or ERP, system. Any ERP system problems upon implementation, such as quality issues or programming errors, could impact our continued ability to successfully operate our business or to timely and accurately report our financial results. These changes may be costly and disruptive to our operations and could impose substantial demands on management time. Failure to implement new or updated controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.
Identification of material weaknesses in our internal controls, even if quickly remediated once disclosed, may cause investors to lose confidence in our financial statements and our stock price may decline. Remediation of any material weakness could require us to incur significant expenses and if we fail to remediate any material weakness, our financial statements may be inaccurate, we may be required to restate our financial statements, our ability to report our financial results on a timely and accurate basis may be adversely affected, our access to the capital markets may be restricted, the trading price of our common stock may decline, and we may be subject to sanctions or investigation by regulatory authorities.
The COVID-19 pandemic continues to impact our business and could materially adversely affect our financial condition and results of operations.
COVID-19 has impacted, and continues to impact, our workforce and operations and those of our customers, partners, vendors and suppliers. As the COVID-19 pandemic continues to evolve, the increased duration and impact of economic and demand uncertainty, and the limited availability of our supply chain and logistical services, may have a material net negative impact on our business and financial results. While COVID-19 has driven an increase in sales for certain of our products, the demand may not be ablesustainable if conditions change. COVID-19 containment around the world has put restrictions on, among other areas, manufacturing facilities, commerce, and support operations could limit our capacity to realizemeet customer demand. Stronger demand globally has limited the potential financial or strategic benefitsavailability of business acquisitions or strategic investments, including the Mellanox acquisition,capacity and we may not be able to successfully integrate acquisition targets,components in our supply chain, which could hurtincrease our costs, limit our ability to growobtain supply at necessary levels or at all, or cause us to hold excess inventory if demand changes.
COVID-19’s effect on the global economy and our business develop new productsis difficult to assess or sell our products.
We have modified our business and workforce practices in response to COVID-19, and we may take further actions as required by government regulations or in the best interests of our employees, customers, partners and suppliers. There is no certainty that offer products, servicesour actions will be sufficient to mitigate the risks posed by the disease, and technologies that we believe will help expand or enhance our existing products, strategic objectives and business. In March 2019, we announced our agreement to acquire Mellanox for approximately $6.9 billion. The Mellanox acquisition and other past or future acquisitions or investments involve significant challenges and risks, and could impair our ability to growperform critical functions could be harmed. When we begin to reopen our offices, we expect to incur incremental expenses as we resume onsite services and related in-office costs.
The extent of the impact of the COVID-19 pandemic on our operational and financial performance and our ability to timely execute our business develop new products or sell our products,strategies may continue to be difficult to measure and ultimatelypredict. An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our growthbusiness, results of operations, and access to sources of liquidity and financial condition, though the full extent and duration of these impacts is uncertain.
Our operating results have in the past fluctuated and may in the future fluctuate, and if our operating results are below the expectations of securities analysts or investors, our financial results. Given thatstock price could decline.
Our operating results have in the past fluctuated and may continue to fluctuate due to numerous factors described in these risk factors. Therefore, investors should not rely on past comparisons of our resources are limited,results of operations as an indication of our decision to pursue a transaction has opportunity costs; accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactionsfuture performance. Additional factors that could help us achieveaffect our strategic objectives. Additional risks related to the Mellanox acquisition, and other acquisitions or strategic investmentsresults of operations include, but are not limited to:
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•our ability to comply with our business;customers’ contractual obligations;
•changes in financial accounting standards or interpretations of existing standards.
Any one or more of the factors discussed above could prevent us from achieving our expected future financial results. Any such failure to consummate a proposed acquisition or other strategic investment;
Risks Related to Regulatory, Legal, Our Common Stock and Other Matters
Our operations could be affected by the complex laws, rules and regulations to which our business is subject, and political and other actions may adversely impact our business.
We are subject to laws and regulations domestically and worldwide, affecting our operations in areas including, but not limited to, IP ownership and infringement; taxes; import and export requirements and tariffs; anti-corruption; business acquisitions; foreign exchange controls and cash repatriation restrictions; data privacy requirements; competition and antitrust; advertising; employment; product regulations; cybersecurity; environmental, health, and safety requirements; the responsible use of AI; climate change; cryptocurrency; and consumer laws. Compliance with such requirements can be onerous and expensive, could impact our competitive position, and may impact our business operations negatively. For example, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations prohibit us from engaging in certain business practices. There can be no assurance that our employees, contractors, suppliers, or agents will not violate policies, controls, and procedures that we have designed to help ensure compliance with applicable laws. Violations of these laws and regulations can result in fines; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business; and damage to our reputation. Should any of these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs and/or restrictions on our ability to manufacture our products and operate our business. For example, we may face increased compliance costs as a result of changes or increases in anti-competition legislation, regulation, administrative rule making, and enforcement activity resulting from growing public concern over concentration of economic power in corporations.
Government actions, including trade protection and national security policies of U.S. and foreign government bodies, such as tariffs, import or export regulations, including deemed export restrictions, trade and economic sanctions, decrees, quotas or other trade barriers and restrictions could affect our ability to ship products, provide services to our customers and employees, do business without an export license with entities on the U.S. Department of Commerce’s U.S. Entity List or other U.S. government restricted parties lists (which is expected to change from time to time), and generally fulfill our contractual obligations and have a material adverse effect on our business. For example, in response to the Russian invasion of Ukraine, the United States and certain allies have imposed economic sanctions and export control measures and may impose additional sanctions or export control measures, which have and could in the future result in, among other things, severe or complete restrictions on exports to and other commerce and business dealings involving Russia, certain regions of Ukraine, and/or particular entities and individuals. Such actions have limited or blocked, or could in the future limit or block the passage of our products, services and support into Russia or other regions determined to be supporting Russia, and restrict access by our Russian or Ukrainian employees (both within and outside of Russia and Ukraine) to our systems, negatively impacting productivity. Given these recent sanctions and export restrictions imposed by the United States and foreign government bodies, we recently ceased product sales to Russia. While we have policies and procedures in place to ensure compliance with sanctions and trade restrictions, our employees, contractors, partners, and agents may take actions in violations of such policies and applicable law, for which we may be ultimately held responsible. If we were ever found to have violated U.S. export control laws, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, operating results and financial condition. Additionally, changes in the public perception of governments in the regions where we operate or plan to operate could negatively impact our business and results of operations.
Geopolitical tensions and conflicts worldwide, including but not limited to Taiwan, China, Hong Kong, Israel and Korea where the manufacture of our product components and final assembly of our products are concentrated, may result in changing regulatory requirements, trade policies, export controls, import duties and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability. The increasing focus on the strategic importance of AI technologies may result in additional regulatory restrictions that target products
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and services capable of enabling or facilitating AI, including some or all of our product and service offerings. Such restrictions could limit our ability to serve demand abroad and could negatively impact our business and financial results. Deemed export control limitations could negatively impact the ability of our research and development teams to execute our roadmap or other objectives in a timely manner.
Recent restrictions imposed by the Chinese government on the duration of gaming activities and access to games may adversely affect our Gaming business. Additionally, revisions to laws or regulations or their interpretation and enforcement could result in increased taxation, trade sanctions, the imposition of import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans or impact the timing of our shipments.
Issues relating to the responsible use of AI in our offerings may result in reputational harm and liability.
Concerns relating to the responsible use of new and evolving technologies, such as AI, in our products and services, may result in reputational harm and liability, and may cause us to incur costs to resolve such issues. We are increasingly building AI capabilities into many of our products and services. AI presents risks and challenges that could affect its adoption, and therefore our business. AI poses emerging ethical issues and if we enable or offer solutions that draw controversy due to their perceived or actual impact on society, or if we are unable to develop effective internal policies and frameworks relating to the responsible development and use of AI models and systems offered through our sales channels, we may experience brand or reputational harm, competitive harm or legal liability. Compliance with government regulation in the area of AI ethics may also increase the cost of related research and development. Our failure to address concerns relating to the responsible use of AI by us or others could undermine public confidence in AI and slow adoption of AI in our products and services or cause reputational harm.
Increased scrutiny from shareholders and others regarding our environmental, social and governance responsibilities could result in additional costs or risks and adversely impact our reputation and willingness of customers and suppliers to do business with us.
Shareholder advocacy groups, certain institutional investors, investment funds, other market participants, shareholders and customers have focused increasingly on the ESG and sustainability practices of companies, including those associated with climate change and human rights. These parties have placed increased importance on the implications of the social cost of their investments. If our ESG practices do not meet shareholder or other industry stakeholder expectations and standards, which continue to evolve, our brand, reputation and business activities may be negatively impacted. Any sustainability report that we publish or other sustainability disclosures we make may include our policies and practices on a variety of social and ethical matters, including corporate governance, environmental compliance, employee health and safety practices, human capital management, product quality, supply chain management, and talent diversity and inclusion practices. It is possible that stakeholders may not be satisfied with our ESG practices or the speed of their adoption. We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices, or choose not to conduct business with potential customers, or discontinue or not expand business with existing customers, due to our policies. Also, our failure, or perceived failure, to meet the standards included in any sustainability disclosure could have a material negative impact on our reputation and business activities.
Actions to adequately protect our IP rights could result in substantial costs to us and our ability to compete could be harmed if we are unsuccessful in doing so or if we are prohibited from making or selling our products.
We may commence litigation or other legal proceedings in order to protect our intellectual property rights. Such proceedingsIP rights, which may increase our operating expenses which couldand negatively impact our operating results. Further, weWe could be subject to countersuits as a result of our initiation of litigation.result. If infringement claims are made against us or our products are found to infringe a third party’s patent or intellectual property,IP, we or one of our indemnitees may have to seek a license to the third party’s patent or other intellectual propertyIP rights. However, we may not be able to obtain licenses at all or on terms acceptable to us particularly from our competitors.us. If we or one of our indemnitees is unable to obtain such a license, from
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terms, our business could be negatively impacted. Furthermore, the indemnification of a customer or other indemnitee may increase our operating expenses which could negatively impact our operating results.
obligations. Privacy concerns relating to our products and services could damage our reputation, deter current and potential users from using our products and services, result in liability, or result in legal or regulatory proceedings.proceedings and liability.
Our products and services may provide us with access to sensitive, confidential or personal data or information that is subject to privacy and security laws, regulations, industry standards, external and regulations.internal policies, contracts and other obligations that govern the processing of such data by us and on our behalf. Concerns about our practices or the ultimate use of our products and services with regard to the collection, use, retention, security or disclosure of personal information or other privacy-related matters, including for use in AI, even if unfounded, could damage our reputation and adversely affect our operating results. The theft, loss, or misuse of personal data collected, used, stored, or transferred by us to runin our businesspossession or by one of our partners could result in significantly increased security costs, damage to our reputation, regulatory proceedings, disruption of our business activities or increased security costs and costs related to defending legal claims.
Worldwide regulatory authorities are considering and have approved various legislative proposals concerning data protection, which continue to evolve and apply to our business. For example, theprotection. The European Union adopted the General Data Protection Regulation, or GDPR, which requires companies to meet new requirements effective as of May 2018 regardingand the United Kingdom similarly adopted the U.K. GDPR, governing the strict handling of personal data of persons within the European Economic Area, or EEA, and the United Kingdom, respectively, including its use and protection and the ability of persons whose data is stored to access, correct orand delete such data about themselves. FailureIf we are found not to meet GDPR requirementscomply, we could result inbe subject to penalties of up to €20 million or 4% of worldwide revenue. In addition,revenue, whichever is greater, and individuals may initiate litigation related to our processing of their personal data. Furthermore, there exists a proposed European regulation related to AI that, if adopted, could impose onerous obligations and could require us to change our business practices.
Certain jurisdictions have enacted data localization laws and cross-border personal data transfer laws. For example, the GDPR generally restricts the transfer of personal data to countries outside of the EEA. The European Commission released a set of “Standard Contractual Clauses” designed for entities to validly transfer personal data out of the EEA to jurisdictions that the European Commission has not found to provide an adequate level of protection, including the United States. Other jurisdictions have enacted or are considering similar cross-border personal data transfer laws and local personal data residency laws, any of which could increase the cost and complexity of doing business. The inability to import personal data to the United States could significantly and negatively impact our business operations, limit our ability to collaborate with parties that are subject to European and other data privacy and security laws, or require us to increase our personal data processing capabilities in Europe and/or elsewhere at significant expense.
The United States federal, state and local governments have enacted numerous data privacy and security laws, including for data breach notification, personal data privacy, and consumer protection. The California Consumer Privacy Act of 2018, or CCPA, gives California residents the right to access, delete and opt-out of certain sharing of their personal information, and to receive detailed information about how it is used and shared. The CCPA allows for statutory fines of up to $7,500 per violation and the law created a private right of action for certain data breaches. California’s privacy laws will further expand in 2023 under the California Privacy Rights Act of 2020, or CPRA, which may restrict the use of certain categories of sensitive personal information; further restrict the use of cross-contextual advertising techniques; restrict the retention of personal information; expand the types of data breaches subject to the private right of action; and establish the California Privacy Protection Agency to impose administrative fines. Virginia passed the Consumer Data Protection Act, and Colorado passed the Colorado Privacy Act, both of which differ from the CPRA and become effective in 2023. If we become subject to new data privacy laws the risk of enforcement action against us could increase as we become subject to additional obligations.
The interpretation and application of consumer and data protection laws in the United States, Europe and elsewhere are often uncertain and fluid,quickly changing and may be interpreted and applied in an increasingly stringent fashion and in a manner that is
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inconsistent with our data practices. These obligations may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process personal data on our behalf. Despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations. If so, we may be orderedfail, or are perceived to change ourhave failed, to address or comply with data practicesprivacy and security obligations, we could face significant consequences, including but not limited to, government enforcement actions, litigation, additional reporting requirements and/or be fined. Complying withoversight, bans on processing personal data and orders to destroy or not use personal data. Any of these changing laws has caused, and could continue to cause, us to incur substantial costs, whichevents could have ana material adverse effect on our reputation, business, and results of operations. Further, failure to comply with existing or new rules may result in significant penalties or orders to stop the alleged noncompliant activity.financial condition.
We may have exposure to additional tax liabilities and our operating results may be adversely impacted by higher than expected tax rates.
