~~ITEM 2~~. ~~MANAGEMENT’S~~ ~~DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Common Stock

~~Forward-Looking Statements~~

~~When used~~At the Annual Meeting of Stockholders held on June 19, 2008, the stockholders approved an increase in this Quarterly Report on Form 10-Q, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “will” and similar expressions are intended to identify forward-looking statements. These statements relate to future periods and include, but are not limited to, statements as to: the features, benefits, capabilities, performance, and availability of our technologies and products; seasonality; our taxes and tax rate; stock-based compensation expense; revenue; our expenditures; capital expenditures; our cash flow and cash balances; gross margin; product mix; inventories; our liquidity; uses of cash; our investments; our results of operations; our stock repurchase program; our internal control over financial reporting; our disclosure controls and procedures; recent accounting pronouncements; our foreign currency risk strategy; average selling prices; acquisitions; our strategies and objectives; product cycles; growth and growth factors; competition; our intellectual property; our strategic relationships; customer demand; reliance on a limitedauthorized number of ~~customers and suppliers; our international operations; our ability~~shares of common stock to ~~attract and retain qualified personnel; our use~~2,000,000,000. The par value of equity compensation; compliance with environmental laws and regulations; the Department of Justice subpoena and investigation; and litigation, including the class action and derivative lawsuits. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risks discussed below as well as difficulties associated with conducting international operations; slower than anticipated growth; unanticipated decreases in average selling prices; increased sales of lower margin products; reliance on third-parties to manufacture, assemble, package and test our products; difficulties in entering new markets; difficulty in collecting accounts receivable; unexpected inventory write-downs; entry of new competitors in our established markets; reduction in demand for our products; changes in customer preferences; market acceptance of our competitors’ products; product defects; the impact of competitive pricing pressures; disruptions in relationships with our key suppliers; delays in volume production of our products; fluctuations in general economic conditions; loss of design wins; the concentration of sales of our products to a limited number of customers; decreases in demand for our products; delays in the development of new products by us or our partners; inability to realize the benefits of acquisitions; expenses related to litigation; the outcome of litigation or Department of Justice investigation; and the matters set forth under Item 1A. - Risk Factors. These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.common stock remains unchanged at $0.001 per share.

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

2435

NVIDIA, GeForce, SLI, GoForce, NVIDIA Quadro, Quadro, NVIDIA nForce, NVIDIA Tesla and the NVIDIA logo are our trademarks or registered trademarks in the United States and other countries that are used in this document. We may also refer to trademarks of other corporations and organizations in this document.

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

~~Overview~~

~~Our Company~~

NVIDIA Corporation is the worldwide leader in programmable graphics processor technologies. Our products are designed to enhance the end-user experience on consumer and professional computing devices. We have four major product-line operating segments: the graphics processing unit, or GPU, business, the professional solutions business, or PSB, the media and communications processor, or MCP, business, and the consumer products business, or CPB.

Our GPU business is comprised primarily of our GeForce products that support desktop and notebook PCs, plus memory products. Our PSB is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products. Our MCP business is comprised of NVIDIA nForce core logic and motherboard GPU products. Our CPB is comprised of our GoForce brand mobile and consumer products that support handheld personal digital assistants, or PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

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

~~Recent Developments, Future Objectives and Challenges~~

~~GPU Business~~

During the first nine months of our fiscal year 2008, our GeForce product was the share leader in the Standalone Desktop and Standalone Notebook segments for the first nine months of calendar year 2007 as reported in the latest PC Graphics 2007 Report from Mercury Research.

During the first nine months of fiscal year 2008, we launched several new DirectX10 GPUs, adding the GeForce 8800 GT, GeForce 8800 Ultra, GeForce 8600, GeForce 8500, and GeForce 8300 to our GeForce 8 series of GPUs, which previously included the NVIDIA GeForce 8800 GTX and GeForce 8800 GTS.

~~During the third quarter of fiscal year 2008, we maintained our leading share in both the DirectX9 and DirectX10 generation of standalone desktop GPUs.~~

During the second quarter of fiscal year 2008, we launched a new family of GeForce 8M Series notebook GPUs. We also supported the production ramp of top notebook PC OEMs, including Acer, Apple, ASUS, Dell, HP, Lenovo, Samsung, Sony and Toshiba.

~~Professional Solutions Business~~

During the third quarter of fiscal year 2008, we began shipments of our Tesla C870 GPU computing processor and D870 desk-side supercomputer products, which we announced during the second quarter of fiscal year 2008. The Tesla family is our entry into the high-performance computing industry and consists of the C870 GPU Computing processor, the D870 Deskside Supercomputer and the S870 1U Computing Server.

~~During the third quarter of fiscal year 2008, we launched seven new Quadro solutions, including the Quadro FX 370 and 570.~~

During the second quarter of fiscal year 2008, we introduced a new line of notebook workstation GPUs based on our GeForce 8 series architecture. The new line consists of the NVIDIA Quadro FX 1600M, 570M and 360M.

During the first quarter of fiscal year 2008, we launched the NVIDIA Quadro FX 4600 and NVIDIA Quadro FX 5600 products, which are professional solutions based on our GeForce 8 series unified architecture.

During the first quarter of fiscal year 2008, we expanded our NVIDIA Quadro Plex family with the introduction of the NVIDIA Quadro Plex VCS IV, a new version of the NVIDIA Quadro Plex visual computing system, or VCS, which provides enhanced performance for a wide range of high-performance, graphics-intensive styling and design, oil and gas, and scientific applications.

~~MCP Business~~

During the third quarter of fiscal year 2008, we shipped our first single-chip motherboard GPUs, or mGPUs, for Intel-processor-based desktop PCs. The GeForce 7000 mGPU family delivers the performance of an entry-level discrete GPU when compared against traditional integrated graphics solutions.

During the first nine months of fiscal year 2008, our NVIDIA nForce products held the leadership position for the AMD segment in the first nine months of calendar year 2007, as reported in the latest PC Processor and Chipsets report from Mercury Research.

~~During the first quarter of fiscal year 2008, we shipped the GeForce 7050 motherboard GPU, which targets the lower cost segments of the market.~~

During the first quarter of fiscal year 2008, we extended the reach of Scalable Link Interface, or SLI, technology into the performance segments with the launch of our NVIDIA nForce 650i SLI, 680i LT SLI and 680i Ultra MCP products for Intel.

~~Consumer Products Business~~

During the first quarter of fiscal year 2008, we unveiled our first applications processor. The GoForce 6100 is designed for next generation personal media players, or PMPs, and multimedia smart phones. We began to ship the GoForce 6100 during the second quarter of fiscal year 2008.

~~Gross Margin Improvement~~

We continue to remain focused on improving our gross margin. During the third quarter of fiscal year 2008, our gross margin was 46.2%, an increase of 550 basis points from our gross margin of 40.7% for the third quarter of fiscal year 2007.

Our gross margin is significantly impacted by the mix of products that we earn revenue from during each of our fiscal quarters. Product mix is often difficult to estimate with accuracy. Therefore, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted. We plan to continue to focus on improving our gross margin during the fourth quarter of fiscal year 2008.

~~Seasonality~~

Our industry is largely focused on the consumer products market. Due to the seasonality in this market, we typically expect to see stronger revenue performance in the second half of the calendar year related to the back-to-school and holiday seasons.

~~Financial Information by Business Segment and Geographic Data~~

Our Chief Executive Officer, who is considered to be our chief operating decision maker, or CODM, reviews financial information presented on an operating segment basis for purposes of making operating decisions and assessing financial performance.

During the first quarter of fiscal year 2008, we reorganized our operating segments. We now report financial information for four operating segments to our CODM: the graphics processing unit, or GPU, business, which is comprised primarily of our GeForce products that support desktop and notebook PCs, plus memory products, the professional solutions business, or PSB, which is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products, the media and communications processor, or MCP, business, which is comprised of NVIDIA nForce core logic and motherboard GPU products, and our consumer products business, or CPB, which is comprised of mobile and consumer products that support handheld personal digital assistants, or PDAs, cellular phones and other handheld devices and license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

In addition to these operating segments, we have the “All Other” category that includes human resources, legal, finance, general administration and corporate marketing expenses, which total $66.2 million and $62.0 million for third quarter of fiscal years 2008 and 2007, respectively, and total $197.0 million and $170.5 million for the first nine months of fiscal years 2008 and 2007, respectively, that we do not allocate to our other operating segments. “All Other” also includes the results of operations of other miscellaneous operating segments that are neither individually reportable, nor aggregated with another operating segment. Revenue in the “All Other” category is primarily derived from sales of components. All relevant prior period amounts have been revised to conform to the presentation of our current fiscal quarter.

Our CODM does not review any information regarding total assets on an operating segment basis. Operating segments do not record intersegment revenue, and, accordingly, there is none to be reported. The accounting policies for segment reporting are the same as for NVIDIA as a whole.

~~Results of Operations~~

~~The following table sets forth, for the periods indicated, certain items in our Condensed Consolidated Statements of Income expressed as a percentage of revenue.~~

Three Months Ended

Nine Months Ended

October 28,
2007

October 29,
2006

October 28,
2007

October 29,
2006

Revenue

100.0
%

100.0
%

100.0
%

100.0
%
Cost of revenue 53.8 59.3 54.4 58.2
Gross profit 46.2 40.7 45.6 41.8
Operating expenses:

Research and development 16.1 17.2 17.1 17.9
Sales, general and administrative

7.9

9.2

8.6

9.5

Total operating expenses

24.0

26.4

25.7

27.4

Operating income

22.2

14.3

19.9

14.4

Interest and other income, net 1.7 1.3 1.6 1.3
Income before income tax expense 23.9 15.6 21.5 15.7
Income tax expense

2.8

2.6

2.8

2.7

Cumulative effect of change in accounting principle, net of income tax

—

—

—

—

Net income 21.1 % 13.0 % 18.7 % 13.0 %

~~Three and Nine Months Ended October 28, 2007 and October 29, 2006~~

~~Revenue~~

Revenue was $1.12 billion for the third quarter of fiscal year 2008, compared to $820.6 million for the third quarter of fiscal year 2007, which represents an increase of 36%. Revenue was $2.90 billion for the first nine months of fiscal year 2008 and $2.19 billion for the first nine months of fiscal year 2007, which represented an increase of 32%. A discussion of our revenue results for each of our operating segments is as follows:

~~GPU Business~~. GPU Business revenue increased by 46% to $689.9 million in the third quarter of fiscal year 2008, compared to $471.1 million for the third quarter of fiscal year 2007. This improvement was primarily due to increased sales of our desktop GPU products and notebook GPU products. Sales of our desktop GPU products increased by approximately 33% compared to the third quarter of fiscal year 2007, primarily due to growth of the Standalone Desktop market as reported in the latest PC Graphics 2007 Report from Mercury Research. Our position in the Standalone Desktop market is driven by our leadership position of our top to bottom GeForce 8-based family. Sales of our NVIDIA notebook GPU products increased by approximately 120% compared to the third quarter of fiscal year 2007. Notebook GPU revenue growth was primarily due to share gains in the Standalone Notebook segment as reported in the latest PC Graphics 2007 Report from Mercury Research. Our share gains in the Standalone Notebook segment were primarily a result of shipments of products used in notebook PC design wins related to Intel’s Santa Rosa platform used in notebooks.