As a multinational corporation, we are subject to income taxes as well as non-income basednon-income-based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions. Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. We are regularly under audit by tax authorities in different jurisdictions. For example, we are currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019 and under audit in Germany, Israel and India. Although we believe our tax estimates are reasonable, tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could increase our worldwide effective tax rate, increase the amount of non-income taxes imposed on our business, and harm our financial position, results of operations, and cash flows. Further, changes in United States federal and state or international tax laws applicable to multinational corporations or other fundamental law changes, including proposed changes to existing tax rules and regulations under the current U.S. administration and Congress and as a result of recommendations from intergovernmental economic organizations such as the Organization for Economic Cooperation and Development, or OECD, may materially impact our tax expense and cash flows, as we experienced in fiscal year 2018 with the passage of the 2017 Tax Cuts and Jobs Act, or TCJA. Starting in fiscal year 2023, the TCJA requires taxpayers to capitalize research and development expenditures and to amortize domestic expenditures over five years and foreign expenditures over fifteen years. If Congress does not modify or repeal this provision, it will materially reduce our cash flows beginning in fiscal year 2023. Furthermore, recent proposals to increase the U.S. corporate income tax rate or impose a minimum tax on financial statement income, increase U.S. taxation of international business operations and impose a global minimum tax, could result in increased marginal corporate tax rates. Numerous countries, as well as organizations such as the OECD, support the global minimum tax initiative and are considering changes to existing tax laws or have proposed or enacted new laws that could increase our tax obligations in countries where we do business or cause us to change the way we operate our business, which could materially impact our results of operations.
Our future effective tax rate may also be affected by such factors as changes in tax laws, changes in our business or statutory rates, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in available tax credits, the resolution of issues arising from tax audits, changes in United States generally accepted accounting principles, adjustments to income taxes upon finalization of tax returns, increases in expenses not deductible for tax purposes, changes in the valuation of our deferred tax assets and liabilities and in deferred tax valuation allowances, changing interpretation of existing laws or regulations, the impact of accounting for stock-based compensation and the recognition of excess tax benefits and tax deficiencies within the income tax provision in the period in which they occur, the impact of accounting for business combinations, shifts in the amount of earnings in the United States compared with other regions in the world and overall levels of income before tax, changes in ourthe domestic or international organization of our business and structure, as well as the expiration of statute of limitations and settlements of audits. Any changes in our effective tax rate may reduce our net income.
Our business is exposed to the risks associated with litigation, investigations and regulatory proceedings.
We currently and may in the futurewill likely continue to face legal, administrative and regulatory proceedings, claims, demands and/or investigations involving shareholder, consumer, competition and/or other issues relating to our business on a global basis.business. For example, we are currently defending on appeal the dismissal of a securities class action lawsuit from multiple securities litigationshareholders seeking to assert claims have recently been filed against usthat we and certain of our officers based on the dissemination of allegedlymade false andand/or misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand. In addition, a stockholder, purporting to act on behalf of the Company, filed a derivative lawsuit seeking to assert claims on behalf of the Company against the members of our board of directorsdemand in 2017 and certain officers based on the dissemination of allegedly false and misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand.
2018. Litigation and regulatory proceedings are inherently uncertain, and adverse rulings could occur, including monetary damages or fines, or an injunction stopping us from manufacturing or selling certain products, engaging in certain business practices, or requiring other remedies, such as compulsory licensing of patents. An unfavorable outcome or settlement may result in a material adverse impact on our business, results of operations, financial position, and overall trends. In addition, regardlessRegardless of the outcome, litigation can be costly, time-consuming, and disruptive to our operations.
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regulations that are complex and change frequently. We may be required to incur significant expense to comply with changes in, or remedy violations of, these laws and regulations.
Our indebtedness could adversely affect our financial position and cash flows from operations, and prevent us from implementing our strategy or fulfilling our contractual obligations.
As of January 30, 2022, we had outstanding a total of $11 billion in notes due by 2060. As each series of senior notes matures, unless earlier redeemed or repurchased, we have to repay or refinance the notes. If we decide to refinance, we may be required to do so on different or less favorable terms or we may be unable to refinance the notes at all, both of which may adversely affect our financial condition. We also have a $575 million commercial paper program.
Maintenance of our indebtedness and contractual restrictions, and future issuances of indebtedness could cause us to dedicate a substantial portion of our cash flows from operations towards debt service obligations and principal repayments; increase our vulnerability to adverse changes in general economic, industry and competitive conditions; limit our flexibility in planning for, or reacting to, changes in our business and our industry; impair our ability to obtain future financing for working capital, capital expenditures, acquisitions, general corporate or other purposes; and restrict our ability to grant liens on property, enter into certain mergers, dispose of all or substantially all of our assets, or materially change our business.
We are required to comply with the covenants set forth in our indenture and our ability to comply may be affected by events beyond our control. If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then any outstanding indebtedness may be declared immediately due and payable. Changes by any rating agency to our credit rating may negatively impact the value and liquidity of our securities, restrict our ability to obtain financing in the future and affect the terms of any such financing.
Delaware law and provisions in our certificate of incorporation, our bylaws and our agreement with Microsoft Corporation could delay or prevent a change in control.
Our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay, or prevent a change in control by prohibiting us from engaging in a business combination with an interested shareholder for a period of three years after the person becomes an interested shareholder, even if a change of control would be beneficial to our existing shareholders. In addition, ourcontrol. 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 prohibitioninability of shareholder actionour shareholders to act by written consent;
consent or to call special meetings; advance notice requirements for director nominations and shareholder proposals;
and a super-majority voting requirement to amend some provisions in our certificate of incorporation and bylaws;
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our headquarters complex is located in Santa Clara, California. It includes twelve leased commercial buildings totaling 1,093,529We own and lease approximately 1.76 million square feet of office and real property that we own totaling 720,046square feet. Our owned property consists of two commercial buildings andbuilding space for our corporate headquarters. We have a new building under construction. The construction is targeted for completionat our Santa Clara campus which was completed in fiscal yearFebruary 2022. In addition, we also lease data center space in Santa Clara, California.
We believe that we currently have sufficientour existing facilities, to conduct our operationsboth owned and leased, are in good condition and suitable for the next twelve months.conduct of our business. We do not identify or allocate assets by operating segment. For additional information regarding obligations under leases, refer to Note 3 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K, which information is hereby incorporated by reference.
ITEM 3. LEGAL PROCEEDINGS
Please see Note 13 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for a discussion of our legal proceedings.
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ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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 February 14, 2020,March 11, 2022, we had approximately 301313 registered shareholders, not including those shares held in street or nominee name.
On July 19, 2021, we executed a four-for-one stock split of our common stock, such that each stockholder of record at the close of business on June 21, 2021 received a dividend of three additional shares of common stock for every share held on the record date, or the Stock Split. All share, equity award, and per share amounts and related shareholders' equity balances presented herein have been retroactively adjusted to reflect the Stock Split.
Issuer Purchases of Equity Securities
Beginning August 2004, our Board of Directors authorized us to repurchase our stock.
Since the inception of our share repurchase program, we have repurchased an aggregate of 260 million1.04 billion shares for a total cost of $7.08 billion through January 26, 2020. All shares delivered from these repurchases have been placed into treasury stock.
The repurchases can be made in the open market, in privately negotiated transactions, or in structured share repurchase programs, and can be made in one or more larger repurchases, in compliance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended, 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.
In fiscal year 2022, we paid $399 million in quarterly cash dividends. Our cash dividend program and the acquisitionpayment of Mellanox.future cash dividends under that program are subject to our Board's continuing determination that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders.
During the fourth quarter of fiscal year 2022, our Board of Directors approved the retirement of all existing 349 million treasury shares. Refer to Note 15 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion regarding the retirement of our treasury shares.
Restricted Stock Unit Share Withholding
We also withhold common stock shares associated with net share settlements to cover tax withholding obligations upon the vesting of restricted stock unit awards under our employee equity incentive program. During fiscal year 2020,2022, we withheld approximately 38 million shares atfor a total costvalue of $551 million$1.90 billion through net share settlements. Beginning with the fourth quarter of fiscal year 2022, the tax withholding is recorded as a reduction to additional paid-in capital, with withheld shares assuming the status of authorized and unissued shares. Refer to Note 4 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion regarding our equity incentive plans.
Recent Sales of Unregistered Securities and Use of Proceeds
During fiscal year 2022, we issued a total of 175,333 shares of our common stock as consideration in connection with acquisitions, all in private transactions exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2), Regulation D, or Regulation S.
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Stock Performance Graphs
The following graph compares the cumulative total shareholder return for our common stock, the S&P 500 Index, and the Nasdaq 100 Index for the five years ended January 26, 2020.30, 2022. The graph assumes that $100 was invested on January 25, 201529, 2017 in our common stock and in each of the S&P 500 Index and the Nasdaq 100 Index. Our common stock is a component of each of the presented indices. Total return assumes reinvestment of dividends in each of the indices indicated. Total return is based on historical results and is not intended to indicate future performance.
*$100 invested on 1/25/1529/17 in stock and in indices, including reinvestment of dividends.
| 1/29/2017 | 1/28/2018 | 1/27/2019 | 1/26/2020 | 1/31/2021 | 1/30/2022 | ||||||||||||||||||||||||||||||
| NVIDIA Corporation | $ | 100.00 | $ | 218.55 | $ | 144.24 | $ | 226.48 | $ | 470.59 | $ | 828.15 | |||||||||||||||||||||||
| S&P 500 | $ | 100.00 | $ | 125.54 | $ | 122.64 | $ | 149.23 | $ | 174.97 | $ | 215.72 | |||||||||||||||||||||||
| Nasdaq 100 | $ | 100.00 | $ | 136.00 | $ | 136.62 | $ | 179.79 | $ | 260.70 | $ | 303.21 | |||||||||||||||||||||||
| 1/25/2015 | 1/31/2016 | 1/29/2017 | 1/28/2018 | 1/27/2019 | 1/26/2020 | ||||||||||||||||||
| NVIDIA Corporation | $ | 100.00 | $ | 141.43 | $ | 539.69 | $ | 1,174.93 | $ | 773.30 | $ | 1,209.46 | |||||||||||
| S&P 500 | $ | 100.00 | $ | 97.26 | $ | 114.23 | $ | 141.55 | $ | 135.54 | $ | 161.68 | |||||||||||
| Nasdaq 100 | $ | 100.00 | $ | 103.15 | $ | 123.34 | $ | 167.53 | $ | 166.49 | $ | 216.74 | |||||||||||
ITEM 6. SELECTED FINANCIAL DATA
| Year Ended | |||||||||||||||||||
January 26, 2020 | January 27, 2019 | January 28, 2018 | January 29, 2017 | January 31, 2016 (A) | |||||||||||||||
| Consolidated Statements of Income Data: | (In millions, except per share data) | ||||||||||||||||||
| Revenue | $ | 10,918 | $ | 11,716 | $ | 9,714 | $ | 6,910 | $ | 5,010 | |||||||||
| Income from operations | $ | 2,846 | $ | 3,804 | $ | 3,210 | $ | 1,934 | $ | 747 | |||||||||
| Net income | $ | 2,796 | $ | 4,141 | $ | 3,047 | $ | 1,666 | $ | 614 | |||||||||
| Net income per share: | |||||||||||||||||||
| Basic | $ | 4.59 | $ | 6.81 | $ | 5.09 | $ | 3.08 | $ | 1.13 | |||||||||
| Diluted | $ | 4.52 | $ | 6.63 | $ | 4.82 | $ | 2.57 | $ | 1.08 | |||||||||
| Weighted average shares used in per share computation: | |||||||||||||||||||
| Basic | 609 | 608 | 599 | 541 | 543 | ||||||||||||||
| Diluted | 618 | 625 | 632 | 649 | 569 | ||||||||||||||
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| Year Ended | |||||||||||||||||||
January 26, 2020 (C) | January 27, 2019 (B,C) | January 28, 2018 (B,C) | January 29, 2017 (B,C) | January 31, 2016 (B) | |||||||||||||||
| Consolidated Balance Sheets Data: | (In millions, except per share data) | ||||||||||||||||||
| Cash, cash equivalents and marketable securities | $ | 10,897 | $ | 7,422 | $ | 7,108 | $ | 6,798 | $ | 5,037 | |||||||||
| Total assets (D) | $ | 17,315 | $ | 13,292 | $ | 11,241 | $ | 9,841 | $ | 7,370 | |||||||||
| Debt obligations | $ | 1,991 | $ | 1,988 | $ | 2,000 | $ | 2,779 | $ | 1,413 | |||||||||
| Convertible debt conversion obligation | $ | — | $ | — | $ | — | $ | 31 | $ | 87 | |||||||||
| Total shareholders’ equity | $ | 12,204 | $ | 9,342 | $ | 7,471 | $ | 5,762 | $ | 4,469 | |||||||||
| Cash dividends declared and paid per common share (E) | $ | 0.640 | $ | 0.610 | $ | 0.570 | $ | 0.485 | $ | 0.395 | |||||||||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and Our Businesses
NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. Starting with aSince our original focus on PC graphics, we extended our focus in recent yearshave expanded to the revolutionary field of AI.several other large and important computationally intensive fields. Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA has leveraged its GPU architecture to create platforms for VR, HPC,scientific computing, AI, data science, AV, robotics, AR and AI.VR.
Our two reportableoperating segments - GPUare "Graphics" and Tegra Processor - are based"Compute & Networking." Refer to Note 17 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on a single underlying graphics architecture. From our proprietary processors, we have created platforms that address four large markets where our expertise is critical: Gaming, Professional Visualization, Data Center, and Automotive.Form 10-K for additional information.
Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.
Recent Developments, Future Objectives and Challenges
Termination of the Arm Share Purchase Agreement
On February 8, 2022, NVIDIA and SoftBank announced the termination of the Share Purchase Agreement whereby NVIDIA would have acquired Arm from SoftBank. The parties agreed to terminate because of significant regulatory challenges preventing the completion of the transaction. We intend to record in operating expenses a $1.36 billion charge in the first quarter of fiscal year 2023 reflecting the write-off of the prepayment provided at signing in September 2020.
Demand
Demand for our products is based on many factors, including our product introductions, time to market, transitions, competitor product releases and announcements, and competing technologies, all of which can impact the timing and volume of our revenue. GPUs have use cases in addition to their designed and marketed use case, such as for digital currency mining, including blockchain-based platforms such as Ethereum. It is difficult for us to estimate with any reasonable degree of precision the past or current impact of cryptocurrency mining, or forecast the future impact of cryptocurrency mining, on demand for our products. Volatility in the cryptocurrency market, including new compute technologies, price changes in cryptocurrencies, government cryptocurrency policies and regulations, and new cryptocurrency standards can impact and have impacted in the past cryptocurrency demand, and further impact demand for our products and our ability to estimate demand for our products. Changes to cryptocurrency standards and processes including, but not limited to, the pending Ethereum 2.0 standard may decrease the usage of GPUs for Ethereum mining and may also create increased aftermarket resale of our GPUs, impact retail prices for our GPUs, increase returns of our products in the distribution channel, and may reduce demand for our new GPUs. We have introduced LHR GeForce GPUs with limited Ethereum mining capability and increased the supply of CMP in an effort to address demand from gamers and direct miners to CMP. Beginning in the second quarter of fiscal year 2022, nearly all our desktop NVIDIA Ampere architecture GeForce GPU shipments were LHR in our effort to direct GeForce to gamers. If attempts in the aftermarket to improve the hash rate capabilities of our LHR cards are successful, our gaming cards may become more attractive to miners, and therefore limit our ability to supply our cards to non-mining customers. We cannot predict whether our strategy of using LHR cards and CMP will achieve our desired outcome. Additionally, consumer and enterprise behavior during the COVID-19 pandemic has made it more difficult for us to estimate future demand and may have changed pre-pandemic behaviors, and these challenges may be more pronounced or volatile in the future on both a global and regional basis. In estimating demand and evaluating trends, we make multiple assumptions, any of which may prove to be incorrect.
Supply
Our manufacturing lead times are very long and in some cases, extend to be twelve months or longer, which requires us to make estimates of customers’ future demand. These conditions could lead to a significant mismatch between supply and demand, giving rise to product shortages or excess inventory, and make our demand forecast more uncertain. To
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have shorter shipment lead times and quicker delivery schedules for our customers, we may build finished products and maintain inventory for anticipated periods of growth which do not occur, anticipating demand that does not materialize, or for what we believe is pent-up demand. During fiscal year 2022, we made substantial strides in broadening our supply base to scale our company and better serve customer demand. We expect to remain supply-constrained into the first half of fiscal year 2023, primarily in Gaming and Networking. We have placed non-cancellable inventory orders for certain supply in advance of our historical lead times, paid premiums and provided deposits to secure future supply and capacity and may need to continue to do so in the future. Ordering product in advance of our historical lead times to secure supply in a constrained environment may trigger excess inventory or other charges if there is a partial or complete reduction in long-term demand for our products or if such demand is served by our competitors. Given our long lead times on inventory purchasing, demand may be perishable or may disappear. Given our current long lead times, we may order components before our product design is finalized and changes to the product design or end demand could trigger excess inventory. Our supply deliveries and production may be non-linear within a quarter or year which could cause changes to expected revenue or cash flows.
COVID-19
The COVID-19 pandemic continued during fiscal year 2022. Most of our employees continue to work remotely and we have paused most business travel. During fiscal year 2022, our Gaming, Data Center and Professional Visualization market platforms have benefited from stronger demand as people continue to work, learn, and play from home. Our Professional Visualization market platform also benefited from demand for workstations as enterprises support hybrid work environments. As our offices begin to reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs.
As the COVID-19 pandemic continues, the timing and overall demand from customers, the availability of supply chain, logistical services and component supply, and the impact of rising inflation may have a material net negative impact on our business and financial results.
We believe our existing balances of cash, cash equivalents and marketable securities, along with commercial paper arrangements, will be sufficient to satisfy our working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with our existing operations.
Fiscal Year 20202022 Summary
| Year Ended | |||||||||||||||||
| January 30, 2022 | January 31, 2021 | Change | |||||||||||||||
| ($ in millions, except per share data) | |||||||||||||||||
| Revenue | $ | 26,914 | $ | 16,675 | Up 61% | ||||||||||||
| Gross margin | 64.9 | % | 62.3 | % | Up 260 bps | ||||||||||||
| Operating expenses | $ | 7,434 | $ | 5,864 | Up 27% | ||||||||||||
| Income from operations | $ | 10,041 | $ | 4,532 | Up 122% | ||||||||||||
| Net income | $ | 9,752 | $ | 4,332 | Up 125% | ||||||||||||
| Net income per diluted share | $ | 3.85 | $ | 1.73 | Up 123% | ||||||||||||
| Year Ended | |||||||||
| January 26, 2020 | January 27, 2019 | Change | |||||||
| ($ in millions, except per share data) | |||||||||
| Revenue | $ | 10,918 | $ | 11,716 | Down 7% | ||||
| Gross margin | 62.0 | % | 61.2 | % | Up 80 bps | ||||
| Operating expenses | $ | 3,922 | $ | 3,367 | Up 16% | ||||
| Income from operations | $ | 2,846 | $ | 3,804 | Down 25% | ||||
| Net income | $ | 2,796 | $ | 4,141 | Down 32% | ||||
| Net income per diluted share | $ | 4.52 | $ | 6.63 | Down 32% | ||||
Revenue for fiscal year 20202022 was $10.92$26.91 billion, down 7%up 61% from a year earlier. GPU business revenue was $9.47 billion, down 7% from a year earlier. Tegra Processor business revenue - which includes Automotive, SoCs for gaming platforms, and embedded edge AI platforms - was $1.45 billion, down 6% from a year earlier.ago.
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Although nearly all desktop NVIDIA Ampere architecture GeForce GPU shipments are LHR to help direct GeForce GPUs to gamers, our GPUs are capable of cryptocurrency mining. Gamers and notebook workstations.others are therefore able to mine cryptocurrency using our GPUs, although we have limited visibility into how much this impacts our overall GPU demand. Volatility in the cryptocurrency market, including changes in the prices of cryptocurrencies or method of verifying transactions, such as proof of work or proof of stake, can impact demand for our products and degrade our ability to accurately estimate it. We are unable to estimate with any degree of precision the impact this volatility is likely to have in the future.
Data Center revenue was $2.98 billion, up 2% from a year ago, driven by vertical industry growth partially offset by lower hyperscale sales.
Professional Visualization revenue was up 100% from a year ago driven by the ramp of NVIDIA Ampere architecture products and strong demand for workstations as enterprises support hybrid work environments, as well as growth in workloads such as 3D design, AI and rendering.
Automotive revenue was up 6% from a year ago due to self-driving and AI cockpit solutions offset by a decline in legacy cockpit revenue.
OEM and Other revenue was up 84% from a year ago primarily driven by CMP sales. CMP revenue was $550 million for the fiscal year and was nominal in the prior year.
Revenue for our CMP products declined significantly in the fourth quarter of fiscal year 2022. We are unable to estimate with any degree of precision the impact that volatility in the cryptocurrency market, as discussed above, is likely to have on future CMP sales.
Gross margin for fiscal year 2022 was up 260 basis points from a year ago driven by lower Mellanox acquisition-related charges, including a non-recurring inventory provisions and the salestep-up charge of previously written-off components.$161 million in fiscal year 2021. Margins also benefited from a higher-end mix within Gaming, partially offset by a mix shift within Data Center.
Operating expenses for fiscal year 20202022 were $3.92 billion, up 16%27% from a year ago reflecting primarily employee additions and increases in employee compensation and other related costs, includingdriven by stock-based compensation, compensation-related costs associated with employee growth and higher infrastructure costs.
Income from operations for fiscal year 2020 was $2.85$10.04 billion, down 25%up 122% from a year earlier.ago. Net income and net income per diluted share for fiscal year 2020 were $2.80$9.75 billion and $4.52,$3.85, up 125% and 123%, respectively, both down 32% from a year earlier reflecting lower revenue and higher operating expenses.
Cash, cash equivalents and marketable securities were $10.90$21.21 billion, as of January 26, 2020, compared with $7.42up from $11.56 billion as of January 27, 2019.a year earlier. The increase primarily reflects growth in operating cash flow.flow generation and $5.00 billion of debt issuance proceeds.
We paid $399 million in quarterly cash dividends in fiscal year 2022.
Market Platform Highlights
At our November 2021 GPU Technology Conference, we announced general availability of NVIDIA Omniverse Enterprise; 65 new and updated software development kits, including NVIDIA Riva, Modulus, ReOpt, Morpheus, cuNumeric, and Clara Holoscan; NVIDIA Quantum-2 400Gbps switch and end-to-end networking platform; and NVIDIA Jetson AGX Orin for edge AI and autonomous machines.
In January 2020,our Gaming platform during fiscal year 2022, we further expanded our desktop and laptop GeForce RTX 30 Series GPU line-ups; expanded the RTX ecosystem of games and applications to over 240; announced plans to integrate NVIDIA DLSS into the Unity game engine; and introduced a novel strain of coronavirus was identified in China, resulting in shutdowns of manufacturing and commerce, as well as global travel restrictionsnew high-performance membership tier to contain the virus. The impact has extended to other regions. We have operations and employees in China, and the region represents an important end market for our products. Our customers and suppliers within China and neighboring countries are also affected by the coronavirus related restrictions and closures. The coronavirus is expected to have a negative effect on our financial results, though the full extent and duration is uncertain and could have a material negative impact on our business.
In Gaming,our Data Center platform, we extended NVIDIA’s familylaunched new NVIDIA A30 and A10 GPUs for mainstream AI, data analytics and graphics; debuted a new class of Turing-based GPUsNVIDIA-Certified Systems with leading server OEMs; unveiled NVIDIA Grace, our first Arm-based data center CPU; launched the GeForce GTX 1660 Ti, GTX 1660NVIDIA AI Enterprise software suite; unveiled the NVIDIA Base Command and GTX 1650, as well as withFleet Command AI software offerings; and announced plans to build Earth-2, an AI supercomputer dedicated to addressing the global climate change crisis.
In our new SUPER line, including the GeForce RTX 2080 SUPER, RTX 2070 SUPER, RTX 2060 SUPER, GTX 1660 SUPER, and GTX 1650 SUPER; and accelerated momentum of ray-tracing games by supporting a growing list of titles; introduced new RTX Studio laptops powered by GeForce RTX and QuadroProfessional Visualization platform, we unveiled NVIDIA RTX GPUs for onlinenext-generation notebook and studio-based creativesdesktop workstations; and prosumer customers; unveiled two new models of the SHIELD TV streaming media player; and introduced two new service offerings for GeForce NOW cloud gaming service.
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In our Automotive platform, we announced a partnership with Toyota Research Institute-Advanced Development to develop, train and validate self-driving vehicles; unveiled the NVIDIA DRIVE AP2XAtlan next-generation SOC; announced design wins with Mercedes-Benz for the AI cockpit in its new EQS sedan; with Volvo Cars for the autonomous driving computer in its next-generation cars, beginning with the XC90 in 2022; with energy vehicles from R-Auto, IM Motors, NIO, Faraday Future, VinFast and Xpeng; with robotaxis including Cruise, Amazon Zoox, Pony.ai and AutoX; with autonomous trucking companies Embark, Kodiak Robotics and Plus; formed a multi-year partnership with Jaguar Land Rover to jointly develop and deliver next-generation automated driving solution, encompassing DRIVE AutoPilot software, DRIVE AGXsystems, plus AI-enabled services and DRIVE validation tools; introducedexperiences; and announced that Desay, Flex, Quanta, Valeo and ZF are using the NVIDIA DRIVE Hyperion platform to manufacture safe and secure AV Safety Force Field to enable safe, comfortable driving experiences; and announced availability of the NVIDIA DRIVE Constellation autonomoussystems for vehicle simulation platform.makers.
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, or U.S. GAAP. 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 inventories, revenue recognition, income taxes, and goodwill. 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. The Audit Committee has reviewed our disclosures relating to our critical accounting policies and estimates in this Annual Report on Form 10-K.
Inventories
Inventory cost is computed on an adjusted standard basis, which approximates actual cost on an average or first-in, first-out basis. We charge cost of sales for inventory provisions to write downwrite-down our inventory to the lower of cost or net realizable value or to completely write offfor obsolete or excess inventory. Most of our inventory provisions relate to the write-off of excess quantities of products or components, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions.
Situations that may result in excess or obsolete inventory include changes in business and economic conditions, changes in market conditions, sudden and significant decreases in demand for our products, inventory obsolescence because of changing technology and customer requirements, new product introductions resulting in less demand for existing products or inconsistent spikes in demand due to unexpected end use cases, failure to estimate customer demand properly, ordering in advance of historical lead-times and the impact of changes in future demand, or unexpectedincrease in demand for competitive pricing actions by our competition. In addition, cancellationproducts, including competitive actions. Cancellation or deferral of customer purchase orders could result in our holding excess inventory.
The overall net effect on our gross margin from inventory provisions and sales of items previously written down was an unfavorable impact of 0.9% in fiscal year 2022 and insignificant in fiscal year 2020 and an unfavorable impact of 2.0% in fiscal year 2019. The charges we took to cost of sales for inventory provisions during fiscal year 2019 were primarily related to excess DRAM, other components, and prior architecture components and chips.2021. As a fabless semiconductor company, we must make commitments to purchase inventory based on forecasts of future customer demand. In doing so, we must account for our third-party manufacturers' lead times and constraints. Our manufacturing lead times are very long and in some cases, extend on to be twelve months or longer, which requires us to make estimates of customers’ future demand. We place non-cancellable inventory orders for certain products in advance of our historical lead times, pay premiums and provide deposits to secure future supply and capacity. We also adjust to other market factors, such as product offerings and pricing actions by our competitors, new product transitions, and macroeconomic conditions - all of which may impact demand for our products.
Refer to the Gross Profit and Gross Margin discussion below in this Management's Discussion and Analysis for further discussion.
Revenue Recognition
We derive our revenue from product sales, including hardware and systems, license and development arrangements, software licensing, and software licensing.cloud services. We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract;contract (where revenue is
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allocated on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation); and (5) recognition of revenue when, or as, we satisfy a performance obligation.
Product Sales Revenue
Revenue from product sales is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products. Certain products are sold with support or an extended warranty for the incorporated system, hardware, and/or software. Support and extended warranty revenue are recognized ratably over the service period, or as services are performed. Revenue is recognized net of allowances for returns, customer programs and any taxes collected from customers.
For products sold with a right of return, we 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 fiscal period are anticipated to exceed historical return rates, we may determine that additional sales return allowances are required to properly reflect our estimated exposure for product returns.
Our customer programs involve rebates, which are designed to serve as sales incentives to resellers of our products in various target markets, and marketing development funds, or MDFs, which represent monies paid to our partners that are earmarked for market segment development and are designed to support our partners’ activities while also promoting NVIDIA products. We account for customer programs as a reduction to revenue and accrue for potential rebates and MDFs based on the amount we expect to be claimed by customers.
License and Development Arrangements
Our license and development arrangements with customers typically require significant customization of our intellectual propertyIP components. As a result, we recognize the revenue from the license and the revenue from the development services as a single performance obligation over the period in which the development services are performed. We measure progress to completion based on actual cost incurred to date as a percentage of the estimated total cost required to complete each project. If a loss on an arrangement becomes probable during a period, we record a provision for such loss in that period.