GPU Business revenue increased by 40% to $1.75 billion for the first nine months of fiscal year 2008 compared to $1.25 billion for the first nine months of fiscal year 2007. The increase was primarily the result of increased sales across all GPU categories. Sales of our desktop GPU products increased approximately 28% and notebook GPU products increased by approximately 110% as compared to the first nine months of fiscal year 2007. This increase was due to a combination of growth of the Standalone Graphics market and share gains in the Standalone Desktop and the Standalone Notebook segments as reported in the latest PC Graphics 2007 Report from Mercury Research. Our share gains in the Standalone Desktop segment were primarily driven by the leadership position of our GeForce 8-based products and our share gains in the Standalone Notebook segment were primarily as a result of shipments of products used in notebook PC design wins related to Intel’s new Santa Rosa platform.

~~PSB~~. PSB revenue increased by 37% to $152.2 million in the third quarter of fiscal year 2008, compared to $111.3 million for the third quarter of fiscal year 2007. PSB revenue increased by 28% to $420.4 million for the first nine months of fiscal year 2008 as compared to $328.4 million for the first nine months of fiscal year 2007. Our NVIDIA professional workstation product sales increased due to an overall increase in shipments of boards and chips as compared to the third quarter and first nine months of fiscal year 2007. This increase in shipments was primarily driven by our transition from previous generations of NVIDIA Quadro professional workstation products to GeForce 8-based products.

~~MCP Business~~. MCP Business revenue increased by 6% to $198.2 million in the third quarter of fiscal year 2008, compared to $187.4 million for the third quarter of fiscal year 2007. The increase was driven by sales of our Intel-based platform products offset by a slight drop in sales of our AMD-based platform products as compared to the third quarter of fiscal year 2007. We began ramping up shipments of our Intel-based platform products after the third quarter of fiscal year 2007. The increase was also offset by a decline in sales of products related to our acquisition of ULi Electronics, Inc. in February 2006.

MCP business revenue increased by 14% to $508.0 million for the first nine months of fiscal year 2008 as compared to $444.9 million for the first nine months of fiscal year 2007. The increase resulted from an approximately 7% increase in sales of our AMD-based platform products and over a 400% increase in sales of our Intel-based platform products as compared to the first nine months of fiscal year 2007. The increase in our AMD-based platform products was led by notebook graphics products and we began ramping up shipments of our Intel-based platform products after the third quarter of fiscal year 2007. These increases were offset by a decline in sales of products related to our acquisition of ULi Electronics, Inc. in February 2006.

~~CPB.~~ CPB revenue increased by 35% to $65.9 million for the third quarter of fiscal year 2008, compared to $48.9 million for the third quarter of fiscal year 2007. CPB revenue increased by 21% to $195.3 million for the first nine months of fiscal year 2008 as compared to $162.0 million for the first nine months of fiscal year 2007. The overall increase in CPB revenue is primarily due to increased royalties from Sony Computer Entertainment, or SCE, but was offset by decreases in revenue from our cell phone products and our contractual development arrangements with SCE.

~~Concentration of Revenue~~

Revenue from sales to customers outside of the United States and other Americas accounted for 89% and 87% of total revenue for the third quarter of fiscal years 2008 and 2007, respectively, and 86% and 85% for the first nine months of fiscal years 2008 and 2007, respectively. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the foreign contract equipment manufacturers, or CEMs’, add-in board and motherboard manufacturers’ revenue is attributable to end customers in a different location.

Sales to significant customers, representing revenue in excess of 10% of our total revenue, accounted for approximately 10% and 13%, of our total revenue for the third quarter and for the first nine months of fiscal years 2008 and 2007, respectively.

~~Gross Profit and Gross Margin~~

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

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Our gross margin was 46.2% and 40.7% for the third quarter of fiscal years 2008 and 2007, respectively. The improvement in our gross margin reflects our continuing focus on delivering cost effective product architectures, enhancing business processes and delivering profitable growth. Our gross margin also improved in the third quarter of fiscal year 2008 because it did not include the $16.0 million charge to cost of revenue we recorded in third quarter of fiscal year 2007 as a result of entering into a confidential patent licensing agreement that was related to past usage of certain patents subject to the arrangement.

Our gross margin is significantly impacted by the mix of products we sell. Product mix is often difficult to estimate with accuracy and, thus, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted. We expect gross margin to remain relatively flat during the fourth quarter of fiscal year 2008 as compared to the third quarter of fiscal year 2008. A discussion of our gross margin results for each of our operating segments is as follows:

~~GPU Business~~. The gross margin of our GPU Business increased during the third quarter of fiscal year 2008 as compared to the third quarter of fiscal year 2007, as well as during the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007. This increase was primarily due to increased sales of our GeForce 8 series GPUs, which began selling in the third quarter of fiscal year 2007. Our GeForce 8 series GPUs generally have higher gross margins than our previous generations of GPUs. Additionally, the cost of memory purchases were more favorable during the third quarter and first nine months of fiscal year 2008.

~~PSB~~. The gross margin of our PSB increased during the third quarter of fiscal year 2008 as compared to the third quarter fiscal year 2007, as well as during the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007. This increase was primarily due to increased sales of our GeForce 8-based NVIDIA Quadro products, which began selling in the fourth quarter of fiscal year 2007 and generally have higher gross margins than our previous generations of NVIDIA Quadro products.

~~MCP Business~~. The gross margin of our MCP Business increased during the third quarter of fiscal year 2008 as compared to the third quarter fiscal year 2007, as well as during the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007. This increase was primarily due to a shift in product mix towards Intel-based platform products, which we began to ramp up shipment after the third quarter of fiscal year 2007, and inventory reserves that we recorded as a charge to cost of revenue during the first quarter of fiscal 2007 of approximately $4.1 million related to certain NVIDIA nForce purchase commitments that we believed had exceeded future demand.

~~CPB~~. The gross margin of our CPB was flat during the third quarter of fiscal year 2008 as compared to the third quarter fiscal year 2007, but decreased during the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007. This decrease was primarily due to a drop in gross profit realized from sales of our high-end feature cellular phone and other handheld devices. Offsetting these decreases was increased royalties from SCE during the third quarter of fiscal year 2008.

~~Operating Expenses~~

~~Research and Development~~

Three Months Ended

Nine Months Ended

October 28,
2007

October 29,
2006

$
Change

%
Change

October 28,
2007

October 29,
2006

$
Change

%
Change

(In millions)

(In millions)

Research and Development:

Salaries and benefits

$
99.0

$
70.5

$
28.5

40
%

$
276.5

$
205.5

$
71.0

35
%
Stock-based compensation

18.7

18.7

-

-
%

57.5

49.7

7.8

16
%
Depreciation and amortization

17.9

14.5

3.4

23
%

51.6

44.6

7.0

16
%
Computer software and lab equipment 17.6 15.2 2.4 16 % 48.1 41.5 6.6 16 %
Facility expense 14.5 10.1 4.4 44 % 38.9 27.0 11.9 44 %
New product development 7.5 10.9 (3.4 ) (31 )% 14.3 25.7 (11.4 ) (44 )%
License and development project costs

(1.4
)

(3.9
)

2.5

64
%

(5.3
)

(14.6
)

9.3

64
%
Other 5.7 4.7 1.0 21 % 14.2 11.8 2.4 20 %
Total

$
179.5

$
140.7

$
38.8

28
%

$
495.8

$
391.2

$
104.6

27
%

Research and development as a percentage of net revenue

16
%

17
%

17
%

18
%

Research and development expenses were $179.5 million and $140.7 million in the third quarter of fiscal years 2008 and 2007, respectively, an increase of $38.8 million, or 28%. The increase is primarily due to a $28.5 million increase in salaries and benefits, which was related to having approximately 700 additional personnel in research and development. Additionally, the increase is also attributable to accruals for payments pursuant to our variable compensation programs as a result of our improved financial performance and outlook for the current fiscal year. Despite an increase in headcount, stock-based compensation expense remained comparable between the third quarters of fiscal years 2008 and 2007 primarily because the increase in compensation expense related to stock options granted since the third quarter of fiscal year 2007 was offset by a combination of the reduction in compensation expense related to older awards that were almost completely vested and amortized by the end of the first quarter of fiscal year 2008 and the transition from the Black-Scholes model to the binomial model. Depreciation and amortization expense increased $3.4 million due to additional hardware, machinery and equipment purchased during the year. Facility expenses increased $4.4 million due to increased facility expense allocation, and computer software and equipment increased $2.4 million primarily due to increased allocation of information technology expenses, both of which were based on the growth in headcount in departments related to research and development functions when compared to the growth in headcount related to sales, general and administrative functions. License and development project costs increased by $2.5 million primarily related to decreased development costs related to our collaboration with SCE and other engineering costs related to a different development contract. Certain of our personnel who usually devote their time to research and development efforts have spent time working on these development projects. The cost associated with the time these individuals spend working on development projects is allocated from research and development to cost of revenue or is capitalized on our balance sheet. During the third quarter of fiscal year 2008, less time was spent working on development projects, so less cost was allocated to cost of revenue or capitalized and, therefore, more cost remained in research and development. These increases were offset by a decrease of $3.4 million in new product development costs as a result of lower engineering consumption and non-recurring engineering costs in the current year.

Research and development expenses were $495.8 million and $391.2 million in the first nine months of fiscal years 2008 and 2007, respectively, an increase of $104.6 million, or 27%. The increase is primarily due to a $71.0 million increase in salaries and benefits which was related to having approximately 700 additional personnel. Additionally, the increase is also attributable to accruals for payments pursuant to our variable compensation programs as a result of our improved financial performance and outlook for the current fiscal year. Stock-based compensation expense increased by $7.8 million primarily due to an increase in headcount, offset by a combination of the reduction in compensation expense related to older awards that were almost completely vested and amortized by the end of the first quarter of fiscal year 2008 and the transition from the Black-Scholes model to the binomial model. Depreciation and amortization expense increased $7.0 million due to emulation hardware and software programs that were purchased during fiscal year 2007, resulting in a full period of depreciation in the first nine months of fiscal year 2008 compared to a partial period of depreciation in the first nine months of fiscal year 2007. Facility expenses increased $11.9 million due to increased facilities expense allocation, and computer software and equipment increased $6.6 million primarily due to increased allocation of information technology expenses, both of which were based on the growth in headcount in departments related to research and development functions when compared to the growth in headcount related to sales, general and administrative functions. License and development project costs increased by $9.3 million primarily related to decreased development costs related to our collaboration with SCE and other engineering costs related to a different development contract. Certain of our personnel who usually devote their time to research and development efforts have spent time working on these development projects. The cost associated with the time these individuals spend working on development projects is allocated from research and development to cost of revenue or is capitalized on our balance sheet. During the first nine months of fiscal year 2008, less time was spent working on development projects, so less cost was allocated to cost of revenue or capitalized and, therefore, more cost remained in research and development. These increases were offset by a decrease of $11.4 million in new product development costs as a result of decreases in product tape-outs, engineering consumption and non-recurring engineering costs during the first nine months of fiscal year 2008.

We anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity, anticipated increase in headcount and the greater number of products under development. However, research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and these investments may be independent of our level of revenue.

~~Sales, General and Administrative~~

Three Months Ended

Nine Months Ended

October 28,
2007

October 29,
2006

$
Change

%
Change

October 28,
2007

October 29,
2006

$
Change

%
Change

(In millions)

      (In millions)

Sales, General and Administrative:
Salaries and benefits
$ 45.3 $ 35.2 $ 10.1 29 % $ 126.3 $ 100.4 $ 25.9 26 %
Advertising and promotions

19.2

15.3

3.9
25 %
47.2

45.0

2.2
5 %
Stock-based compensation 10.8 10.7 0.1 1 % 33.3 27.8 5.5 20 %
Legal and accounting fees 7.3 8.9 (1.6 ) (18 )% 23.7 15.5 8.2 53 %
Depreciation and amortization

2.5

0.6

1.9
317 %
8.0

5.1

2.9
57 %
Facility expense 1.0 3.4 (2.4 ) (71 )% 6.5 11.7 (5.2 ) (44 )%
Other

2.1

1.5

0.6
40 %
5.0

3.1

1.9
61 %
Total $ 88.2 $ 75.6 $ 12.6 17 % $ 250.0 $ 208.6 $ 41.4 20 %

Sales, general and administrative as a percentage of net revenue 8 % 9 % 9 % 10 %

Sales, general and administrative expenses were $88.2 million and $75.6 million in the third quarter of fiscal years 2008 and 2007, respectively, an increase of $12.6 million, or 17%, primarily due to a $10.1 million increase in salaries and benefits related to our having approximately 170 additional personnel. Additionally, the increase is also attributable to accruals for payments pursuant to our variable compensation programs as a result of our improved financial performance and outlook for the current fiscal year. Despite an increase in headcount, stock-based compensation expense remained comparable between the third quarters of fiscal years 2008 and 2007, primarily because the increase in compensation expense related to stock options granted since the third quarter of fiscal year 2007 was offset by a combination of the reduction in compensation expense related to older awards that were almost completely vested and amortized by the end of the first quarter of fiscal year 2008 and the transition from the Black-Scholes model to the binomial model. Advertising and promotions increased by $3.9 million primarily due to expenses incurred due to conferences, sponsorships and employee events held during the quarter and increased advertising campaign costs. These increases were offset by a decrease of $2.4 million in facility expense due to decreased facilities expense allocation to sales, general and administrative functions, which was driven by greater incremental headcount growth within the research and development functions. Legal and accounting fees also decreased by $1.6 million primarily due to a decrease in legal fees related to the stock option investigation, offset by legal fees related to the Department of Justice, or DOJ investigation which was initiated in the fourth quarter of fiscal year 2007 and 3dfx matters described in Note 13 of the Notes to Condensed Consolidated Financial Statements.

Sales, general and administrative expenses were $250.0 million and $208.6 million for the first nine months of fiscal years 2008 and 2007, respectively, an increase of $41.4 million, or 20%. The increase was primarily due to a $25.9 million increase in salaries and benefits which related to our having added approximately 170 additional personnel. Additionally, the increase is also attributable to accruals for payments pursuant to our variable compensation programs as a result of our improved financial performance and outlook for the current fiscal year. Stock-based compensation expense increased by $5.5 million primarily due to an increase in headcount, offset by a combination of the reduction in compensation expense related to older awards that were almost completely vested and amortized by the end of the first quarter of fiscal year 2008 and the transition from the Black-Scholes model to the binomial model. Advertising and promotions expenses increased by $2.2 million primarily due to increase in sponsorship, employee events and advertising campaign costs. Legal and accounting fees increased by $8.2 million primarily due to legal fees related to the 3dfx and DOJ matters. Depreciation and amortization expense increased by $2.9 million primarily due to additions of hardware, machinery and equipment during fiscal year 2008. These increases in sales, general and administrative expenses were offset by a decrease of $5.2 million in facility expenses due to decreased facilities expense allocation to sales, general and administrative functions, which was driven by greater incremental headcount growth within the research and development functions.

~~Operating Expenses~~

~~We expect operating expenses to increase by 3% to 5% in the fourth quarter of fiscal year 2008 as a result of continued hiring and associated salaries and benefits expenses.~~

~~Interest Income and Interest Expense~~

Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $17.4 million and $10.7 million in the third quarter of fiscal years 2008 and 2007, respectively, an increase of $6.8 million. Interest income was $46.3 million and $28.3 million for the first nine months of fiscal years 2008 and 2007, respectively, an increase of $18.0 million. These increases were primarily the result of higher average balances of cash, cash equivalents, and marketable securities during the first nine months of fiscal year 2008 when compared to the first nine months of fiscal year 2007.

~~Income Taxes~~

We recognized income tax expense of $31.1 million and $21.8 million for the third quarter of fiscal years 2008 and 2007, respectively, and $80.8 million and $58.3 million for the first nine months of fiscal years 2008 and 2007, respectively. Income tax expense as a percentage of income before taxes, or our effective tax rate, was 11.7% and 17.0% for the third quarter of fiscal years 2008 and 2007, respectively, and 13.0% and 17.0% for the first nine months of fiscal years 2008 and 2007, respectively. Our effective tax rate is lower than the United States Federal Statutory rate of 35.0% due primarily to income earned in lower tax jurisdictions and research tax credits. During the quarter ended October 28, 2007, we lowered our estimate of the fiscal year 2008 annual effective tax rate from 14.0% to 13.0%. The revision resulted primarily due to a change in the relative geographical mix of income subject to tax and increased research tax credits due to increased stock option deductions.

~~Please refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information regarding income taxes.~~

~~Liquidity and Capital Resources~~

As of October 28, 2007

As of January 28, 2007

(In millions)

Cash and cash equivalents
$ 1,056.7 $ 544.4
Marketable securities

796.3

573.4

Cash, cash equivalents, and marketable securities
$ 1,853.0 $ 1,117.8

Nine Months Ended

As of October 28, 2007

As of October 29, 2006

(In millions)

Net cash provided by operating activities
$ 1,017.7 $ 356.7
Net cash used in investing activities
$ (335.4 ) $ (168.9 )
Net cash provided by (used in) financing activities
$ (170.0 ) $ 2.2

As of October 28, 2007, we had $1.85 billion in cash, cash equivalents and marketable securities, an increase of $735.1 million from the end of fiscal year 2007. Our portfolio of cash equivalents and marketable securities is managed by several financial institutions. Our investment policy requires the purchase of top-tier investment grade securities, the diversification of asset type and certain limits on our portfolio duration.

Operating activities generated cash of $1.02 billion and $356.7 million during the first nine months of fiscal years 2008 and 2007, respectively. The cash provided by operating activities increased due to an increase in our net income during the comparable periods. Additionally, operating activities have generated cash in amounts greater than net income primarily due to non-cash charges such as stock-based compensation expense, depreciation and amortization. The improvement in days sales in inventory correlates to the incremental inflow from inventory sell through in excess of purchases. Additionally, timing of payment to vendors also contributed to increased operating cash flows. During the first nine months of fiscal year 2008, these operating cash inflows were offset by cash outflows related to accounts receivable due to an increase in sales compensated by strong collections related to the increased linearity in the profile of shipments in the year. Additionally, during the nine months of fiscal year 2008, approximately $49.6 million in payments were made related to a confidential patent licensing arrangement that we entered into during fiscal year 2007.

Investing activities have consisted primarily of purchases and sales of marketable securities, purchases of property and equipment and purchases of intangible assets. Investing activities used cash of $335.4 million during the first nine months of fiscal year 2008, primarily due to $117.4 million for capital expenditures. Capital expenditures included purchases of new research and development equipment, testing equipment that are consigned to partners located in Asia to support our increased production, purchase of land in anticipation of building additional space, and purchases of other hardware equipment, technology licenses, software and intangible assets. Investing activities also used cash of $218.0 million towards the net purchases of marketable securities, primarily due to the increased cash balances in the first nine months of the fiscal year 2008. Investing activities used cash of $168.9 million during the first nine months of fiscal year 2007, primarily due to $69.6 million for capital expenditures and $67.0 million towards acquisition of businesses. Investing activities also used cash of $32.3 million towards the net purchases of marketable securities in the first nine months of the fiscal year 2007.

We expect to spend approximately $30.0 million to $50.0 million for capital expenditures unrelated to acquisitions during the fourth quarter of fiscal year 2008. In addition, we may continue to use cash in connection with the acquisition of businesses or assets.

Financing activities used cash of $374.4 million towards our stock repurchase program for the first nine months of fiscal year 2008 and provided cash of $204.4 million from common stock issued under employee stock plans during the first nine months of fiscal year 2008. Financing activities provided cash of $2.2 million during the first nine months of fiscal year 2007, primarily as a result of $154.6 million of common stock issued under employee stock plans, offset by $175.0 million of cash used towards our stock repurchase program.

~~Stock Repurchase Program~~

During fiscal year 2005, we announced that our Board had authorized a stock repurchase program to repurchase shares of our common stock, subject to certain specifications, up to an aggregate maximum amount of $300 million. During fiscal year 2007, the Board further approved an increase of $400 million to the original stock repurchase program. In fiscal year 2008, on May 21, 2007, we announced a stock repurchase program under which we may purchase up to an additional $1.0 billion of our common stock over a three year period through May 2010. As a result of these increases, we have an ongoing authorization from the Board, subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of $1.7 billion.

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

During the third quarter of fiscal year 2008, we entered into a structured share repurchase transaction to repurchase 4.0 million shares for $125.0 million which we recorded on the trade date of the transaction. Through October 28, 2007, we have repurchased 56.0 million shares under our stock repurchase program for a total cost of $862.5 million.

Subsequent to October 28, 2007, we entered into a structured share repurchase transaction to repurchase shares of our common stock for $125.0 million that we expect to settle prior to the end of our fourth quarter of fiscal year 2008 ending on January 27, 2008.

Operating Capital and Capital Expenditure Requirements

We believe that our existing cash balances and anticipated cash flows from operations will be sufficient to meet our operating, acquisition and capital requirements for at least the next 12 months. However, there is no assurance that we will not need to raise additional equity or debt financing within this time frame. Additional financing may not be available on favorable terms or at all and may be dilutive to our then-current stockholders. We also may require additional capital for other purposes not presently contemplated. If we are unable to obtain sufficient capital, we could be required to curtail capital equipment purchases or research and development expenditures, which could harm our business. Factors that could affect our cash used or generated from operations and, as a result, our need to seek additional borrowings or capital include:

·	decreased demand and market acceptance for our products and/or our customers’ products;

·	inability to successfully develop and produce in volume production our next-generation products;

·	competitive pressures resulting in lower than expected average selling prices; and

·	new product announcements or product introductions by our competitors.