Refer to Note 1 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
Income Taxes
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 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.
Our calculation of 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 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 26, 2020,30, 2022, we had a valuation allowance of $621$907 million related to state and certain foreignother deferred tax assets that management determined are not likely to be realized due to jurisdictional projections of future taxable income, tax attributes usage limitation by certain jurisdictions, and potential utilization limitations of tax attributes acquired as a result of stock ownership changes. To the extent realization of the deferred tax assets becomes more-likely-than-not, we would recognize such deferred tax assetassets as an income tax benefit during the period.
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. Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.
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Refer to Note 14 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
Goodwill
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 either a qualitative or a quantitative assessment. Our impairment review process compares the fair value of the reporting unit in which the goodwill resides to its carrying value. We have identified twoAs of January 30, 2022, the total carrying amount of goodwill was $4.35 billion and the amount of goodwill allocated to our Graphics and Compute & Networking reporting units
We performed our annual goodwill assessment during the fourth quarter of fiscal year 20202022 using a qualitative assessment and concluded there was no goodwill impairment.
Refer to Note 6 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
Results of Operations
A discussion regarding our financial condition and results of operations for fiscal year 20202022 compared to fiscal year 20192021 is presented below. A discussion regarding our financial condition and results of operations for fiscal year 20192021 compared to fiscal year 20182020 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended January 27, 2019,31, 2021, filed with the SEC on February 21, 2019,26, 2021, which is available free of charge on the SEC’s website at http://www.sec.gov and at our investor relations website, http://investor.nvidia.com.
The following table sets forth, for the periods indicated, certain items in our Consolidated Statements of Income expressed as a percentage of revenue.
| Year Ended | |||||||||||
| January 30, 2022 | January 31, 2021 | ||||||||||
| Revenue | 100.0 | % | 100.0 | % | |||||||
| Cost of revenue | 35.1 | 37.7 | |||||||||
| Gross profit | 64.9 | 62.3 | |||||||||
| Operating expenses: | |||||||||||
| Research and development | 19.6 | 23.5 | |||||||||
| Sales, general and administrative | 8.0 | 11.6 | |||||||||
| Total operating expenses | 27.6 | 35.1 | |||||||||
| Income from operations | 37.3 | 27.2 | |||||||||
| Interest income | 0.1 | 0.3 | |||||||||
| Interest expense | (0.9) | (1.1) | |||||||||
| Other, net | 0.4 | 0.1 | |||||||||
| Other income (expense), net | (0.4) | (0.7) | |||||||||
| Income before income tax expense | 36.9 | 26.5 | |||||||||
| Income tax expense | 0.7 | 0.5 | |||||||||
| Net income | 36.2 | % | 26.0 | % | |||||||
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| Year Ended | |||||
| January 26, 2020 | January 27, 2019 | ||||
| Revenue | 100.0 | % | 100.0 | % | |
| Cost of revenue | 38.0 | 38.8 | |||
| Gross profit | 62.0 | 61.2 | |||
| Operating expenses: | |||||
| Research and development | 25.9 | 20.3 | |||
| Sales, general and administrative | 10.0 | 8.5 | |||
| Total operating expenses | 35.9 | 28.7 | |||
| Income from operations | 26.1 | 32.5 | |||
| Interest income | 1.6 | 1.2 | |||
| Interest expense | (0.5 | ) | (0.5 | ) | |
| Other, net | — | 0.1 | |||
| Total other income | 1.1 | 0.8 | |||
| Income before income tax expense | 27.2 | 33.3 | |||
| Income tax expense (benefit) | 1.6 | (2.1 | ) | ||
| Net income | 25.6 | % | 35.3 | % | |
Revenue
Revenue by Reportable Segments
| Year Ended | ||||||||||||||
| January 26, 2020 | January 27, 2019 | $ Change | % Change | |||||||||||
| ($ in millions) | ||||||||||||||
| GPU | $ | 9,465 | $ | 10,175 | $ | (710 | ) | (7 | )% | |||||
| Tegra Processor | 1,453 | 1,541 | (88 | ) | (6 | )% | ||||||||
| Total | $ | 10,918 | $ | 11,716 | $ | (798 | ) | (7 | )% | |||||
| Year Ended | |||||||||||||||||||||||
| January 30, 2022 | January 31, 2021 | $ Change | % Change | ||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||
| Graphics | $ | 15,868 | $ | 9,834 | $ | 6,034 | 61 | % | |||||||||||||||
| Compute & Networking | 11,046 | 6,841 | 4,205 | 61 | % | ||||||||||||||||||
| Total | $ | 26,914 | $ | 16,675 | $ | 10,239 | 61 | % | |||||||||||||||
Concentration of Revenue
Revenue from sales to customers outside of the United States accounted for 92%84% and 87%81% of total revenue for fiscal years 20202022 and 2019,2021, respectively. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location.
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, board and device costs, manufacturing support costs, including labor and overhead associated with such purchases, final test yield fallout, inventory and warranty provisions, memory and component costs, tariffs, and shipping costs. Cost of revenue also includes acquisition-related costs, development costs for license and service arrangements, IP-related costs, and stock-based compensation related to personnel associated with manufacturing.
Our overall gross margin was 62.0%64.9% and 61.2%62.3% for fiscal years 20202022 and 2019,2021, respectively. The increase in fiscal year 20202022 was drivenprimarily due to lower Mellanox acquisition-related charges, including a non-recurring inventory step-up charge of $161 million in fiscal year 2021. The increase also benefited from a higher-end mix within Graphics, partially offset by reduced inventory provisions and the sale of previously written-off components.a mix shift within Compute & Networking.
Inventory provisions totaled $161$354 million and $270$116 million for fiscal years 20202022 and 2019,2021, respectively. Sales of inventory that was previously written-off or written-down totaled $145$111 million and $41$145 million for fiscal years 20202022 and 2019,2021, respectively. As a result, the overall net effect on our gross margin was an unfavorable impact of 0.9% in fiscal year 2022 and insignificant in fiscal year 2020 and an unfavorable impact of 2.0% in fiscal year 2019.2021.
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Operating Expenses
| Year Ended | |||||||||||||||||||||||||||||||||||||
| Year Ended | January 30, 2022 | January 31, 2021 | $ Change | % Change | |||||||||||||||||||||||||||||||||
| January 26, 2020 | January 27, 2019 | $ Change | % Change | ||||||||||||||||||||||||||||||||||
| ($ in millions) | ($ in millions) | ||||||||||||||||||||||||||||||||||||
| Research and development expenses | $ | 2,829 | $ | 2,376 | $ | 453 | 19 | % | Research and development expenses | $ | 5,268 | $ | 3,924 | $ | 1,344 | 34 | % | ||||||||||||||||||||
| % of net revenue | 25.9 | % | 20.3 | % | % of net revenue | 19.6 | % | 23.5 | % | ||||||||||||||||||||||||||||
| Sales, general and administrative expenses | 1,093 | 991 | 102 | 10 | % | Sales, general and administrative expenses | 2,166 | 1,940 | 226 | 12 | % | ||||||||||||||||||||||||||
| % of net revenue | 10.0 | % | 8.5 | % | % of net revenue | 8.0 | % | 11.6 | % | ||||||||||||||||||||||||||||
| Total operating expenses | $ | 3,922 | $ | 3,367 | $ | 555 | 16 | % | Total operating expenses | $ | 7,434 | $ | 5,864 | $ | 1,570 | 27 | % | ||||||||||||||||||||
Research and Development
Research and development expenses increased by 19%34% in fiscal year 20202022 compared to fiscal year 2019,2021, primarily driven primarily by employee additions and increases in employee compensation and other related costs, including infrastructure costs and stock-based compensation, expense.
compensation-related costs associated with employee growth and higher infrastructure costs.
Sales, General and Administrative
Sales, general and administrative expenses increased by 10%12% in fiscal year 20202022 compared to fiscal year 2019,2021, primarily driven primarily by employee additions and increases in employee compensation and other related costs, including infrastructure costs and stock-based compensation, expense.compensation-related costs associated with employee growth, partially offset by lower amortization of intangibles.
Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $178$29 million and $136$57 million in fiscal years 20202022 and 2019,2021, respectively. The increasedecrease in interest income was primarily due to higher average invested balances.lower interest rates earned on our investments.
Interest expense is primarily comprised of coupon interest and debt discount amortization related to the 2.20% Notes Due 2021 and 3.20% Notes Due 2026 issued in September 2016.our notes. Interest expense was $52$236 million and $58$184 million in fiscal years 20202022 and 2019,2021, respectively.
Other, net, consists primarily of realized or unrealized gains and losses from investments in non-affiliated investmentsentities and the impact of changes in foreign currency rates. Other, net, was an income of $107 million during fiscal year 2022 and not significant during fiscal year 2020 and2021. The increase was $14 million of income during fiscal year 2019, consisting primarily of $12 milliondue to unrealized gains from our investments in non-affiliated investments.entities. Refer to Note 9 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information regarding our investments in non-affiliated entities.
Income Taxes
We recognized income tax expense of $174$189 million and $77 million for fiscal year 2020years 2022 and income tax benefit of $245 million for fiscal year 2019.2021, respectively. Our annual effective tax rate was 5.9%1.9% and (6.3)%1.7% for fiscal years 20202022 and 2019,2021, respectively.
The increase in our effective tax rate in fiscal year 20202022 as compared to fiscal year 20192021 was primarily due to an increase in the amount of earnings subject to U.S. tax, and a decreasedecreased impact of tax benefits from stock-based compensation and an absence ofthe U.S. federal research tax benefits related tocredit, partially offset by the enactmentbenefit of the TCJA.foreign-derived intangible income deduction, and the discrete benefit of the domestication of a foreign subsidiary, or the Domestication.
Our effective tax rate for fiscal years 2020year 2022 was lower than the U.S. federal statutory rate of 21% due to tax benefits from the foreign-derived intangible income deduction, income earned in jurisdictions, including the British Virgin Islands and 2019Israel, that are subject to taxes lower than the U.S. federal statutory tax rate, excess tax benefits related to stock-based compensation, recognition of U.S. federal research tax credit and the one-time benefits of the Domestication.
Our effective tax rate for fiscal year 2021 was lower than the U.S. federal statutory rate of 21% due primarily to income earned in jurisdictions, including the British Virgin Islands, Israel, and Hong Kong, where the tax rate was lower than the U.S. federal statutory tax rates, favorablerate, recognition of U.S. federal research tax credits, and excess tax benefits related to stock-based compensation, and the finalizationcompensation.
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Refer to Note 14 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.information, including the Domestication.
Liquidity and Capital Resources
| January 30, 2022 | January 31, 2021 | ||||||||||
| (In millions) | |||||||||||
| Cash and cash equivalents | $ | 1,990 | $ | 847 | |||||||
| Marketable securities | 19,218 | 10,714 | |||||||||
| Cash, cash equivalents, and marketable securities | $ | 21,208 | $ | 11,561 | |||||||
| January 26, 2020 | January 27, 2019 | ||||||
| (In millions) | |||||||
| Cash and cash equivalents | $ | 10,896 | $ | 782 | |||
| Marketable securities | 1 | 6,640 | |||||
| Cash, cash equivalents, and marketable securities | $ | 10,897 | $ | 7,422 | |||
| Year Ended | ||||||||||||||||||
| Year Ended | January 30, 2022 | January 31, 2021 | ||||||||||||||||
| January 26, 2020 | January 27, 2019 | |||||||||||||||||
| (In millions) | (In millions) | |||||||||||||||||
| Net cash provided by operating activities | $ | 4,761 | $ | 3,743 | Net cash provided by operating activities | $ | 9,108 | $ | 5,822 | |||||||||
| Net cash provided by (used in) investing activities | $ | 6,145 | $ | (4,097 | ) | Net cash provided by (used in) investing activities | $ | (9,830) | $ | (19,675) | ||||||||
| Net cash used in financing activities | $ | (792 | ) | $ | (2,866 | ) | ||||||||||||
| Net cash provided by financing activities | Net cash provided by financing activities | $ | 1,865 | $ | 3,804 | |||||||||||||
As of January 26, 2020,30, 2022, we had $10.90$21.21 billion in cash, cash equivalents and marketable securities, an increase of $3.48$9.65 billion from the end of fiscal year 2019.2021. Our investment policy requires the purchase of highly rated fixed income securities, the diversification of investment types and credit exposures, and certain maturity limits on our portfolio duration.
portfolio.
Cash provided by operating activities increased in fiscal year 20202022 compared to fiscal year 2019, primarily2021, due to higher net income, partially offset by changes in working capital. Changes in working capital were primarily driven by a reductionprepayments of $1.87 billion for long-term supply agreements and increases in inventory, partially offset by a decrease in operating income.trade receivables due to higher revenue.
Cash used in investing activities decreased in fiscal year 20202022 compared to cash provided in fiscal year 2019, primarily due2021, reflecting lower payments in acquiring businesses as compared to lower purchases, higher sales, and lower maturities of marketable securities in preparation for the acquisition of Mellanox.Mellanox in fiscal year 2021, and higher marketable securities sales and maturities, partially offset by higher purchases of marketable securities.
Cash used inprovided by financing activities decreased in fiscal year 20202022 compared to fiscal year 2019, primarily due to no share repurchasescash provided in fiscal year 20202021, which primarily reflects a debt repayment in the fiscal year 2022 and lowerhigher tax payments related to employeeon restricted stock plans.units.
Liquidity
Our primary sources of liquidity are our cash and cash equivalents, our marketable securities, and the cash generated by our operations. As of January 26, 2020,30, 2022, we had $10.90$21.21 billion in cash, cash equivalents and marketable securities. We believe that we have sufficient liquidity to meet our operating requirements for at least the next twelve months, and for the foreseeable future, including our proposed acquisition of Mellanox. Referfuture supply obligations and additional supply. We continuously evaluate our liquidity and capital resources, including our access to Note 2 of the Notesexternal capital, to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.ensure we can finance our future capital requirements.
Our marketable securities consist of certificates of deposits and debt securities issued by the United StatesU.S. government and its agencies, highly rated corporations and financial institutions, asset-backed issuers, and foreign government entities. These marketable securities are primarily denominated in United StatesU.S. dollars. Refer to Note 8 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
During fiscal year 2021,2023, we expect to use our existing cash and cash equivalents, our marketable securities, and the cash generated by our operations to fund our capital investmentinvestments of approximately $1.4 billion related to be approximately $700 million to $900 million to fund property and equipment including constructionequipment.
We have approximately $1.4 billion of a new building at our Santa Clara campus.
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have utilized almost all of our accumulated U.S. federal research tax credits during fiscal year 2022, resulting in higher cash tax payments starting in fiscal year 2023. In addition, beginning in fiscal year 2023, the TCJA requires taxpayers to capitalize research and development expenditures and to amortize domestic expenditures over five years and foreign expenditures over fifteen years. This will impact cash flows from operations and result in significantly higher cash tax payments starting in fiscal year 2023. Refer to Note 14 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
Capital Return to Shareholders
In November 2018, we communicated our intent to return $3.00 billion to shareholders by the end of fiscal year 2020, including $700 million in share repurchases made during the fourth quarter of fiscal year 2019. In fiscal year 2020,2022, we returned $390paid $399 million in quarterly cash dividends. We did not repurchase any shares during fiscal year 2020. We intend to return to repurchasing shares after closing the acquisition of Mellanox. As of January 26, 2020, we are authorized, subject to certain specifications, to repurchase shares of our common stock up to $7.24 billion through December 2022.
Our cash dividend program and the payment of future cash dividends under that program are subject to our Board's continuing determination that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders. Refer
As of January 30, 2022, we were authorized, subject to Note 15certain specifications, to repurchase additional shares of the Notesour common stock up to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion.$7.24 billion through December 2022. We did not repurchase any shares during fiscal year 2022.
Outstanding Indebtedness and Credit FacilitiesCommercial Paper Program
•$1.25 billion of Notes due 2021 and $1.00Due 2023;
•$1.25 billion of Notes due 2026, collectively, the Notes.Due 2024;
•$1.25 billion of Notes Due 2028;
•$1.50 billion of Notes Due 2030;
•$1.25 billion of Notes Due 2031;
•$1.00 billion of Notes Due 2040;
•$2.00 billion of Notes Due 2050; and
•$500 million for general corporate purposes and can obtain revolving loan commitments up to $425 million. As of January 26, 2020, we had not borrowed any amounts under this agreement.Notes Due 2060.
We have a $575 million commercial paper program to support general corporate purposes. As of January 26, 2020,30, 2022, we had not issued any commercial paper.
Refer to Note 12 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for further discussion.
Contractual Obligations
| Payment Due By Period | |||||||||||||||||||
| Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | ||||||||||||||
| (In millions) | |||||||||||||||||||
| Long-term debt (1) | $ | 2,248 | $ | 54 | $ | 1,078 | $ | 64 | $ | 1,052 | |||||||||
| Inventory purchase obligations | 1,156 | 1,156 | — | — | — | ||||||||||||||
| Transition tax payable (2) | 351 | 33 | 67 | 146 | 105 | ||||||||||||||
| Operating leases (3) | 773 | 121 | 219 | 141 | 292 | ||||||||||||||
| Capital purchase obligations | 186 | 186 | — | — | — | ||||||||||||||
| Total contractual obligations | $ | 4,714 | $ | 1,550 | $ | 1,364 | $ | 351 | $ | 1,449 | |||||||||
For a description of our long-term debt, purchase obligations, and operating lease obligations, refer to Note 12, Note 13, and Note 3 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K, respectively.
Climate Change
Refer to Part I, Item 1 of this Annual Report on Form 10-K for a description of Environmental, Social and Corporate Governance activities. To date, there has been no material impact to our results of operations associated with global sustainability regulations, compliance, costs from sourcing renewable energy or climate-related business trends. There are no material current climate change regulations impacting us, however, we are monitoring potential regulation changes in California, the United States, the United Kingdom, the European Union and other jurisdictions. We believe that climate change has not had a material impact to our revenue to date. We have not experienced any significant physical effects of climate change to date on our operations and results, nor any significant impacts on the cost or availability of insurance. In fiscal year 2023, we plan to build Earth-2, an AI supercomputer dedicated to predicting the impacts of climate change and increase our purchases of Renewable Energy Credits.
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Adoption of New and Recently Issued Accounting Pronouncements
Refer to Note 1 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for a discussion of adoption of new and recently issued accounting pronouncements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Investment and Interest Rate Risk
We are exposed to interest rate risk related to our floating and fixed-rate investment portfolio and outstanding debt. The investment portfolio is managed consistent with our overall liquidity strategy in support of both working capital needs and strategic growth of our businesses.
As of January 26, 2020,30, 2022, we performed a sensitivity analysis on our floating and fixed rate financial investments.investment portfolio. According to our analysis, parallel shifts in the yield curve of both plus or minus 0.5%, taking into account a zero percent yield floor, would result in changesa decrease in fair valuesvalue for these investments of $1 million.$33 million, or an increase in fair value for these investments of $22 million, respectively.
Foreign Exchange Rate Risk
We consider our direct exposure to foreign exchange rate fluctuations to be minimal. Gains or losses from foreign currency remeasurement are included in other income or expense and to date have not been significant. The impact of foreign currency transaction gain or loss included in determining net income was not significant for fiscal years 20202022 and 2019.2021.
Sales and arrangements with third-party manufacturers provide for pricing and payment in United States dollars, and, therefore, are not subject to exchange rate fluctuations. Increases in the value of the United States’ dollar relative to other currencies would make our products more expensive, which could negatively impact our ability to compete. Conversely, decreases in the value of the United States’ dollar relative to other currencies could result in our suppliers raising their
prices in order to continue doing business with us. Additionally, we have international operations and incur expenditures in currencies other than U.S. dollars. Our operating expenses benefit from a stronger dollar and are adversely affected by a weaker dollar.
We use foreign currency forward contracts to mitigate the impact of foreign currency exchange rate movements on our operating expenses. We designate these contracts as cash flow hedges and assess the effectiveness of the hedge relationships on a spot to spot basis. Gains or losses on the contracts are recorded in accumulated other comprehensive income or loss, and then reclassified to operating expense when the related operating expenses are recognized in earnings or ineffectiveness should occur.
We also use foreign currency forward contracts to mitigate the impact of foreign currency movements on monetary assets and liabilities that are denominated in currencies other than U.S. dollar. These forward contracts were not designated for hedge accounting treatment. Therefore, the change in fair value of these contracts is recorded in other income or expense and offsets the change in fair value of the hedged foreign currency denominated monetary assets and liabilities, which is also recorded in other income or expense.
If the U.S. dollar strengthened by 10% as of January 30, 2022 and January 31, 2021, the amount recorded in accumulated other comprehensive income (loss) related to our foreign exchange contracts before tax effect would have been approximately $103 million and $84 million lower as of January 30, 2022 and January 31, 2021, respectively. Change in value recorded in accumulated other comprehensive income (loss) would be expected to offset a corresponding change in hedged forecasted foreign currency expenses when recognized.
If an adverse 10% foreign exchange rate change was applied to our balance sheet hedging contracts, it would have resulted in an adverse impact on income before taxes of approximately $41 million and $44 million as of January 30, 2022 and January 31, 2021, respectively. These changes in fair values would be offset in other income (expense), net by corresponding change in fair values of the foreign currency denominated monetary assets and liabilities, assuming the hedge contracts fully cover the foreign currency denominated monetary assets and liabilities balances.
40
Refer to Note 11 of the Notes to the Consolidated Financial Statements in Part IV, Item 15 of this Annual Report on Form 10-K for additional information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth in our Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Controls and Procedures
Disclosure Controls and Procedures
Based on their evaluation as of January 26, 2020,30, 2022, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) were effective to provide reasonable assurance.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of January 26, 202030, 2022 based on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of January 26, 2020.30, 2022.
The effectiveness of our internal control over financial reporting as of January 26, 202030, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report which is included herein.
Changes in Internal Control Over Financial Reporting
There werehave been no changes in our internal control over financial reporting during our last fiscalthe quarter ended January 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In fiscal year 2022, we began an upgrade of our enterprise resource planning, or ERP, system, which will update much of our existing core financial systems. The ERP system is designed to accurately maintain the Company’s financial records used to report operating results. The upgrade will occur in phases with the consolidated financial reporting and general ledger module to be implemented in fiscal year 2023. We will evaluate each quarter whether there are changes that affect our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within NVIDIA have been detected.
ITEM 9B. OTHER INFORMATION
None.
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ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not Applicable
PART III
Certain information required by Part III is omitted from this report because we will file with the SEC a definitive proxy statement pursuant to Regulation 14A, or the 20202022 Proxy Statement, no later than 120 days after the end of fiscal year 2020,2022, and certain information included therein is incorporated herein by reference.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors
Information regarding directors required by this item will be contained in our 20202022 Proxy Statement under the caption “Proposal 1 - Election of Directors,” and is hereby incorporated by reference.
Identification of Executive Officers
Reference is made to the information regarding executive officers appearing under the heading “Executive Officers of the Registrant”“Information About Our Executive Officers” in Part I of this Annual Report on Form 10-K, which information is hereby incorporated by reference.
Identification of Audit Committee and Financial Experts
Information regarding our Audit Committee required by this item will be contained in our 20202022 Proxy Statement under the captions “Report of the Audit Committee of the Board of Directors” and “Information About the Board of Directors and Corporate Governance,” and is hereby incorporated by reference.
Material Changes to Procedures for Recommending Directors
Information regarding procedures for recommending directors required by this item will be contained in our 20202022 Proxy Statement under the caption “Information About the Board of Directors and Corporate Governance,” and is hereby incorporated by reference.
Delinquent Section 16(a) Reports
Information regarding compliance with Section 16(a) of the Exchange Act required by this item will be contained in our 20202022 Proxy Statement under the caption “Delinquent Section 16(a) Reports,” and is hereby incorporated by reference.
Code of Conduct
Information regarding our Code of Conduct required by this item will be contained in our 20202022 Proxy Statement under the caption “Information About the Board of Directors and Corporate Governance - Code of Conduct,” and is hereby incorporated by reference. The full text of our Code of Conduct and Financial Team Code of Conduct are published on the Investor Relations portion of our website, under Governance, at www.nvidia.com. The contents of our website are not a part of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding our executive compensation required by this item will be contained in our 20202022 Proxy Statement under the captions “Executive Compensation”, “Compensation Committee Interlocks and Insider Participation”, “Director Compensation” and “Compensation Committee Report,” and is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Ownership of NVIDIA Securities
Information regarding ownership of NVIDIA securities required by this item will be contained in our 20202022 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management,” and is hereby incorporated by reference.
42
Equity Compensation Plan Information
Information regarding our equity compensation plans required by this item will be contained in our 20202022 Proxy Statement under the caption "Equity Compensation Plan Information," and is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding related transactions and director independence required by this item will be contained in our 20202022 Proxy Statement under the captions “Review of Transactions with Related Persons” and “Information About the Board of Directors and Corporate Governance - Independence of the Members of the Board of Directors,” and is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTINGACCOUNTANT FEES AND SERVICES
Information regarding accounting fees and services required by this item will be contained in our 20202022 Proxy Statement under the caption “Fees Billed by the Independent Registered Public Accounting Firm,” and is hereby incorporated by reference.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| Page | ||||||||||||||
| (a) | 1. | Financial Statements | ||||||||||||
| 2. | Financial Statement Schedule | |||||||||||||
| 3. | Exhibits | |||||||||||||
44
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of NVIDIA Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of NVIDIA Corporation and its subsidiaries (the “Company”) as of January 30, 2022 and January 31, 2021, and the related consolidated statements of income, of comprehensive income, of shareholders' equity and of cash flows for each of the three years in the period ended January 30, 2022, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 30, 2022 and January 31, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 30, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
45
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Valuation of Inventories - Provisions for Excess or Obsolete Inventories
As described in Note 1 to the consolidated financial statements, the Company charges cost of sales for inventory provisions to write-down inventory to the lower of cost or net realizable value or for obsolete or excess inventory. Most of the Company’s inventory provisions relate to excess quantities of products, based on the Company’s inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. As of January 30, 2022, the Company’s consolidated inventories balance was $2,605 million.
The principal considerations for our determination that performing procedures relating to the valuation of inventories, specifically the provisions for excess or obsolete inventories, is a critical audit matter are the significant judgment by management when developing provisions for excess or obsolete inventories, including developing assumptions related to future demand and market conditions. This in turn led to significant auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s assumptions related to future demand and market conditions.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s provisions for excess or obsolete inventories, including controls over management’s assumptions related to future demand and market conditions. These procedures also included, among others, testing management’s process for developing the provisions for excess or obsolete inventories; evaluating the appropriateness of management’s approach; testing the completeness and accuracy of underlying data used in the approach; and evaluating the reasonableness of management’s assumptions related to future demand and market conditions. Evaluating management’s assumptions related to future demand and market conditions involved evaluating whether the assumptions used by management were reasonable considering (i) current and past results, including historical product life cycle, (ii) the consistency with external market and industry data, (iii) changes in technology, and (iv) comparing prior period estimates to actual results of the same period.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 17, 2022
We have served as the Company’s auditor since 2004.
46
NVIDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
| Year Ended | |||||||||||||||||
| January 30, 2022 | January 31, 2021 | January 26, 2020 | |||||||||||||||
| Revenue | $ | 26,914 | $ | 16,675 | $ | 10,918 | |||||||||||
| Cost of revenue | 9,439 | 6,279 | 4,150 | ||||||||||||||
| Gross profit | 17,475 | 10,396 | 6,768 | ||||||||||||||
| Operating expenses | |||||||||||||||||
| Research and development | 5,268 | 3,924 | 2,829 | ||||||||||||||
| Sales, general and administrative | 2,166 | 1,940 | 1,093 | ||||||||||||||
| Total operating expenses | 7,434 | 5,864 | 3,922 | ||||||||||||||
| Income from operations | 10,041 | 4,532 | 2,846 | ||||||||||||||
| Interest income | 29 | 57 | 178 | ||||||||||||||
| Interest expense | (236) | (184) | (52) | ||||||||||||||
| Other, net | 107 | 4 | (2) | ||||||||||||||
| Other income (expense), net | (100) | (123) | 124 | ||||||||||||||
| Income before income tax | 9,941 | 4,409 | 2,970 | ||||||||||||||
| Income tax expense | 189 | 77 | 174 | ||||||||||||||
| Net income | $ | 9,752 | $ | 4,332 | $ | 2,796 | |||||||||||
| Net income per share: | |||||||||||||||||
| Basic | $ | 3.91 | $ | 1.76 | $ | 1.15 | |||||||||||
| Diluted | $ | 3.85 | $ | 1.73 | $ | 1.13 | |||||||||||
| Weighted average shares used in per share computation: | |||||||||||||||||
| Basic | 2,496 | 2,467 | 2,439 | ||||||||||||||
| Diluted | 2,535 | 2,510 | 2,472 | ||||||||||||||
See accompanying notes to the consolidated financial statements.