In addition, we may continue to use cash in connection with the acquisition of new businesses or assets and capital expenditures related to our property purchases or property development activities. We are currently in the process of planning to construct a new campus in Santa Clara, California. If we move forward with these plans, we may be required to fund significant construction costs using our cash, cash equivalents and marketable securities. While we expect that we will have sufficient balances of cash, cash equivalents and marketable securities available for this purpose, there is no assurance that we will not need to raise additional debt financing in order to fund this project. Such additional financing may not be available on favorable terms, or at all.

For additional factors ~~see~~that could impact our liquidity, please refer to “Item 1A. Risk Factors - Risks Related to Our ~~Operations~~Business and Products” - Our operating results are unpredictable and may fluctuate, and if our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline.”

3dfx Asset Purchase

On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into ~~the~~an Asset Purchase Agreement, or ~~the~~ APA, which closed on April 18, 2001, to purchase certain graphics chip assets from 3dfx. Under the terms of the APA, the cash consideration due at the closing was $70.0 million, less $15.0 million that was loaned to 3dfx pursuant to a Credit Agreement dated December 15, 2000. The Asset Purchase Agreement also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx one million shares, which due to subsequent stock splits now totals six million shares, of NVIDIA common stock. If 3dfx could not make such a certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under the agreement to pay any additional consideration for the assets.

In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. In March 2003, we were served with a complaint filed by the Trustee appointed by the Bankruptcy Court which sought, among other things, payments from us as additional purchase price related to our purchase of certain assets of 3dfx. In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court after notice and hearing. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. However, the conditional settlement never progressed substantially through the confirmation process.

On December 21, 2005, the Bankruptcy Court determined that it would schedule trial of one portion of the Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA exercised its right to terminate the settlement agreement on grounds that the Bankruptcy Court had failed to proceed toward confirmation of the Creditors’ Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues in the Trustee's constructive fraudulent transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as "property" subject to the Bankruptcy Court's avoidance powers under the Uniform Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is the fair market value of the "property" identified in answer to question (2)?; and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to the fair market value of that property? At the conclusion of the evidence, the Bankruptcy Court asked the parties to submit post-trial briefing. That briefing was completed on May 25, ~~2007,~~2007. On April 30, 2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties' contentions with respect to each of the questions to be tried. The Bankruptcy ~~Court’s~~Court concluded that "the creditors of 3dfx were not injured by the Transaction." This decision does not entirely dispose of the Trustee's action, however; still pending are the Trustee's claims for successor liability and intentional fraudulent conveyance. On May 12, 2008, the Trustee filed a motion for leave to pursue an interlocutory appeal, but thereafter withdrew the motion. NVIDIA has filed a motion for summary judgment on all causes of action in order to convert the Memorandum Decision After Trial to a final judgment. That motion is ~~still pending.~~scheduled to be heard on August 28, 2008.

Please refer to Note 1312 of the Notes to Condensed Consolidated Financial Statements for further information regarding this litigation.

~~Contractual Obligations~~

Product Defect

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

During our fiscal quarter ended July 27, 2008, we recorded a $196.0 million charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and other associated costs arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems. All of our newly manufactured products and all of our products that are currently shipping in volume have a different material set that we believe is more robust.

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

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

Contractual Obligations

At ~~October 28, 2007,~~July 27, 2008, we had outstanding inventory purchase obligations and capital purchase obligations totaling approximately ~~$784.2 million.~~$615.6 million and $46.0 million, respectively. There were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended January ~~28, 2007.~~27, 2008. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Form 10-K for a description of our contractual obligations.

Off-Balance Sheet Arrangements

As of ~~October 28, 2007,~~July 27, 2008, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

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~~Recently Issued~~

Adoption of New Accounting Pronouncements

~~In September 2006, the Financial Accounting Standards Board, or FASB, issued~~On January 28, 2008, we adopted Statement of Financial Accounting Standards No. 157, or SFAS No. 157, Fair Value Measurements. SFAS No. 157 for all financial assets and financial liabilities recognized or disclosed at fair value in the financial statements. SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. ~~We are required to adopt the provisions~~The adoption of SFAS No. 157 ~~beginning with~~for financial assets and liabilities did not have a significant impact on our ~~fiscal quarter ending April 27, 2008. We are currently evaluating~~consolidated financial statements, and the ~~impact that~~resulting fair values calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under previous guidance. Please refer to Note 16 of these Notes to the Condensed Consolidated Financial Statements for further details on our fair value measurements.

Additionally, in February 2008, the Financial Accounting Standards Board, or FASB, issued FASB Staff Position No. FAS 157-2, or FSP No. 157-2, Effective Date of FASB Statement No. 157, to partially defer FASB Statement No. 157, Fair Value Measurements. FSP No. 157-2 defers the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years, and interim periods within those fiscal years, beginning after November 15, 2008. We do not believe the adoption of FSP No. 157-2 will have a material impact on our consolidated financial position, results of operations and cash flows.

~~In February 2007, the FASB issued~~On January 28, 2008, we adopted Statement of Financial Accounting Standards No. 159, or SFAS No. 159, The Fair Value Option for Financial Assets and Financial ~~Liabilities~~.Liabilities. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair ~~value.~~value using an instrument-by-instrument election. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. ~~We are required to adopt~~Under SFAS No. 159, we did not elect the ~~provisions~~fair value option for any of our assets and liabilities. The adoption of SFAS No. 159 ~~beginning with our fiscal quarter ending April 27, 2008, although earlier adoption is permitted. We are currently evaluating the~~did not have an impact ~~that SFAS No. 159 will have~~ on our consolidated financial ~~position, results of operations and cash flows.~~statements.

In June 2007, the FASB ratified Emerging Issues Task Force Issue No. 07-3, or EITF 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to Be Used in Future Research and Development Activities. EITF 07-3 requires non-refundable advance payments for goods and services to be used in future research and development activities to be recorded as an asset and the payments to be expensed when the research and development activities are performed. We ~~are required to adopt~~adopted the provisions of EITF 07-3 beginning with our fiscal quarter ~~ending~~ended April 27, 2008. The adoption of EITF 07-3 isdid not ~~expected to~~ have ~~a significant~~any impact on our consolidated financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

~~On January 29,~~In December 2007, ~~we adopted~~the FASB ~~Interpretation No. 48, or FIN 48,~~ ~~Accounting for Uncertainty in Income Taxes,~~ issued ~~in July 2006. FIN 48 applies to all tax positions related to income taxes subject to FASB~~ Statement of Financial Accounting Standards No. ~~109,~~141 (revised 2007), or SFAS No. ~~109,~~ ~~Accounting for Income Taxes~~141(R), Business Combinations. Under ~~FIN 48 we~~SFAS No. 141(R), an entity is required to recognize the ~~benefit~~assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development is capitalized as an intangible asset and amortized over its estimated useful life. We are required to adopt the provisions of SFAS No. 141(R) beginning with our fiscal quarter ending April 26, 2009. The adoption of SFAS No. 141(R) is expected to change our accounting treatment for business combinations on a ~~tax position only if~~prospective basis beginning in the period it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. The cumulative effect of adoption of FIN 48 did not result in a material adjustment to our tax liability for unrecognized income tax benefits. Our policy to include interest and penalties related to unrecognized tax benefits as a component of income tax expense did not change as a result of implementing the FIN 48. Please refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for additional information.adopted.

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ITEM 33.. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Investment and Interest Rate Risk

At July 27, 2008 and January 27, 2008, we had $1.66 billion and $1.81 billion, respectively, in cash, cash equivalents and marketable securities. We invest in a variety of financial instruments, consisting principally of ~~investments in~~cash and cash equivalents, asset-backed securities, commercial paper, mortgage-backed securities issued by Government-sponsored enterprises, equity securities, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. ~~These~~As of July 27, 2008, we did not have any investments in auction-rate preferred securities. Our investments are denominated in United States dollars. ~~As of October 28, 2007, we had $1.85 billion in cash, cash equivalents and marketable securities.~~

We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. All of the cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or weif the decline in fair value of our publicly traded debt or equity investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that decline in securities market value due to changes in interest rates. However, because ~~we classify our~~any debt securities we hold are classified as ~~“available-for-sale”,~~“available-for-sale,” no gains or losses are ~~recognized~~realized in our condensed consolidated statements of income due to changes in interest rates unless such securities are sold prior to maturity or unless declines in ~~fair~~ value are determined to be ~~other than temporary.~~other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax.

As of ~~October 28, 2007,~~July 27, 2008, we performed a sensitivity analysis on our floating and fixed rate financial investments. According to our analysis, parallel shifts in the yield curve of both ~~+/-~~plus or minus 0.5% would result in changes in fair market values for these investments of approximately ~~$3.0~~$4.6 million.

Recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets, causing global credit and liquidity issues. The short-term funding markets experienced issues since the third and fourth quarter of calendar 2007, leading to liquidity disruption in the market. If the global credit market continues to deteriorate, our investment portfolio may be impacted and we could determine some of our investments are impaired, which could adversely impact our financial results. Our investments in the financial sector and government agencies accounted for approximately 36% and 30%, respectively, of our total investment portfolio. If the fair value of our investments in these sectors was to decline by 2%-5%, it would result in changes in fair market values for these investments by approximately $20-$49 million.

Exchange Rate Risk

We consider our direct exposure to foreign exchange rate fluctuations to be minimal. Currently, 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. Fluctuations in currency exchange rates could harm our business in the future. During the second quarter of fiscal years 2009 and 2008, the aggregate exchange loss included in determining net income (loss) was $0.9 million and $0.1 million, respectively. During the first half of fiscal years 2009 and 2008, the aggregate exchange loss included in determining net income was $5.1 million and $0.7 million, respectively.

We may enter into certain transactions such as forward contracts which are designed to reduce the future potential impact resulting from changes in foreign currency exchange rates. There were no forward exchange contracts outstanding at ~~October 28, 2007. Subsequent to October 28, 2007, we have entered into a forward foreign exchange contract to purchase Euros with a notional principal of $83.2 million.~~July 27, 2008.

ITEM 4. CONTROLS AND PROCEDURES

Controls and Procedures

~~Controls and Procedures~~

Disclosure Controls and Procedures

Based on their evaluation as of ~~October 28, 2007,~~July 27, 2008, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act, were effective to ensure that the material information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during our fiscal quarter ended ~~October 28, 2007,~~July 27, 2008 that have materially affected, or are reasonably likely to materially 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.

PART II: ~~OTHER INFORMATION~~

ITEM 1.LEGAL PROCEEDINGS

Please see Part I, Item 1, Note 1312 of the Notes to Condensed Consolidated Financial Statements for a discussion of our legal proceedings.

ITEM ~~1A.~~1A . RISK FACTORS

A description of the risk factors associated with our business is set forth below. This description includes any material changes to and supersedes the description of risk factors associated with our business previously disclosed in Part ~~I, Item~~II, “Item 1A. ~~“Risk~~Risk Factors” of our Quarterly Report on Form ~~10-K~~10-Q for the fiscal ~~year~~quarter ended ~~January 28, 2007.~~April 27, 2008.

Risks Related to ~~Our Operations~~Competition

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

The markets for ~~any period depends~~our products are highly competitive and are characterized by rapid technological change, new product introductions, evolving industry standards, and declining average selling prices. We believe that our ability to remain competitive will depend on ~~a number~~how well we are able to anticipate the features and functions that customers will demand from our products and whether we are able to deliver consistent volumes of our products at acceptable prices and quality levels. We believe other factors impacting our ~~failure~~ability to ~~forecast changes in any of the factors could adversely affect our gross margin.~~compete are:

·	product performance;
·	product bundling by competitors with multiple product lines;
·	breadth and frequency of product offerings;
·	access to customers and distribution channels;
·	backward-forward software support;
·	conformity to industry standard application programming interfaces; and
·	manufacturing capabilities.

We expect competition to increase both from existing competitors and new market entrants with products that may be less costly than ours, may provide better performance or additional features not provided by our products, or from companies that provide or intend to provide competing product solutions. Any of these sources of competition could harm our business. For example, we were the largest supplier of AMD 64 chipsets with 60% segment share in the second quarter of calendar year 2008, as reported in the 2008 Second Quarter PC Processor and Chipset report from Mercury Research. Decline in demand for our chipsets in the AMD segment for any reason including competition from existing competitors or new market entrants could materially impact our financial results.

Some of our competitors may have or be able to obtain greater marketing, financial, distribution and manufacturing resources than we do and may be better able to adapt to customer or technological changes. Currently, Intel Corporation, or Intel, which has greater resources than we do, is working on a multi-core architecture code-named Larrabee, which is reported to combine the graphics processing capabilities of a graphics processing unit, or GPU, with an x86 architecture and is expected to compete with our products in various markets. Intel is targeting the gaming market as well as other industries that demand high-performance graphics and computing with Larrabee, both of which are important markets for us. In order to compete, we may have to invest substantial amounts in research and development without assurance that our products will be superior to those of our competitors or that our products will achieve market acceptance.

Our current competitors include the following:

·	suppliers of discrete media and communication processors, or MCPs, that incorporate a combination of networking, audio, communications and input/output functionality as part of their existing solutions, such as Advanced Micro Devices, Inc., or AMD, Broadcom Corporation, or Broadcom, Silicon Integrated Systems Corporation, or SIS, and Intel;
·	suppliers of GPUs, including MCPs that incorporate 3D graphics functionality as part of their existing solutions, such as AMD, Intel, Matrox Electronics Systems Ltd., SIS and VIA Technologies, Inc.;
·	suppliers of GPUs or GPU intellectual property for handheld and digital consumer electronics devices that incorporate advanced graphics functionality as part of their existing solutions, such as AMD, Broadcom, Fujitsu Limited, Imagination Technologies Ltd., ARM Holdings plc, Marvell Technology Group Ltd., or Marvell, NEC Corporation, Qualcomm Incorporated, or Qualcomm, Renesas Technology, Seiko-Epson, Texas Instruments Incorporated, or Texas Instruments, and Toshiba America, Inc.; and
·	suppliers of application processors for handheld and digital consumer electronics devices that incorporate multimedia processing as part of their existing solutions such as Broadcom, Texas Instruments, Qualcomm, Marvell, Freescale Semiconductor Inc., Samsung and ST Microelectronics.

As Intel and AMD continue to pursue ~~improved gross margin. Our gross margin for any period depends on a number of factors, including:~~

·	~~the mix of our products sold;~~

·	~~average selling prices;~~

·	~~introduction of new products;~~

·	~~sales discounts;~~

·	~~unexpected pricing actions by our competitors;~~

·	~~the cost of product components; and~~

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

~~If we do not correctly forecast the impact of any of the relevant factors on our business,~~platform solutions, we may not be able to ~~take action~~successfully compete and our business would be negatively impacted.

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

Risks Related to Our Partners and Customers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We have a limited number of customers and our sales are highly concentrated. Sales to a significant customer with revenue in excess of 10% of our total revenue, represented approximately 13% and 12% of our total revenue during the second quarter of fiscal years 2009 and 2008, respectively. Aggregate sales to our two largest customers accounted for approximately 21% and 16% of our total revenue for the first half of fiscal years 2009 and 2008, respectively. Although a small number of our other customers represent the majority of our revenue, their end customers include a large number of original equipment manufacturers, or OEMs, and system integrators throughout the world who, in many cases, specify the graphics supplier. Our sales process involves achieving key design wins with leading personal computer, or PC, OEMs and major system builders and supporting the product design into high volume production with key contract equipment manufacturers, or CEMs, original design manufacturers, or ODMs, add-in board and motherboard manufacturers. These design wins in turn influence the retail and system builder channel that is serviced by CEMs, ODMs, add-in board and motherboard manufacturers. Our distribution strategy is to work with a small number of leading independent CEMs, ODMs, add-in board and motherboard manufacturers, and distributors, each of which has relationships with a broad range of system builders and leading PC OEMs. If we were to lose sales to our PC OEMs, CEMs, ODMs, add-in board manufacturers and motherboard manufacturers and were unable to replace the lost sales with sales to different customers, they were to significantly reduce the number of products they order from us, or we were unable to collect accounts receivable from them, our revenue may not reach or exceed the expected level in any period, which could harm our financial condition and our results of operations.

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

Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our customers' businesses, and to downturns in the industry and the worldwide economy. One customer accounted for approximately 11% and 12% of our accounts receivable balance at July 27, 2008 and January 27, 2008, respectively.

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

Risks Related to Our Business and Products

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

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

We continue to engage in discussions with our supply chain regarding reimbursement to us for some or all of the costs we have incurred and may incur in the future relating to the weak material set. We also continue to seek to access our insurance coverage. However, there can be no assurance that we will recover any such reimbursement. We continue to not see any abnormal failure rates in any systems using NVIDIA products other than certain notebook configurations. However, we are ~~unable~~continuing to ~~meet our gross margin target for any period~~test and otherwise investigate other products. There can be no assurance that we will not discover defects in other MCP or ~~the target set by analysts, the trading price of our common stock may decline.~~GPU products.

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

Our performance is substantially dependent on the performance of our executive officers and key employees. None of our executive officers or employees is bound by an employment agreement, meaning our relationships with our executive officers and employees are at will. We do not have “key person” life insurance policies on any of our employees. The loss of the services of any of our executive officers, technical personnel or other key employees, particularly Jen-Hsun Huang, our President and Chief Executive Officer, would harm our business. Our success will depend on our ability to identify, hire, train and retain highly qualified technical and managerial personnel. Our failure to attract and retain the necessary technical and managerial personnel would harm our business. The integration of new executives or personnel could disrupt our ongoing operations.

Our failure to estimate customer demand properly ~~may result in excess or obsolete inventory or, conversely, may result in inadequate inventory levels, either of which~~ could adversely affect our financial results.

Our inventory purchases are based upon future demand forecasts or orders from our customers and may not accurately predict the quantity or type of products that our customers will want ~~in the future~~ or will ultimately ~~end up purchasing.~~purchase. In forecasting demand, we ~~must~~ make multiple assumptions any of which may prove to be incorrect. Situations that may result in excess or obsolete inventory, which could result in write-downs of the value of our inventory and/or a reduction in average selling prices, and where our gross margin could be adversely affected include:

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

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

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

·	if our competition were to take unexpected competitive pricing actions.

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

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Because we order products or materials in advance of anticipated customer demand, our ability to reduce our inventory purchase commitments quickly in response to lower than expected demand is limited.

~~Failure~~We manufacture our products based on forecasts of customer demand in order to ~~achieve expected manufacturing yields~~have shorter shipment lead times for ~~existing and/~~our customers. As a result, we may build inventories for anticipated periods of growth which do not occur or ~~new~~may build inventory anticipating demand for a product that does not materialize. Any inability to sell products to which we have devoted resources could harm our business. In addition, cancellation or deferral of customer purchase orders could result in our holding excess inventory, which could adversely affect our gross margin and restrict our ability to fund operations. Additionally, because we often sell a substantial portion of our products in the last month of each quarter, we may not be able to reduce our inventory purchase commitments in a timely manner in response to customer cancellations or deferrals. We could be subject to excess or obsolete inventories and be required to take corresponding inventory write-downs if growth slows or does not materialize, or if we incorrectly forecast product demand, which could negatively impact our financial results.

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

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

~~Semiconductor manufacturing yields are~~

·	market demand for new products and enhancements to existing products;
·	timely completion and introduction of new product designs and new opportunities for existing products;
·	seamless transitions from an older product to a new product;
·	differentiation of our new products from those of our competitors;
·	delays in volume shipments of our products;
·	market acceptance of our products instead of our customers' products; and
·	availability of adequate quantity and configurations of various types of memory products.

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

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

If we are unable to achieve design ~~or process technology failures, yield problems~~wins, our products may not be ~~effectively determined~~adopted by our target markets or ~~resolved~~customers either of which could negatively impact our financial results.

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

·	anticipate the features and functionality that customers and consumers will demand;
·	incorporate those features and functionalities into products that meet the exacting design requirements of our customers;
·	price our products competitively; and
·	introduce products to the market within our customers’ limited design cycles.

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

Our ability to achieve design wins also depends in part on our ability to identify ~~process sensitivities relating to the design rules that~~and be compliant with evolving industry standards. Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers like AMD, Intel and Microsoft Corporation, or Microsoft. If our products are ~~used. As a result, yield problems~~not in compliance with prevailing industry standards, we may not be ~~identified until well~~designed into ~~the production process. Resolution of yield problems requires cooperation by~~our customers’ product designs. However, to be compliant with changes to industry standards, we may have to invest significant time and ~~communication between us and the manufacturer.~~

~~Because of~~resources to redesign our ~~potentially limited access to wafer fabrication capacity from our manufacturers, decreases in manufacturing yields~~products which could ~~result in an increase in our per unit costs and force us to allocate our available product supply among our customers. This could potentially harm customer relationships, our reputation, our revenue,~~negatively impact our gross ~~profit~~margin or operating results. If we are unable to achieve new design wins for existing or new customers, we may lose market share and our ~~gross margin.~~operating results would be negatively impacted.

~~To stay competitive, which may include entering new markets, we~~We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.

If new competitors, technological advances by existing competitors, our entry into new markets, or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase. We have increased our engineering and technical resources and had ~~3,020~~3,876 and 2,865 full-time employees engaged in research and development as of ~~October 28,~~July 27, 2008 and July 29, 2007, ~~and 2,327 full-time employees as of October 29, 2006.~~respectively. Research and development expenditures were ~~$179.5 million~~$212.9 and ~~$495.8~~$158.0 million for the ~~three~~second quarter of fiscal years 2009 and ~~nine months ended fiscal year~~ 2008, respectively and ~~$140.7~~$431.7 million and ~~$391.2~~$316.3 million for the ~~three~~first half of fiscal years 2009 and ~~nine months ended fiscal year 2007,~~2008, respectively. Research and development expenses included non-cash stock-based compensation expense of ~~$18.7~~$24.2 million and ~~$57.5~~$16.4 million for the ~~three~~second quarter of fiscal years 2009 and ~~nine months ended fiscal year~~ 2008, respectively and ~~$18.7~~$48.8 million and ~~$49.7~~$38.8 million for the ~~three~~first half of fiscal years 2009 and ~~nine months ended fiscal year 2007,~~2008, respectively. If we are required to invest significantly greater resources than anticipated in research and development efforts without ana corresponding increase in revenue, our operating results could decline. Research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and these investments may be independent of our level of ~~revenue.~~revenue which could negatively impact our financial results. In order to remain competitive, ~~which may include entering new markets,~~ we anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity and the greater number of products under ~~development~~development.