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NVIDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| Year Ended | |||||||||||||||||
| January 30, 2022 | January 31, 2021 | January 26, 2020 | |||||||||||||||
| Net income | $ | 9,752 | $ | 4,332 | $ | 2,796 | |||||||||||
| Other comprehensive income (loss), net of tax | |||||||||||||||||
| Available-for-sale debt securities: | |||||||||||||||||
| Net unrealized gain (loss) | (16) | 2 | 8 | ||||||||||||||
| Reclassification adjustments for net realized gain (loss) included in net income | — | (2) | — | ||||||||||||||
| Net change in unrealized gain (loss) | (16) | — | 8 | ||||||||||||||
| Cash flow hedges: | |||||||||||||||||
| Net unrealized gain (loss) | (43) | 9 | 10 | ||||||||||||||
| Reclassification adjustments for net realized gain (loss) included in net income | 29 | 9 | (5) | ||||||||||||||
| Net change in unrealized gain (loss) | (14) | 18 | 5 | ||||||||||||||
| Other comprehensive income (loss), net of tax | (30) | 18 | 13 | ||||||||||||||
| Total comprehensive income | $ | 9,722 | $ | 4,350 | $ | 2,809 | |||||||||||
See accompanying notes to the consolidated financial statements.
48
NVIDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except par value)
| January 30, 2022 | January 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,990 | $ | 847 | |||||||
| Marketable securities | 19,218 | 10,714 | |||||||||
| Accounts receivable, net | 4,650 | 2,429 | |||||||||
| Inventories | 2,605 | 1,826 | |||||||||
| Prepaid expenses and other current assets | 366 | 239 | |||||||||
| Total current assets | 28,829 | 16,055 | |||||||||
| Property and equipment, net | 2,778 | 2,149 | |||||||||
| Operating lease assets | 829 | 707 | |||||||||
| Goodwill | 4,349 | 4,193 | |||||||||
| Intangible assets, net | 2,339 | 2,737 | |||||||||
| Deferred income tax assets | 1,222 | 806 | |||||||||
| Other assets | 3,841 | 2,144 | |||||||||
| Total assets | $ | 44,187 | $ | 28,791 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 1,783 | $ | 1,149 | |||||||
| Accrued and other current liabilities | 2,552 | 1,777 | |||||||||
| Short-term debt | — | 999 | |||||||||
| Total current liabilities | 4,335 | 3,925 | |||||||||
| Long-term debt | 10,946 | 5,964 | |||||||||
| Long-term operating lease liabilities | 741 | 634 | |||||||||
| Other long-term liabilities | 1,553 | 1,375 | |||||||||
| Total liabilities | 17,575 | 11,898 | |||||||||
| Commitments and contingencies - see Note 13 | 0 | 0 | |||||||||
| Shareholders’ equity: | |||||||||||
| Preferred stock, $0.001 par value; 2 shares authorized; none issued | — | — | |||||||||
| Common stock, $0.001 par value; 4,000 shares authorized; 2,506 shares issued and outstanding as of January 30, 2022; 3,859 shares issued and 2,479 outstanding as of January 31, 2021 | 3 | 3 | |||||||||
| Additional paid-in capital | 10,385 | 8,719 | |||||||||
| Treasury stock, at cost (None as of January 30, 2022 and 1,380 shares as of January 31, 2021) | — | (10,756) | |||||||||
| Accumulated other comprehensive income (loss) | (11) | 19 | |||||||||
| Retained earnings | 16,235 | 18,908 | |||||||||
| Total shareholders' equity | 26,612 | 16,893 | |||||||||
| Total liabilities and shareholders' equity | $ | 44,187 | $ | 28,791 | |||||||
See accompanying notes to the consolidated financial statements.
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NVIDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Common Stock Outstanding | Additional | Treasury | Accumulated Other Comprehensive | Retained | Total Shareholders' | ||||||||||||||||||||||||||||||||||||
| (In millions, except per share data) | Shares | Amount | Paid-in Capital | Stock | Income (Loss) | Earnings | Equity | ||||||||||||||||||||||||||||||||||
| Balances, January 27, 2019 | 2,423 | $ | 3 | $ | 6,049 | $ | (9,263) | $ | (12) | $ | 12,565 | $ | 9,342 | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 2,796 | 2,796 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 13 | — | 13 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock from stock plans | 39 | — | 149 | — | — | — | 149 | ||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (12) | — | — | (551) | — | — | (551) | ||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.16 per common share) | — | — | — | — | — | (390) | (390) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 845 | — | — | — | 845 | ||||||||||||||||||||||||||||||||||
| Balances, January 26, 2020 | 2,450 | 3 | 7,043 | (9,814) | 1 | 14,971 | 12,204 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 4,332 | 4,332 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 18 | — | 18 | ||||||||||||||||||||||||||||||||||
| Issuance of common stock from stock plans | 40 | — | 194 | — | — | — | 194 | ||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (11) | — | — | (942) | — | — | (942) | ||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.16 per common share) | — | — | — | — | — | (395) | (395) | ||||||||||||||||||||||||||||||||||
| Fair value of partially vested equity awards assumed in connection with acquisitions | — | — | 86 | — | — | — | 86 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 1,396 | — | — | — | 1,396 | ||||||||||||||||||||||||||||||||||
| Balances, January 31, 2021 | 2,479 | 3 | 8,719 | (10,756) | 19 | 18,908 | 16,893 | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 9,752 | 9,752 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (30) | — | (30) | ||||||||||||||||||||||||||||||||||
| Issuance of common stock from stock plans | 35 | — | 281 | — | — | — | 281 | ||||||||||||||||||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (8) | — | (614) | (1,290) | — | — | (1,904) | ||||||||||||||||||||||||||||||||||
| Cash dividends declared and paid ($0.16 per common share) | — | — | — | — | — | (399) | (399) | ||||||||||||||||||||||||||||||||||
| Fair value of partially vested equity awards assumed in connection with acquisitions | — | — | 18 | — | — | — | 18 | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 2,001 | — | — | — | 2,001 | ||||||||||||||||||||||||||||||||||
| Retirement of Treasury Stock | — | — | (20) | 12,046 | — | (12,026) | — | ||||||||||||||||||||||||||||||||||
| Balances, January 30, 2022 | 2,506 | $ | 3 | $ | 10,385 | $ | — | $ | (11) | $ | 16,235 | $ | 26,612 | ||||||||||||||||||||||||||||
See accompanying notes to the consolidated financial statements.
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NVIDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| Year Ended | |||||||||||||||||
| January 30, 2022 | January 31, 2021 | January 26, 2020 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income | $ | 9,752 | $ | 4,332 | $ | 2,796 | |||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||||||||
| Stock-based compensation expense | 2,004 | 1,397 | 844 | ||||||||||||||
| Depreciation and amortization | 1,174 | 1,098 | 381 | ||||||||||||||
| Deferred income taxes | (406) | (282) | 18 | ||||||||||||||
| (Gains) losses on investments in non-affiliates, net | (100) | — | 1 | ||||||||||||||
| Other | 47 | (20) | 4 | ||||||||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||||||||
| Accounts receivable | (2,215) | (550) | (233) | ||||||||||||||
| Inventories | (774) | (524) | 597 | ||||||||||||||
| Prepaid expenses and other assets | (1,715) | (394) | 77 | ||||||||||||||
| Accounts payable | 568 | 312 | 194 | ||||||||||||||
| Accrued and other current liabilities | 581 | 290 | 54 | ||||||||||||||
| Other long-term liabilities | 192 | 163 | 28 | ||||||||||||||
| Net cash provided by operating activities | 9,108 | 5,822 | 4,761 | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Proceeds from maturities of marketable securities | 15,197 | 8,792 | 4,744 | ||||||||||||||
| Proceeds from sales of marketable securities | 1,023 | 527 | 3,365 | ||||||||||||||
| Purchases of marketable securities | (24,787) | (19,308) | (1,461) | ||||||||||||||
| Purchases related to property and equipment and intangible assets | (976) | (1,128) | (489) | ||||||||||||||
| Acquisitions, net of cash acquired | (263) | (8,524) | (4) | ||||||||||||||
| Investments and other, net | (24) | (34) | (10) | ||||||||||||||
| Net cash provided by (used in) investing activities | (9,830) | (19,675) | 6,145 | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Issuance of debt, net of issuance costs | 4,977 | 4,968 | — | ||||||||||||||
| Proceeds related to employee stock plans | 281 | 194 | 149 | ||||||||||||||
| Payments related to tax on restricted stock units | (1,904) | (942) | (551) | ||||||||||||||
| Repayment of debt | (1,000) | — | — | ||||||||||||||
| Dividends paid | (399) | (395) | (390) | ||||||||||||||
| Principal payments on property and equipment | (83) | (17) | — | ||||||||||||||
| Other | (7) | (4) | — | ||||||||||||||
| Net cash provided by (used in) financing activities | 1,865 | 3,804 | (792) | ||||||||||||||
| Change in cash and cash equivalents | 1,143 | (10,049) | 10,114 | ||||||||||||||
| Cash and cash equivalents at beginning of period | 847 | 10,896 | 782 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 1,990 | $ | 847 | $ | 10,896 | |||||||||||
| Supplemental disclosures of cash flow information: | |||||||||||||||||
| Cash paid for income taxes, net | $ | 396 | $ | 249 | $ | 176 | |||||||||||
| Cash paid for interest | $ | 246 | $ | 138 | $ | 54 | |||||||||||
See accompanying notes to the consolidated financial statements.
51
| Year Ended | |||||||||||
| January 26, 2020 | January 27, 2019 | January 28, 2018 | |||||||||
| Revenue | $ | 10,918 | $ | 11,716 | $ | 9,714 | |||||
| Cost of revenue | 4,150 | 4,545 | 3,892 | ||||||||
| Gross profit | 6,768 | 7,171 | 5,822 | ||||||||
| Operating expenses | |||||||||||
| Research and development | 2,829 | 2,376 | 1,797 | ||||||||
| Sales, general and administrative | 1,093 | 991 | 815 | ||||||||
| Total operating expenses | 3,922 | 3,367 | 2,612 | ||||||||
| Income from operations | 2,846 | 3,804 | 3,210 | ||||||||
| Interest income | 178 | 136 | 69 | ||||||||
| Interest expense | (52 | ) | (58 | ) | (61 | ) | |||||
| Other, net | (2 | ) | 14 | (22 | ) | ||||||
| Total other income (expense) | 124 | 92 | (14 | ) | |||||||
| Income before income tax | 2,970 | 3,896 | 3,196 | ||||||||
| Income tax expense (benefit) | 174 | (245 | ) | 149 | |||||||
| Net income | $ | 2,796 | $ | 4,141 | $ | 3,047 | |||||
| Net income per share: | |||||||||||
| Basic | $ | 4.59 | $ | 6.81 | $ | 5.09 | |||||
| Diluted | $ | 4.52 | $ | 6.63 | $ | 4.82 | |||||
| Weighted average shares used in per share computation: | |||||||||||
| Basic | 609 | 608 | 599 | ||||||||
| Diluted | 618 | 625 | 632 | ||||||||
| Year Ended | |||||||||||
| January 26, 2020 | January 27, 2019 | January 28, 2018 | |||||||||
| Net income | $ | 2,796 | $ | 4,141 | $ | 3,047 | |||||
| Other comprehensive income (loss), net of tax | |||||||||||
| Available-for-sale debt securities: | |||||||||||
| Net unrealized gain (loss) | 8 | 10 | (5 | ) | |||||||
| Reclassification adjustments for net realized gain included in net income | — | 1 | 1 | ||||||||
| Net change in unrealized gain (loss) | 8 | 11 | (4 | ) | |||||||
| Cash flow hedges: | |||||||||||
| Net unrealized gain (loss) | 10 | 6 | (1 | ) | |||||||
| Reclassification adjustments for net realized gain (loss) included in net income | (5 | ) | (11 | ) | 3 | ||||||
| Net change in unrealized gain (loss) | 5 | (5 | ) | 2 | |||||||
| Other comprehensive income (loss), net of tax | 13 | 6 | (2 | ) | |||||||
| Total comprehensive income | $ | 2,809 | $ | 4,147 | $ | 3,045 | |||||
| January 26, 2020 | January 27, 2019 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 10,896 | $ | 782 | |||
| Marketable securities | 1 | 6,640 | |||||
| Accounts receivable, net | 1,657 | 1,424 | |||||
| Inventories | 979 | 1,575 | |||||
| Prepaid expenses and other current assets | 157 | 136 | |||||
| Total current assets | 13,690 | 10,557 | |||||
| Property and equipment, net | 1,674 | 1,404 | |||||
| Operating lease assets | 618 | — | |||||
| Goodwill | 618 | 618 | |||||
| Intangible assets, net | 49 | 45 | |||||
| Deferred income tax assets | 548 | 560 | |||||
| Other assets | 118 | 108 | |||||
| Total assets | $ | 17,315 | $ | 13,292 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 687 | $ | 511 | |||
| Accrued and other current liabilities | 1,097 | 818 | |||||
| Total current liabilities | 1,784 | 1,329 | |||||
| Long-term debt | 1,991 | 1,988 | |||||
| Long-term operating lease liabilities | 561 | — | |||||
| Other long-term liabilities | 775 | 633 | |||||
| Total liabilities | 5,111 | 3,950 | |||||
| Commitments and contingencies - see Note 13 | |||||||
| Shareholders’ equity: | |||||||
| Preferred stock, $.001 par value; 2 shares authorized; none issued | — | — | |||||
| Common stock, $.001 par value; 2,000 shares authorized; 955 shares issued and 612 outstanding as of January 26, 2020; 945 shares issued and 606 outstanding as of January 27, 2019 | 1 | 1 | |||||
| Additional paid-in capital | 7,045 | 6,051 | |||||
| Treasury stock, at cost (342 shares in 2020 and 339 shares in 2019) | (9,814 | ) | (9,263 | ) | |||
| Accumulated other comprehensive income (loss) | 1 | (12 | ) | ||||
| Retained earnings | 14,971 | 12,565 | |||||
| Total shareholders' equity | 12,204 | 9,342 | |||||
| Total liabilities and shareholders' equity | $ | 17,315 | $ | 13,292 | |||
Common Stock Outstanding | Additional | Treasury | Accumulated Other Comprehensive | Retained | Total Shareholders' | |||||||||||||||||||||
| (In millions, except per share data) | Shares | Amount | Paid-in Capital | Stock | Income (Loss) | Earnings | Equity | |||||||||||||||||||
| Balances, January 29, 2017 | 585 | $ | 1 | $ | 4,708 | $ | (5,039 | ) | $ | (16 | ) | $ | 6,108 | $ | 5,762 | |||||||||||
| Retained earnings adjustment due to adoption of an accounting standard related to stock-based compensation | — | — | — | — | — | (27 | ) | (27 | ) | |||||||||||||||||
| Other comprehensive loss | — | — | — | — | (2 | ) | — | (2 | ) | |||||||||||||||||
| Net income | — | — | — | — | — | 3,047 | 3,047 | |||||||||||||||||||
| Issuance of common stock in exchange for warrants | 13 | — | — | — | — | — | — | |||||||||||||||||||
| Convertible debt conversion | 33 | — | (7 | ) | — | — | — | (7 | ) | |||||||||||||||||
| Issuance of common stock from stock plans | 18 | — | 138 | — | — | — | 138 | |||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (4 | ) | — | — | (612 | ) | — | — | (612 | ) | ||||||||||||||||
| Share repurchase | (6 | ) | — | — | (909 | ) | — | — | (909 | ) | ||||||||||||||||
| Exercise of convertible note hedges | (33 | ) | — | 90 | (90 | ) | — | — | — | |||||||||||||||||
| Cash dividends declared and paid ($0.570 per common share) | — | — | — | — | — | (341 | ) | (341 | ) | |||||||||||||||||
| Stock-based compensation | — | — | 391 | — | — | — | 391 | |||||||||||||||||||
| Reclassification of convertible debt conversion obligation | — | — | 31 | — | — | — | 31 | |||||||||||||||||||
| Balances, January 28, 2018 | 606 | 1 | 5,351 | (6,650 | ) | (18 | ) | 8,787 | 7,471 | |||||||||||||||||
| Retained earnings adjustment due to adoption of an accounting standard related to income tax consequences of an intra-entity transfer of an asset | — | — | — | — | — | 8 | 8 | |||||||||||||||||||
| Other comprehensive income | — | — | — | — | 6 | — | 6 | |||||||||||||||||||
| Net income | — | — | — | — | — | 4,141 | 4,141 | |||||||||||||||||||
| Convertible debt conversion | 1 | — | — | — | — | — | — | |||||||||||||||||||
| Issuance of common stock from stock plans | 13 | — | 137 | — | — | — | 137 | |||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (4 | ) | — | — | (1,032 | ) | — | — | (1,032 | ) | ||||||||||||||||
| Share repurchase | (9 | ) | — | — | (1,579 | ) | — | — | (1,579 | ) | ||||||||||||||||
| Exercise of convertible note hedges | (1 | ) | — | 2 | (2 | ) | — | — | — | |||||||||||||||||
| Cash dividends declared and paid ($0.610 per common share) | — | — | — | — | — | (371 | ) | (371 | ) | |||||||||||||||||