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

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

·	the mix of our products sold;
·	average selling prices;
·	introduction of new products;
·	product transitions;
·	sales discounts;
·	unexpected pricing actions by our competitors;
·	the cost of product components; and
·	the yield of wafers produced by the foundries that manufacture our products.

During the second quarter of fiscal year 2009, our gross margin declined significantly to 16.8% as compared to 45.3% during the second quarter of fiscal year 2008 and 44.6% during the first quarter of fiscal year 2009. The decline in gross margin for the second quarter of fiscal year 2009 reflects a $196.0 million charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and associated costs arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems, as well as ~~hiring additional employees.~~the impact of average sales price regression we experienced in our desktop GPU products as a result of increased competition. If we do not correctly forecast the impact of any of the relevant factors on our business, there may not be any actions we can take or we may not be able to take any possible actions in time to counteract any negative impact on our gross margin. In addition, if we are unable to meet our gross margin target for any period or the target set by analysts, the trading price of our common stock may decline.

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

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

·	difficulty in combining the technology, products, operations or workforce of the acquired business with our business;
·	difficulty in operating in a new or multiple new locations;
·	disruption of our ongoing businesses or the ongoing business of the company we invest in or acquire;
·	difficulty in realizing the potential financial or strategic benefits of the transaction;
·	difficulty in maintaining uniform standards, controls, procedures and policies;
·	disruption of or delays in ongoing research and development efforts;
·	diversion of capital and other resources;
·	assumption of liabilities;
·	diversion of resources and unanticipated expenses resulting from litigation arising from potential or actual business acquisitions or investments;
·	difficulties in entering into new markets in which we have limited or no experience and where competitors in such markets have stronger positions; and
·	impairment of relationships with employees and customers, or the loss of any of our key employees or customers of our target’s key employees or customers, as a result of our acquisition or investment.

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

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

Our future success and ability to compete is substantially dependent on our ability to identify, hire, train and retain highly qualified key personnel. The market for key employees in the semiconductor industry can be competitive. None of our key employees is bound by an employment agreement, meaning our relationships with all of our key employees are at will. For instance, Marvin D. Burkett, Chief Financial Officer, or CFO, informed us on March 21, 2008 of his intention to retire. Mr. Burkett is expected to remain as CFO while a search is conducted to find his replacement, and he may continue in some capacity with us thereafter. We are in the process of recruiting a new CFO. The loss of the services of Mr. Burkett or any of our other key employees without an adequate replacement or our inability to hire new employees as needed could delay our product development efforts, harm our ability to sell our products or otherwise negatively impact our business.

Our operating expenses are relatively fixed and we may not be able to reduce operating expenses quickly in response to any revenue shortfalls.

Our operating expenses, which are comprised of research and development expenses and sales, general and administrative expenses, represented ~~24%~~34% and 26% of our total revenue ~~during~~for the ~~third~~second quarter of fiscal years ~~2008~~2009 and ~~2007,~~2008, respectively and ~~26%~~30% and 27% for the first ~~nine months~~half of fiscal years ~~2008~~2009 and ~~2007,~~2008, respectively. Operating expenses included ~~$29.4~~stock-based compensation expense of $37.0 million and $26.8 million for the ~~third quarters~~second quarter of fiscal years 2009 and 2008, respectively and ~~2007, and $90.8~~$76.0 million and ~~$77.5~~$61.4 million for the first ~~nine months~~half of fiscal years 2009 and 2008, ~~and 2007, respectively, related to non-cash stock-based compensation expense.~~respectively. Since we often recognize a substantial portion of our revenue in the last month of each quarter, we may not be able to adjust our operating expenses in a timely manner in response to any unanticipated revenue ~~shortfalls.~~shortfalls in any quarter as was in the case of the second quarter of fiscal year 2009. Further, some of our operating expenses, like non-cash stock-based compensation expense can only be adjusted over a longer period of time and cannot be reduced during a quarter. If we are unable to reduce operating expenses quickly in response to any revenue shortfalls, our financial results would be negatively impacted.

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

~~Failure~~Since inception, we have used equity through our stock option plans and our employee stock purchase program as a fundamental component of our compensation packages. We believe that these programs directly motivate our employees and, through the use of vesting, encourage our employees to ~~transition~~remain with us. As a result of adjustments arising from our restatement related to ~~new manufacturing process technologies~~stock option grant dates, our operating results for fiscal years prior to fiscal year 2007 contain recorded amounts of non-cash stock-based compensation expense. For our fiscal years 2000 through 2006, this non-cash stock-based compensation expense was calculated using primarily the intrinsic value-based method under Accounting Principles Board Opinion No. 25, or APB 25, Accounting for Stock Issued to Employees and related interpretations.

In December 2004, the FASB issued SFAS No. 123(R) which requires the measurement and recognition of compensation expense for all stock-based compensation payments. SFAS No. 123(R) requires that we record compensation expense for stock options and our employee stock purchase plan using the fair value of those awards. Stock-based compensation expense resulting from our compliance with SFAS No. 123(R), included $40.4 million and $29.5 million for the second quarter of fiscal years 2009 and 2008, respectively and $82.5 and $66.9 million for the first half of fiscal years 2009 and 2008, respectively, which negatively impacted our operating results. We believe that SFAS No. 123(R) will continue to negatively impact our operating results.

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

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

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

Our ~~strategy~~operating results are unpredictable and may fluctuate, and if our operating results are below the expectations of securities analysts or investors, the trading price of our stock could decline.

Many of our revenue components fluctuate and are difficult to predict, and our operating expenses are largely independent of revenue. Therefore, it is difficult for us to ~~utilize~~accurately forecast revenue and profits or losses in any particular period.

Any one or more of the ~~most advanced manufacturing process technology~~risks discussed in this Quarterly Report on Form 10-Q or other factors could prevent us from achieving our expected future revenue or net income. Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. Similarly, the results of any quarterly or full fiscal year period are not necessarily indicative of results to be expected for a subsequent quarter or a full fiscal year.

As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors, which could cause the trading price of our common stock to decline. We believe that our quarterly and annual results of operations may continue to be affected by a variety of factors that could harm our revenue, gross profit and results of operations.

Risks related to Market Conditions

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

At July 27, 2008 and January 27, 2008, we had $1.66 billion and $1.81 billion, respectively, in cash, cash equivalents and marketable securities. We invest in a variety of financial instruments, consisting principally of cash and cash equivalents, asset-backed securities, commercial paper, mortgage-backed securities issued by Government-sponsored enterprises, equity securities, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. As of July 27, 2008, we did not have any investments in auction-rate preferred securities. All of our investments are denominated in United States dollars.

We account for our investment instruments in accordance with Statement of Financial Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. All of our cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate debt securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded debt or equity investments is judged to be other-than-temporary. We may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates. However, because any debt securities we hold are classified as “available-for-sale,” no gains or losses are realized in our condensed consolidated statements of income due to changes in interest rates unless such securities are sold prior to maturity or unless declines in value are determined to be other-than-temporary. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income, a component of stockholders’ equity, net of tax.

Recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets, causing global credit and liquidity issues. The short-term funding markets experienced issues since the third and fourth quarter of calendar 2007, leading to liquidity disruption in the market. If the global credit market continues to deteriorate, our investment portfolio may be impacted and we could determine some of our investments are impaired, which could adversely impact our financial results. As of July 27, 2008, our investments in the financial sector and government agencies accounted for approximately 36% and 30%, respectively, of our total investment portfolio. If the fair value of our investments in these sectors was to decline by 2%-5%, it would result in changes in fair market values for these investments by approximately $20-$49 million.

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

We conduct our business worldwide. Our semiconductor wafers are manufactured, assembled, tested and packaged by third-parties located outside of the United States. We generated 89% and 90% of our revenue for the second quarter of fiscal years 2009 and 2008, respectively, and 91% and 87% of our revenue for the first half of fiscal years 2009 and 2008, respectively, from sales to customers outside the United States and other Americas. As of July 27, 2008, we had offices in thirteen countries outside of the United States. The manufacture, assembly, test and packaging of our products outside of the United States, operation of offices outside of the United States, and sales to customers internationally subjects us to a number of risks, including:

·	international economic and political conditions, such as political tensions between countries in which we do business;
·	unexpected changes in, or impositions of, legislative or regulatory requirements;
·	complying with a variety of foreign laws;
·	differing legal standards with respect to protection of intellectual property and employment practices;
·	cultural differences in the conduct of business;
·	inadequate local infrastructure that could result in business disruptions;
·	exporting or importing issues related to export or import restrictions, tariffs, quotas and other trade barriers and restrictions;
·	financial risks such as longer payment cycles, difficulty in collecting accounts receivable and fluctuations in currency exchange rates;
·	imposition of additional taxes and penalties; and
·	other factors beyond our control such as terrorism, civil unrest, war and diseases such as severe acute respiratory syndrome and the Avian flu.

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

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

The economic conditions in our primary overseas markets, particularly in Asia, may negatively impact the demand for our products ~~and available from commercial third-party foundries. Use~~abroad. All of ~~advanced processes may~~our international sales to date have ~~initial yield problems and higher product cost. Manufacturing process technologies are subject~~been denominated in United States dollars. Accordingly, an increase in the value of the United States dollar relative to ~~rapid change and~~foreign currencies could make our products less competitive in international markets or require ~~significant expenditures for research and development.~~us to assume the risk of denominating certain sales in foreign currencies. We ~~continuously evaluate~~anticipate that these factors will impact our business to a greater degree as we further expand our international business activities.

If our products do not continue to be adopted by the benefits of migrating to smaller geometry process technologies in order to improve performance and reduce costs. We currently use 0.15 micron, 0.14 micron, 0.13 micron, 0.11 micron, 90 nanometer and 65 nanometer process technologies for our families of graphics processing units,desktop PC, notebook PC, workstation, high-performance computing, personal media players, or ~~GPUs, media and communications processors,~~PMPs, personal digital assistants, or ~~MCPs,~~PDAs, cellular ~~phones, other~~ handheld devices, and video game console markets or if the demand for new and innovative products in these markets decreases, our business and operating results would suffer.

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

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

4150

We derive and expect to ~~migrate~~continue to ~~smaller geometry processes successfully. Some~~derive the majority of our ~~competitors own their own manufacturing facilities~~revenue from the sale or license of products for use in the desktop PC and notebook PC markets, including professional workstations. A reduction in sales of PCs, or a reduction in the growth rate of PC sales, may reduce demand for our products. These changes in demand could be large and sudden. During the second quarter of fiscal year 2009, sales of our desktop GPU products decreased by approximately 25% compared to the second quarter of fiscal year 2008. These decreases were primarily due to the Standalone Desktop GPU market segment decline as reported in the latest PC Graphics 2008 Report from Mercury Research. Since PC manufacturers often build inventories during periods of anticipated growth, they may be ~~able~~left with excess inventories if growth slows or if they incorrectly forecast product transitions. In these cases, PC manufacturers may abruptly suspend substantially all purchases of additional inventory from suppliers like us until their excess inventory has been absorbed, which would have a negative impact on our financial results.