| Stock-based compensation | — | — | 561 | — | — | — | 561 | |||||||||||||||||||
| Balances, January 27, 2019 | 606 | 1 | 6,051 | (9,263 | ) | (12 | ) | 12,565 | 9,342 | |||||||||||||||||
| Other comprehensive income | — | — | — | — | 13 | — | 13 | |||||||||||||||||||
| Net income | — | — | — | — | — | 2,796 | 2,796 | |||||||||||||||||||
| Issuance of common stock from stock plans | 9 | — | 149 | — | — | — | 149 | |||||||||||||||||||
| Tax withholding related to vesting of restricted stock units | (3 | ) | — | — | (551 | ) | — | — | (551 | ) | ||||||||||||||||
| Cash dividends declared and paid ($0.640 per common share) | — | — | — | — | — | (390 | ) | (390 | ) | |||||||||||||||||
| Stock-based compensation | — | — | 845 | — | — | — | 845 | |||||||||||||||||||
| Balances, January 26, 2020 | 612 | $ | 1 | $ | 7,045 | $ | (9,814 | ) | $ | 1 | $ | 14,971 | $ | 12,204 | ||||||||||||
| Year Ended | |||||||||||
| January 26, 2020 | January 27, 2019 | January 28, 2018 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 2,796 | $ | 4,141 | $ | 3,047 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Stock-based compensation expense | 844 | 557 | 391 | ||||||||
| Depreciation and amortization | 381 | 262 | 199 | ||||||||
| Deferred income taxes | 18 | (315 | ) | (359 | ) | ||||||
| Loss on early debt conversions | — | — | 19 | ||||||||
| Other | 5 | (45 | ) | 20 | |||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (233 | ) | (149 | ) | (440 | ) | |||||
| Inventories | 597 | (776 | ) | — | |||||||
| Prepaid expenses and other assets | 77 | (55 | ) | 21 | |||||||
| Accounts payable | 194 | (135 | ) | 90 | |||||||
| Accrued and other current liabilities | 54 | 256 | 33 | ||||||||
| Other long-term liabilities | 28 | 2 | 481 | ||||||||
| Net cash provided by operating activities | 4,761 | 3,743 | 3,502 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Proceeds from maturities of marketable securities | 4,744 | 7,232 | 1,078 | ||||||||
| Proceeds from sales of marketable securities | 3,365 | 428 | 863 | ||||||||
| Purchases of marketable securities | (1,461 | ) | (11,148 | ) | (36 | ) | |||||
| Purchases of property and equipment and intangible assets | (489 | ) | (600 | ) | (593 | ) | |||||
| Investments and other, net | (14 | ) | (9 | ) | (36 | ) | |||||
| Proceeds from sale of long-lived assets and investments | — | — | 2 | ||||||||
| Net cash provided by (used in) investing activities | 6,145 | (4,097 | ) | 1,278 | |||||||
| Cash flows from financing activities: | |||||||||||
| Payments related to repurchases of common stock | — | (1,579 | ) | (909 | ) | ||||||
| Repayment of Convertible Notes | — | (16 | ) | (812 | ) | ||||||
| Dividends paid | (390 | ) | (371 | ) | (341 | ) | |||||
| Proceeds related to employee stock plans | 149 | 137 | 139 | ||||||||
| Payments related to tax on restricted stock units | (551 | ) | (1,032 | ) | (612 | ) | |||||
| Other | — | (5 | ) | (9 | ) | ||||||
| Net cash used in financing activities | (792 | ) | (2,866 | ) | (2,544 | ) | |||||
| Change in cash and cash equivalents | 10,114 | (3,220 | ) | 2,236 | |||||||
| Cash and cash equivalents at beginning of period | 782 | 4,002 | 1,766 | ||||||||
| Cash and cash equivalents at end of period | $ | 10,896 | $ | 782 | $ | 4,002 | |||||
| Year Ended | |||||||||||
| January 26, 2020 | January 27, 2019 | January 28, 2018 | |||||||||
| Supplemental disclosures of cash flow information: | |||||||||||
| Cash paid for income taxes, net | $ | 176 | $ | 61 | $ | 22 | |||||
| Cash paid for interest | $ | 54 | $ | 55 | $ | 55 | |||||
| Non-cash investing and financing activity: | |||||||||||
| Assets acquired by assuming related liabilities | $ | 212 | $ | 76 | $ | 36 | |||||
Note 1 - Organization and Summary of Significant Accounting Policies
Our Company
Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.
All references to “NVIDIA,” “we,” “us,” “our” or the “Company” mean NVIDIA Corporation and its subsidiaries.
On July 19, 2021, we executed a 4-for-one stock split of our common stock. All share, equity award, and per share amounts and related shareholders' equity balances presented herein have been retroactively adjusted to reflect the Stock Split.
Fiscal Year
We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal years 2022 and 2020 2019 and 2018 were both 52-week years. Fiscal year 2021 will bewas a 53-week year.
Reclassifications
Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.
Principles of Consolidation
Our consolidated financial statements include the accounts of NVIDIA Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from our estimates. 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, litigation, investigation and settlement costs, restructuring and other charges, and other contingencies. The inputs into our judgments and estimates consider the economic implications of COVID-19. These estimates are based on historical facts and various other assumptions that we believe are reasonable.
Revenue Recognition
We derive our revenue from product sales, including hardware and systems, license and development arrangements, software licensing, and software licensing.cloud services. We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract;contract (where revenue is allocated on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation); and (5) recognition of revenue when, or as, we satisfy a performance obligation.
Product Sales Revenue
Revenue from product sales is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration we expect to receive in exchange for those products. Certain products are sold with support or an extended warranty for the incorporated system, hardware, and/or software. Support and extended warranty revenue are recognized ratably over the service period, or as services are performed. Revenue is recognized net of allowances for returns, customer programs and any taxes collected from customers.
For products sold with a right of return, we 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 fiscal period are anticipated to exceed historical return rates, we may determine that additional sales return allowances are required to properly reflect our estimated exposure for product returns.
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Our customer programs involve rebates, which are designed to serve as sales incentives to resellers of our products in various target markets, and marketing development funds, or MDFs, which represent monies paid to our partners that are earmarked for market segment development and are designed to support our partners’ activities while also promoting NVIDIA products. We account for customer programs as a reduction to revenue and accrue for potential rebates and MDFs based on the amount we expect to be claimed by customers.
License and Development Arrangements
Our license and development arrangements with customers typically require significant customization of our intellectual propertyIP components. As a result, we recognize the revenue from the license and the revenue from the development services as a single performance obligation over the period in which the development services are performed. We measure progress to completion based on actual cost incurred to date as a percentage of the estimated total cost required to complete each project. If a loss on an arrangement becomes probable during a period, we record a provision for such loss in that period.
Software Licensing
Our software licenses provide our customers with a right to use the software when it is made available to the customer. Customers may purchase either perpetual licenses or subscriptions to licenses, which differ mainly in the duration over which the customer benefits from the software. Software licenses are frequently sold along with post-contract customer support, or PCS. For such arrangements, we allocate revenuethe right to the software license and PCSreceive, on a relative standalone selling pricewhen-and-if available basis, by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation.future unspecified software updates and upgrades. Revenue from software licenses is recognized up front when the software is made available to the customer. PCSSoftware support revenue is recognized ratably over the service period, or as services are performed.
Product Warranties
We generally offer a limited warranty to end-users that ranges from one to three years for products in order to repair or replace products for any manufacturing defects or hardware component failures. 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. We also accrue for known warranty and indemnification issues if a loss is probable and can be reasonably estimated.
Stock-based Compensation
We use the closing trading price of our common stock on the date of grant, minus a dividend yield discount, as the fair value of awards of restricted stock units, or RSUs, and performance stock units that are based on our corporate financial performance targets, or PSUs. We use a Monte Carlo simulation on the date of grant to estimate the fair value of performance stock units that are based on market conditions, or market-based PSUs. The compensation expense for RSUs and market-based PSUs is recognized using a straight-line attribution method over the requisite employee service period while compensation expense for PSUs is recognized using an accelerated amortization model. We estimate the fair value of shares to be issued under our employee stock purchase plan, or ESPP, using the Black-Scholes model at the commencement of an offering period in March and September of each year. Stock-based compensation for our ESPP is expensed using an accelerated amortization model. Additionally, we estimate forfeitures at least annually based on historical experience and revise the estimates of forfeiture in subsequent periods if actual forfeitures differ from those estimates.
Litigation, Investigation and Settlement Costs
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
settlement payments.payments or judgements. 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 U.S. GAAP. However, the actual liability in any such litigation or investigation may be materially different from our estimates, which could require us to record additional costs.
Foreign Currency Remeasurement
We use the United States dollar as our functional currency for all of our subsidiaries. Foreign currency monetary assets and liabilities are remeasured into United States dollars at end-of-period exchange rates. Non-monetary assets and liabilities such as property and equipment and equity are remeasured at historical exchange rates. Revenue and expenses are remeasured at average exchange rates in effect during each period, except for those expenses related to the previously notednon-monetary balance sheet amounts, which are remeasured at historical exchange rates. Gains or losses from foreign currency
remeasurement are included in other income or expenseearnings in our Consolidated Statements of Income and to date have not been significant.
Income Taxes
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 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.
Our calculation of 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 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 26, 2020,30, 2022, we had a valuation allowance of $621$907 million related to state and certain foreignother deferred tax assets that management determined are not likely to be realized due to jurisdictional projections of future taxable income, tax attributes usage limitation by certain jurisdictions, and potential utilization limitations of tax attributes acquired as a result of stock ownership changes. To the extent realization of the deferred tax assets becomes more-likely-than-not, we would recognize such deferred tax assetassets as an income tax benefit during the period.
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. Our policy is to include interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Net Income Per Share
Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and potentially dilutive shares outstanding during the period, using the treasury stock method. Under the treasury stock method, the effect of equity awards outstanding is not included in the computation of diluted net income per share for periods when their effect is anti-dilutive.
Cash and Cash Equivalents and Marketable Securities
We consider all highly liquid investments that are readily convertible into cash and have an original maturity of three months or less at the time of purchase to be cash equivalents.
Marketable securities consist of highly liquid debt investments with maturities of greater than three months when purchased. We generallycurrently classify our investments as current based on the nature of the investments and their availability for use in current operations.
We classify our cash equivalents and marketable securities related to debt securities at the date of acquisition as available-for-sale. These available-for-sale debt securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income or loss, a component of shareholders’ equity, net of
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
tax. The fair value of interest-bearing debt securities includes accrued interest. Any unrealized losses which are considered to be other-than-temporary impairments are recorded in the other income or expense, net, section of our Consolidated Statements of Income. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in the other income or expense,(expense), net, section of our Consolidated Statements of Income.
All of our available-for-sale debt investments are subject to a periodic impairment review. We record a charge to earnings when a decline in fair value is significantly below cost basis and judged to be other-than-temporary or have other indicators of impairments. If the estimated fair value of an available-for-sale debt instrumentsecurities is less than its amortized cost basis, an other-than-temporary impairmentwe determine if the difference, if any, is triggered in circumstances where (1) we intend to sellcaused by expected credit losses and write-down the instrument, (2)amortized cost basis of the securities if it is more likely than not that we will be required or we intend to sell the instrumentsecurities before recovery of its amortized cost basis, or (3) abasis. Allowances for credit loss exists where we do not expect to recover the entire amortized cost basis of the instrument. In these situations, we recognize an
Fair Value of Financial Instruments
The carrying value of cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to their relatively short maturities as of January 26, 202030, 2022 and January 27, 2019.31, 2021. Marketable securities are comprised of available-for-sale securities that are reported at fair value with the related unrealized gains or losses included in accumulated other comprehensive income or loss, a component of shareholders’ equity, net of tax. Fair value of the marketable securities is determined based on quoted market prices. Derivative instruments are recognized as either assets or liabilities and are measured at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. For derivative instruments designated as fair value hedges, the gains or losses are recognized in earnings in the periods of change together with the offsetting losses or gains on the hedged items attributed to the risk being hedged. For derivative instruments designated as cash-flow hedges, the effective portion of the gains or losses on the derivatives is initially reported as a component of other comprehensive income or loss and is subsequently recognized in earnings when the hedged exposure is recognized in earnings. For derivative instruments not designated for hedge accounting, changes in fair value are recognized in earnings.