Our business is cyclical in nature and an industry downturn could harm our financial results.

Our business is directly affected by market conditions in the highly cyclical semiconductor industry, including alternating periods of overcapacity and capacity constraints, variations in manufacturing costs and yields, significant expenditures for capital equipment and product development, and rapid technological change. If we are unable to respond to changes in our industry, which can be unpredictable and rapid, in an efficient and timely manner, our operating results could suffer. In particular, from time to time, the semiconductor industry has experienced significant and sometimes prolonged downturns characterized by diminished product demand, increased inventory levels and accelerated erosion of average selling prices. If we cannot take appropriate actions such as reducing our manufacturing or operating expenses to sufficiently offset declines in demand, increased inventories, or decreased selling prices during a downturn, our revenue and operating results will suffer.

Risks Related to Regulatory, Legal and Other Matters

The United States Department of Justice’s pending investigation into the market for graphics processors and the ongoing civil actions could adversely affect our business.

On November 29, 2006, we received a subpoena from the San Francisco Office of the Antitrust Division of the United States Department of Justice, or DOJ, in connection with the DOJ's investigation into potential antitrust violations related to GPUs and cards. No specific allegations have been made against us. We are cooperating with the DOJ in its investigation.

As of May 13, 2008, 55 civil complaints have been filed against us. The majority of the complaints were filed in the Northern District of California, several were filed in the Central District of California, and other cases were filed in several other Federal district courts. On April 18, 2007, the Judicial Panel on Multidistrict Litigation transferred the actions currently pending outside of the Northern District of California to the Northern District of California for coordination of pretrial proceedings before the Honorable William H. Alsup. By agreement of the parties, Judge Alsup will retain jurisdiction over the consolidated cases through trial or other resolution.

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

Plaintiffs filed their first consolidated complaints on June 14, 2007. On July 16, 2007, we moved to dismiss those complaints. The motions to dismiss were heard by Judge Alsup on September 20, 2007. The Court subsequently granted and denied the motions in part, and gave the plaintiffs leave to move to amend the complaints. On November 7, 2007, the Court granted plaintiffs’ motion to file amended complaints, ordered defendants to answer the complaints, lifted a ~~new state~~previously entered stay on discovery, and set a trial date for January 12, 2009. Discovery is underway and Plaintiffs filed motions for class certification on April 24, 2008. We filed oppositions to the motions on May 20, 2008. On July 18, 2008, the Court ruled on Plaintiffs’ class certification motions. The Court denied class certification for the proposed class of indirect purchasers. The Court granted in part class certification for the direct purchasers but limited the direct purchaser class to individual purchasers that acquired graphics processing cards products directly from NVIDIA or ATI from their websites between December 4, 2002 and November 7, 2007. The Court excluded from the direct purchaser class business entities that purchased graphics products from NVIDIA or ATI for resale. The case will continue on behalf of the ~~art manufacturing process more quickly than our manufacturing partners. For example, Intel recently released~~class of direct purchasers certified by the Court as well as for the several individual indirect purchasers suing on their own behalf. The Court also instructed the parties to give written notice of the class certification order to all non-certified direct purchasers, who will then have thirty days from the date of the notice to move to intervene in this action. The Court's ruling on class certification is subject to interim appeal at the discretion of the United States Court of Appeals for the Ninth Circuit. While we believe the allegations in the complaints are without merit and intend to vigorously defend the cases, the costs of defense and any damages resulting from a 45nm chip for desktop computers which it is manufacturing in its foundries. If our suppliers fall behind our competitors in manufacturing processes, the development and customer demand for our products and the use of our products could be negatively impacted. The inability byruling against us or ~~our third-party manufacturers to effectively and efficiently transition to new manufacturing process technologies may~~a settlement of the litigation could adversely affect our ~~operating results and our gross margin.~~business.

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

On August 10, 2006, ~~NVIDIA~~we announced that the Audit Committee of ~~the~~our Board, with the assistance of outside legal counsel, was conducting a review of our stock option practices covering the time from ~~NVIDIA’s~~our initial public offering in 1999, our fiscal year 2000, through June 2006. The Audit Committee reached the conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, ~~NVIDIA~~we recorded additional non-cash stock-based compensation expense, and related tax effects, related to stock option grants.

The Audit Committee’s review of ~~NVIDIA’s~~our historic stock option practices identified a number of occasions on which the measurement date used for financial accounting and reporting purposes for stock options granted to certain of our employees was different from the actual grant date. To correct these accounting errors, we amended our Annual Report on Form 10-K for the year ended January 29, 2006 and our Quarterly Report on Form 10-Q for the three months ended April 30, 2006 to restate the consolidated financial statements contained in those reports. This review of our historical stock option granting practices and subsequent restatement required us to incur substantial expenses for legal, accounting, tax and other professional services and diverted our management’s attention from our business.

Additionally, the review and the resulting restatement of our prior financial statements have exposed us to greater risks associated with litigation. Ten derivative complaints have been filed in state and federal court pertaining to allegations relating to stock option grants. We cannot assure you that these or future similar complaints, or any future litigation or regulatory action will result in the same conclusions reached by the Audit Committee. On August 5, 2007, our Board authorized the formation of a Special Litigation Committee to investigate, evaluate, and make a determination as to how ~~NVIDIA~~we should proceed with respect to the claims and allegations asserted in the underlying derivative cases brought on behalf of NVIDIA. ~~The~~Currently, the Special Litigation Committee’s review is ongoing. The conduct and resolution of these matters will be time consuming, expensive and could distract our management’s attention from the conduct of ~~our business which could negatively impact~~ our business. Furthermore, if we are subject to adverse rulings, we could be required to pay damages or penalties or have other remedies imposed upon us which could harm our business, financial condition, results of operations and cash flows.

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

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

·	the commercial significance of our operations and our competitors’ operations in particular countries and regions;
·	the location in which our products are manufactured;
·	our strategic technology or product directions in different countries; and
·	the degree to which intellectual property laws exist and are meaningfully enforced in different jurisdictions.

~~Substantially all of~~ our ~~sales are made on the basis of purchase orders rather than long-term agreements. As a result, we may commit resources~~trade secrets or intellectual property. Our failure to the production of products without having received advance purchase commitments from customers. As a result, we may build inventories for anticipated periods of growth which do not occur. Any inability to sell products to which we have devoted significant resourceseffectively protect our intellectual property could harm our business. ~~In addition, cancellation~~

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

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

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

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

·	assert claims of infringement of our intellectual property;
·	enforce our patents;
·	protect our trade secrets or know-how; or
·	determine the enforceability, scope and validity of the propriety rights of others.

If we have to initiate litigation in order to protect our intellectual property, our operating expenses may increase which could ~~adversely affect~~negatively impact our ~~gross margin and restrict~~operating results. Our failure to effectively protect our ~~ability~~intellectual property could harm our business.

If infringement claims are made against us or our products are found to ~~fund operations. Additionally, because~~infringe a third parties’ patent or intellectual property, we ~~often sell a substantial portion~~or one of our ~~products in~~indemnified customers may have to seek a license to the ~~last month of each quarter,~~third parties’ patent or other intellectual property rights. However, we may not be able to ~~reduce~~obtain licenses at all or on terms acceptable to us particularly from our ~~inventory purchase commitments~~competitors. If we or one of our indemnified customers is unable to obtain a license from a third party for technology that we use or that is used in ~~a timely manner in response to customer cancellations or deferrals or other revenue shortfalls. We~~one of our products, we could be subject to ~~excess~~substantial liabilities or ~~obsolete inventories~~have to suspend or discontinue the manufacture and ~~be required to take corresponding inventory write-downs if growth slows or does not materialize or if we incorrectly forecast product demand, which could negatively impact our financial results.~~

~~Our operating results are unpredictable and may fluctuate, and if our operating results are below the expectations~~sale of ~~securities analysts or investors, the trading price of our stock could decline.~~

Many of our revenue components fluctuate and are difficult to predict, and our operating expenses are largely independent of revenue in any particular period. Therefore, it is difficult for us to accurately forecast revenue and profits or losses. As a result, it is possible that in some quarters our operating results could be below the expectations of securities analysts or investors, which could cause the trading price of our common stock to decline. We believe that our quarterly and annual results of operations may continue to be affected by a variety of factors that could harm our revenue, gross profit and results of operations.

~~Any~~ one or more of the factors discussed in this Form 10-Q or other factors could prevent us from achieving our expected future revenue or net income. Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as an indication of future performance. Similarly, the results of any quarterly or full fiscal year period are not necessarily indicative of results to be expected for a subsequent quarter or a full fiscal year.

~~Risks Related to Our Products~~

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

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

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

·	~~incorporate those features and functionalities into products that meet the exacting design requirements of OEMs, ODMs, and add-in board and motherboard manufacturers;~~

·	~~price our products competitively; and~~

·	~~introduce products to the market within the limited design cycle for OEMs, ODMs, and add-in board and motherboard manufacturers.~~

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

Our ability to achieve design wins also depends in part on our ability to identify and be compliant with evolving industry standards. Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers, including Advanced Micro Devices, Inc., or AMD, Intel Corporation, or Intel and Microsoft Corporation, or Microsoft. Such changes would require us to invest significant time and resources to redesign our products to be compliant with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, our ability to achieve design wins could suffer. If we are unable to achieve new design wins for existing or new customers, we may lose market share and our operating results would be negatively impacted.

~~Achievement of design wins may not result in the success of our products and could result in a loss of market share.~~

The process of being qualified for inclusion in an OEM or ODM product can be lengthy and could cause us to miss a cycle in the demand of end-users for a particular product feature, which also could result in a loss of market share and harm our business. Even if we do have design wins for OEM and ODM products, we may not be able to successfully develop or introduce new products in sufficient volumes within the appropriate time to meet the OEM, ODM, add-in board and motherboard manufacturers’ design cycles as well as other market demand. Additionally, even if we achieve a significant number of design wins, there can be no assurance that our OEM and ODM customers will actually take the design to production or that the design will be commercially successful. Furthermore, there may be changes in the timing of product orders due to unexpected delays in the introduction of our customers’ products that could negatively impact the success of our products. Any of these factors could result in a loss of market share and could negatively impact our financial results.