Concentration of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash equivalents, marketable securities, and accounts receivable. Our investment policy requires the purchase of highly-rated fixed income securities, the diversification of investment type and credit exposures, and includes certain limits on our portfolio duration. Accounts receivable from significant customers, those representing 10% or more of total accounts receivable, was approximately 21% of our accounts receivable balance from one customer as of January 26, 2020 and 19% of our accounts receivable balance from one customer as of January 27, 2019. We perform ongoing credit evaluations of our customers’ financial condition and maintain an allowance for potential credit losses. This allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure. Our overall estimated exposure excludes amounts covered by credit insurance and letters of credit.
Inventories
Inventory cost is computed on an adjusted standard basis, which approximates actual cost on an average or first-in, first-out basis. Inventory costs consist 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, and shipping costs, as well as the cost of purchased memory products and other component parts. We charge cost of sales for inventory provisions to write downwrite-down our inventory to the lower of cost or net realizable value or to completely write offfor obsolete or excess inventory. Most of our inventory provisions relate to the write-off of excess quantities of products, based on our inventory levels and future product purchase commitments compared to assumptions about future demand and market conditions. Once inventory has been written-off or written-down, it creates a new cost basis for the inventory that is not subsequently written-up. We record a liability for noncancelable purchase commitments with suppliers for quantities in excess of our future demand forecasts consistent with our valuation of obsolete or excess inventory.
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is computed using the straight-line method based on the estimated useful lives of the assets, generally three to five years. Once an asset is identified for retirement or disposition, the related cost and accumulated depreciation or amortization are removed, and a gain or loss is recorded. The estimated useful lives of our buildings are up to thirty years. Depreciation expense includes the amortization
of assets recorded under capitalfinance leases. Leasehold improvements and assets recorded under capitalfinance leases are amortized over the shorter of the expected lease term or the estimated useful life of the asset.
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Leases
We determine if an arrangement is or contains a lease at inception. Operating leases with lease terms of more than 12 months are included in operating lease assets, accrued and other current liabilities, and long-term operating lease liabilities on our consolidated balance sheet. Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments over the lease term.
Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using our incremental borrowing rate. Operating lease assets also include initial direct costs incurred and prepaid lease payments, minus any lease incentives. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.
We combine the lease and non-lease components in determining the operating lease assets and liabilities.
Goodwill
Goodwill is subject to our annual impairment test during the fourth quarter of our fiscal year, or earlier if indicators of potential impairment exist. For the purposes of completing our impairment test, we perform either a qualitative or a quantitative analysis on a reporting unit basis.
Qualitative factors include industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting units.
Our quantitative impairment test considers both the income approach and the market approach to estimate a reporting unit’s fair value. The income and market valuation approaches consider a number of factors that include, but are not limited to, prospective financial information, growth rates, residual values, discount rates and comparable multiples from publicly traded companies in our industry and require us to make certain assumptions and estimates regarding industry economic factors and the future profitability of our business. Refer to Note 6 of these Notes to the Consolidated Financial Statements for additional information.
Intangible Assets and Other Long-Lived Assets
Intangible assets primarily represent acquired intangible assets including developed technology, in-process research and development, or IPR&D, and customer relationships, as well as rights acquired under technology licenses, patents, and acquired intellectual property, trademarks and customer relationships.IP. We currently amortize our intangible assets with definitivefinite lives over periods ranging from threeone to tentwenty years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up or, if that pattern cannot be reliably determined, using a straight-line amortization method. We initially capitalize the fair value of IPR&D as an intangible asset with an indefinite life. When IPR&D projects are completed, we reclassify the IPR&D as an amortizable purchased intangible asset and amortize over the asset’s estimated useful life.
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets or asset groups to be held and used is measured by a comparison of the carrying amount of an asset or asset group to estimated undiscounted future cash flows expected to be generated by the asset or asset group. If the carrying amount of an asset or asset group exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Fair value is determined based on the estimated discounted future cash flows expected to be generated by the asset or asset group. Assets and liabilities to be disposed of would be separately presented in the Consolidated Balance Sheet and the assets would be reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated.
We allocate the fair value of Newthe purchase price of an acquisition to the tangible assets acquired, liabilities assumed, and Recently Issued Accounting Pronouncements
intangible assets acquired, including IPR&D, based on their estimated fair values. The Financial Accounting Standards Board, or FASB, issued an accounting standards update regardingexcess of the accounting for leases under which leasefair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and liabilitiesassumptions are recognized oninherently uncertain and subject to refinement. The estimates and assumptions used in valuing intangible assets include, but are not limited to, the balance sheet. We adopted this guidance on January
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Investment in Non-Affiliated Entities
Non-marketable equity investments in privately-held companies are recorded at fair value on a non-recurring basis only if an impairment or observable price adjustment occurs in the period with changes in fair value recorded through net income. These investments are valued using observable and unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including subsequent financing activities by the investee.
Marketable equity investments in publicly-held companies are recorded at fair value with the related unrealized and realized gains and losses recognized in other income (expense), net.
Adoption of New and Recently Issued Accounting Pronouncements Not Yet
Recently Adopted Accounting Pronouncement
In June 2016,October 2021, the FASBFinancial Accounting Standards Board issued a new accounting standard to replacerequire that an acquirer recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers. We early adopted this accounting standard in the incurred loss impairment methodology under current GAAP withthird quarter of fiscal year 2022 and the impact was immaterial.
Note 2 - Business Combination
Termination of the Arm Share Purchase Agreement
On February 8, 2022, NVIDIA and SoftBank announced the termination of the Share Purchase Agreement whereby NVIDIA would have acquired Arm from SoftBank. The parties agreed to terminate because of significant regulatory challenges preventing the completion of the transaction. We intend to record in operating expenses a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We will be required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments, including available-for-sale debt securities. We plan to adopt the standard using the modified retrospective transition method beginning$1.36 billion charge in the first quarter of fiscal year 2021. We do not currently believe it will have a material impact upon adoption.2023 reflecting the write-off of the prepayment provided at signing in September 2020.
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Purchase Price Allocation
The aggregate purchase consideration has been allocated as follows (in millions):
| Purchase Price | ||||||||
| Cash paid for outstanding Mellanox ordinary shares (1) | $ | 7,033 | ||||||
| Cash for Mellanox equity awards (2) | 16 | |||||||
| Total cash consideration | 7,049 | |||||||
| Fair value of Mellanox equity awards assumed by NVIDIA (3) | 85 | |||||||
| Total purchase consideration | $ | 7,134 | ||||||
| Allocation | ||||||||
| Cash and cash equivalents | $ | 115 | ||||||
| Marketable securities | 699 | |||||||
| Accounts receivable, net | 216 | |||||||
| Inventories | 320 | |||||||
| Prepaid expenses and other assets | 179 | |||||||
| Property and equipment, net | 144 | |||||||
| Goodwill | 3,431 | |||||||
| Intangible assets | 2,970 | |||||||
| Accounts payable | (136) | |||||||
| Accrued and other current liabilities | (236) | |||||||
| Income tax liability | (191) | |||||||
| Deferred income tax liability | (258) | |||||||
| Other long-term liabilities | (119) | |||||||
| $ | 7,134 | |||||||
(1) Represents the cash consideration of $125.00 per share inpaid to Mellanox shareholders for approximately 56 million shares of outstanding Mellanox ordinary shares.
(2) Represents the cash representing a total enterpriseconsideration for the settlement of approximately 249 thousand Mellanox stock options held by employees and non-employee directors of Mellanox.
(3) Represents the fair value of Mellanox’s stock-based compensation awards attributable to pre-combination services.
We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the estimated fair values.
The goodwill is primarily attributable to the planned growth in the combined business of NVIDIA and Mellanox. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill recognized in the acquisition is not expected to be deductible for foreign tax purposes. Goodwill arising from the Mellanox acquisition has been allocated to the Compute and Networking segment. Refer to Note 17 – Segment Information for further details on segments.
The operating results of Mellanox have been included in our consolidated financial statements for fiscal year 2021 since the acquisition date of April 27, 2020. Revenue attributable to Mellanox was approximately $6.9 billion10% for fiscal year 2021. There is not a practical way to determine net income attributable to Mellanox due to integration. Acquisition-related costs attributable to Mellanox of $28 million were included in selling, general and administrative expense for fiscal year 2021.
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NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Intangible Assets
The estimated fair value and useful life of the acquired intangible assets at the time of the acquisition are as follows:
| Fair Value | Useful Lives | ||||||||||
| (In millions) | |||||||||||
| Developed technology (1) | $ | 1,640 | 5 years | ||||||||
| Customer relationships (2) | 440 | 3 years | |||||||||
| Order backlog (3) | 190 | Based on actual shipments | |||||||||
| Trade names (4) | 70 | 5 years | |||||||||
| Total identified finite-lived intangible assets | 2,340 | ||||||||||
| IPR&D (5) | 630 | N/A | |||||||||
| Total identified intangible assets | $ | 2,970 | |||||||||
(1) The fair value of developed technology was identified using the Multi-Period Excess Earnings Method.
(2) Customer relationships represent the fair value of the existing relationships using the With and Without Method.
(3) Order backlog represents primarily the fair value of purchase arrangements with customers using the Multi-Period Excess Earnings Method. The intangible asset was fully amortized as of January 31, 2021.
(4) Trade names primarily relate to Mellanox trade names and fair value was determined by applying the Relief-from-Royalty Method under the income approach.
(5) The fair value of IPR&D was determined using the Multi-Period Excess Earnings Method.
The fair value of the finite-lived intangible assets will be amortized over the estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of revenue and operating expenses.
Mellanox has an IPR&D project associated with the next generation interconnect product that had not yet reached technological feasibility as of the dateacquisition date. Accordingly, we recorded an indefinite-lived intangible asset of $630 million for the fair value of this project, which was initially not amortized. Instead, the project is tested for impairment annually and whenever events or changes in circumstances indicate that the project may be impaired or may have reached technological feasibility. Once and if the project reaches technological feasibility, we will begin to amortize the intangible asset over its estimated useful life.
Supplemental Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for NVIDIA and Mellanox as if the companies were combined as of the Merger Agreement. beginning of fiscal year 2020:
| Pro Forma | |||||||||||||||||
| Year Ended | |||||||||||||||||
| January 31, 2021 | January 26, 2020 | ||||||||||||||||
| (In millions) | |||||||||||||||||
| Revenue | $ | 17,104 | $ | 12,250 | |||||||||||||
| Net income | $ | 4,757 | $ | 2,114 | |||||||||||||
The Merger Agreement contains customary representations, warrantiesunaudited pro forma information includes adjustments related to amortization of acquired intangible assets, adjustments to stock-based compensation expense, fair value of acquired inventory, and covenants.transaction costs. The consummationunaudited pro forma information presented above is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the merger is conditioned oncombined business had the receiptacquisition actually occurred at the beginning of fiscal year 2020 or of the approvalresults of Mellanox shareholders, as well as the satisfaction of other customary closing conditions, including domestic and foreign regulatory approvals and performance in all material respects by each party of its obligations under the Merger Agreement. In June 2019, Mellanox shareholders approved the consummationour future operations of the mergercombined businesses.
The pro forma results reflect the inventory step-up expense of $161 million in the fiscal year 2020 and we received regulatory approvals for the deal from Mexico in July 2019 andwere excluded from the European Commission in December 2019. In addition, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Actpro forma results for fiscal year 2021. There were no other material nonrecurring adjustments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Note 3 - New Lease Accounting Standard
Our lease obligations primarily consist of operating leases for our headquarters complex, domestic and international office facilities, and data center space, with lease periods expiring between fiscal years 20212023 and 2035.
| Operating Lease Obligations | |||
| (In millions) | |||
| Fiscal Year: | |||
| 2021 | $ | 121 | |
| 2022 | 117 | ||
| 2023 | 102 | ||
| 2024 | 79 | ||
| 2025 | 62 | ||
| 2026 and thereafter | 292 | ||
| Total | 773 | ||
| Less imputed interest | 121 | ||
| Present value of net future minimum lease payments | 652 | ||
| Less short-term operating lease liabilities | 91 | ||
| Long-term operating lease liabilities | $ | 561 | |
Future minimum lease payments under our non-cancelable operating leases as of January 27, 2019, based on the previous lease accounting standard,30, 2022, are as follows:
| Operating Lease Obligations | |||||
| (In millions) | |||||
| Fiscal Year: | |||||
| 2023 | $ | 176 | |||
| 2024 | 162 | ||||
| 2025 | 136 | ||||
| 2026 | 124 | ||||
| 2027 | 114 | ||||
| 2028 and thereafter | 288 | ||||
| Total | 1,000 | ||||
| Less imputed interest | 115 | ||||
| Present value of net future minimum lease payments | 885 | ||||
| Less short-term operating lease liabilities | 144 | ||||
| Long-term operating lease liabilities | $ | 741 | |||
| Lease Obligations | |||
| (In millions) | |||
| Fiscal Year: | |||
| 2020 | $ | 100 | |
| 2021 | 97 | ||
| 2022 | 90 | ||
| 2023 | 77 | ||
| 2024 | 54 | ||
| 2025 and thereafter | 265 | ||
| Total | $ | 683 | |
Operating lease expense for fiscal years 2022, 2021, and 2020 2019, and 2018 was $114$168 million, $80$145 million, $54$114 million, respectively. Short-term and variable lease expenses for fiscal yearyears 2022, 2021, and 2020 were not significant.
Other information related to leases was as follows:
| Year Ended | |||||||||||||||||
| January 30, 2022 | January 31, 2021 | January 26, 2020 | |||||||||||||||
| (In millions) | |||||||||||||||||
| Supplemental cash flows information | |||||||||||||||||
| Operating cash flows used for operating leases | $ | 154 | $ | 141 | $ | 103 | |||||||||||
| Operating lease assets obtained in exchange for lease obligations (1) | $ | 266 | $ | 200 | $ | 238 | |||||||||||
| Year Ended | |||
| January 26, 2020 | |||
| (In millions) | |||
| Supplemental cash flows information | |||
| Operating cash flows used for operating leases | $ | 103 | |
| Operating lease assets obtained in exchange for lease obligations | $ | 238 | |