~~Our business results could be adversely affected if our product development efforts are unsuccessful.~~

In the past, we have experienced delays in the development of new products. Any delay or failure of our GPUs, our other processors, or other technologies to meet or exceed specifications of our customers or competitive products could materially harm our business. The success of our new product introductions will depend on many factors, including the following:

·	~~proper new product definition;~~

·	~~timely completion and introduction of new product designs;~~

·	~~availability of next-generation software development tools to design, simulate and verify our products;~~

·	~~the ability of third-party manufacturers to effectively manufacture our new products in a timely manner;~~

·	~~dependence on third-party subcontractors for assembly, testing and packaging of our products and in meeting product delivery schedules and maintaining product quality;~~

·	~~the quality of new products;~~

·	~~differentiation of new products from those of our competitors;~~

·	~~market acceptance of our products and our customers' products; and~~

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

~~Our failure to successfully develop, introduce or achieve market acceptance for new processors or other technologies would harm our business.~~

~~Our failure to identify new market or product opportunities, or develop new products could harm our business.~~

As our GPUs and other processors develop and competition increases, we anticipate that product life cycles at the high end will remain short and average selling prices will decline. In particular, we expect average selling prices and gross margins for our processors to decline as each product matures and as unit volume increases. As a result, we will need to introduce new products and enhancements to existing products to maintain or improve overall average selling prices and gross margin. In order for our processors to achieve high volumes, leading PC OEMs, ODMs, and add-in board and motherboard manufacturers must select our processors for design into their products, and then successfully complete the designs of their products and sell them. We may be unable to successfully identify new product opportunities or to develop and bring to market new products in a timely fashion. In addition, we cannot guarantee that new products we develop will be selected for design into PC OEMs’, ODMs’, or add-in board and motherboard manufacturers’ products, that any new designs will be successfully completed, or that any new products will be sold.

As the complexity of our products and the manufacturing process for our products increases, there is an increasing risk that we will experience problems with the performance of our products and that there will be delays in the development, introduction or volume shipment of our products. We may ~~experience difficulties related~~also have to ~~the production of current or future products~~make royalty or other ~~factors that may delay the introduction~~payments, or volume sale of new products we develop. In addition, we may be unable to successfully manage the production transition risks with respect to future products. Failure to achieve any of the foregoing with respect to future products or product enhancements could result in rapidly declining average selling prices, reduced margins and reduced demand for products or loss of market share. In addition, technologies developed by others may rendercross license our ~~processors non-competitive or obsolete or result in our holding excess inventory, which would harm our business.~~

~~We could suffer a loss of market share if our products contain significant defects.~~

Products as complex as those we offer may contain defects or experience failures when introduced or when new versions or enhancements to existing products are released. In the past, we have discovered defects and incompatibilities with customers’ hardware in some of our products. Similar issues in the future may result in delays or loss of revenue to correct any defects or incompatibilities. Errors in new products or releases and related software drivers after commencement of commercial shipments could result in failure to achieve market acceptance or loss of design wins. Our products typically go through only one verification cycle prior to beginning volume production and distribution. As a result, our products may contain defects or flaws that are undetected prior to volume production and distribution.technology. If these ~~defects or flaws exist and~~arrangements are not detected prior to volume production and distribution, we may be required to reimburse customers for costs to repair or replace the affected products in the field. We also face the risk of product recalls or product returns. A significant number of product returns due to a defect or recall could damage our reputation, result in our customers working with our competitors, and could adversely impact our financial results. We may also be required to incur additional research and development costs to find and correct the defect, which could divert the attention of our management and engineers from the development of new products. These costs could be significant and could adversely affect our business and operating results. We may also suffer a loss of reputation, loss of revenues and/or a loss in our market share, any of which could materially harm our financial results.

~~Risks Related to Our Partners and Customers~~

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

We are a fabless semiconductor company meaning we do not manufacture the semiconductor wafers used for our products and do not own or operate a wafer fabrication facility. Instead, we utilize industry-leading foundries to produce our semiconductor wafers with their state-of-the-art fabrication equipment and techniques. Therefore, we rely on our manufacturers to produce products of acceptable quality and at acceptable manufacturing yields and deliver wafers to us on a timely basis at acceptable prices. Since we obtain semiconductor wafers on a purchase order basis, the foundries we use have no obligation to provide us with any specified minimum quantities of product so we rely on them to allocate to us a portion of their manufacturing capacity that will be sufficient to meet our needs. Because these suppliers, including the fabrication facility that produces a majority of our products, fabricate wafers for other companies, including some of our competitors, they could choose to prioritize their capacity for other users, reduce or eliminate deliveries to us, or increase the prices that they charge us on short notice. If we are unable to meet customer demand due to reduced or eliminated deliveries, we could lose sales to customers, which would negatively impact our revenue and our reputation.

Because the lead-time needed to establish a strategic relationship with a new manufacturing partner could be several quarters, there is no readily available alternative source of supply for any specific product. In addition, the time and effort to qualify a new foundry could result in additional expense, diversion of resources or lost sales any of which would negatively impact our financial results. We believe that long-term market acceptance for our products will depend on reliable relationships with the third-party manufacturers we use to ensure adequate product supply and competitive pricing to respond to customer demand.

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

We have acquired and invested in other businesses that offered products, services and technologies that we believed would help expand or enhance our existing products and services or help expand our distribution channels. We may enter into future acquisitions of, or investments in, businesses, in order to complement or expand our current businesses or enter into a new business market. For example, in February 2006 we completed the acquisition of ULi Electronics, Inc., or ULi, in March 2006 we completed the acquisition of Hybrid Graphics Ltd., or Hybrid Graphics and in January 2007 we completed the acquisition of PortalPlayer, Inc., or PortalPlayer. If we do consider other acquisitions, a strategic alliance or a joint venture, the negotiations could divert management’s attention as well as other resources. Any of the following risks associated with past or future acquisitions or investments could impair our ability to grow our business, develop new products, sell our products, and ultimately could have a negative impact on our growth or our financial results:

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

·	~~difficulty in operating in a new or multiple new locations;~~

·	~~disruption of our ongoing businesses;~~

·	~~disruption of the ongoing business of the company we invest in or acquire;~~

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

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

·	~~disruption of or delays in ongoing research and development efforts;~~

·	~~diversion of capital and other resources;~~

·	~~assumption of liabilities;~~

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

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

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

In addition, the consideration for any future acquisition could be paid in cash, shares of our common stock, the issuance of convertible debt securities or a combination of cash, convertible debt and common stock. If we pay all or a portion of the purchase price in cash, our cash reserves would be reduced which could negatively impact the growth of our business or our ability to develop new products. We paid for the acquisitions of Hybrid Graphics, ULi and PortalPlayer with primarily cash. If the consideration is paid with shares of our common stock, or convertible debentures, the holdings of our existing stockholders would be diluted. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operations or financial results.

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

Our processors are assembled, tested and packaged by independent subcontractors, such as Advanced Semiconductor Engineering, Inc., or ASE, Amkor Technology, or Amkor, King Yuan Electronics Co., or KYEC, Siliconware Precision Industries Co. Ltd., or SPIL, and ChipPAC. We do not have long-term agreements with any of these subcontractors. As a result of our dependence on third-party subcontractors for assembly, testing and packaging of our products, we do not directly control product delivery schedules or product quality. Demand for qualified independent subcontractors to assemble and test products is high. If demand for these subcontractors exceeds the number of qualified subcontractors, we may experience capacity constraints, which could result in product shortages, a decrease in the quality of our products or an increase in product cost. Any of our subcontractors may decide to prioritize the orders of one of our competitors over our orders. Any product shortages or quality assurance problems could increase the costs of manufacture, assembly or testing of our products, which could cause our gross margin to decline. Due to the amount of time typically required to qualify assemblers and testers, we could experience significant delays in the shipment of our products if we are required to find alternative third parties to assemble, test or package our products or components. Any such delays could result in a loss of reputation or a decrease in sales to our customers.

~~There can be no assurance that the PlayStation3 will achieve long term commercial success.~~

In April 2005, we finalized our definitive agreement with Sony Computer Entertainment, or SCE, to jointly develop custom GPU for SCE’s PlayStation3. Our collaboration with SCE includes license fees and royalties for the PlayStation3 and all derivatives, including next-generation digital consumer electronics devices. In addition, we are licensing software development tools for creating shaders and advanced graphics capabilities to SCE. Contractual arrangements with SCE generated $32.5 million and $18.3 million of revenue during the third quarter of fiscal years 2008 and 2007, respectively, and $77.0 million and $65.5 million for the first nine months of fiscal years 2008 and 2007, respectively. Given the intense competition in the game console market, there can be no assurance that the PlayStation3 will achieve long term commercial success. If we do not receive royalties as we anticipate, our revenue and gross margin may be adversely affected.

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

Our accounts receivable are highly concentrated. Three customers that had individual balances in excess of 10% of total accounts receivable, accounted for approximately 35% and 26% of our total accounts receivable balance as at October 28, 2007 and January 28, 2007, respectively, and make us vulnerable to adverse changes in our customers' businesses and to downturns in the economy and the industry. In addition, difficulties in collecting accounts receivable or the loss of any significant customer could materially and adversely affect our financial condition and results of operations. We continue to work directly with more foreign customers and it may be difficult to collect accounts receivable from them. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, we may be required to defer revenue recognition on sales to affected customers and we may be required to pay higher credit insurance premiums, any of which could adversely affect our operating results. In the future, we may have to record additional reserves or write-offs and/or defer revenue on certain sales transactions which could negatively impact our financial results.

When we design and develop new products or product enhancements, we rely on third-party software development tools to assist us in the design, simulation and verification of new products or enhancements to existing products. If the software development tools available at the time that we are designing, simulating or verifying a product are not sophisticated enough or technologically advanced enough for our purposes, we may be unable to bring our products, or enhancements to existing products, to market in a timely manner, or at all. In the past, we have experienced delays in the introduction of products as a result of the inability of then available software development tools to fully simulate the complex features and functionalities of our products. In the future, the design requirements necessary to meet consumer demands for more features and greater functionality from our processors may exceed the capabilities of the software development tools that are available to us. If the software development tools we use become unavailable or fail to produce designs that meet consumer demands, we may miss design cycles or lose design wins which could result in a loss of market share, a decrease in revenue or negatively impact our operating results.

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

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

We have only a limited number of customers and our sales are highly concentrated. Sales to significant customers, representing revenue in excess of 10% of our total revenue, accounted for approximately 10% and 13%, of our total revenue for the third quarter and the first nine months of fiscal years 2008 and 2007, respectively. Although a small number of our other customers represents the majority of our revenue, their end customers include a large number of OEMs and system integrators throughout the world who, in many cases, specify the graphics supplier. Our sales process involves achieving key design wins with leading PC OEMs and major system builders and supporting the product design into high volume production with key contract equipment manufacturers, or CEMs, ODMs, add-in board and motherboard manufacturers. These design wins in turn influence the retail and system builder channel that is serviced by CEMs, ODMs, add-in board and motherboard manufacturers. Our distribution strategy is to work with a small number of leading independent CEMs, ODMs, add-in board and motherboard manufacturers, and distributors, each of which has relationships with a broad range of system builders and leading PC OEMs. If we were to lose sales to our PC OEMs, CEMs, ODMs, add-in board and motherboard manufacturers and were unable to replace the lost sales with sales to different customers, or if they were to significantly reduce the number of products they order from us, our revenue may not reach or exceed the expected level in any period, which could harm our financial condition and our results of operations.

~~Risks Related to Our Competition~~

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

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

~~The market for our products is highly competitive and we may be unable to compete.~~

The market for our products is highly competitive and is characterized by rapid technological change, new product introductions, evolving industry standards and declining average selling prices. We believe that the principal competitive factors in this market are:

·	~~performance;~~

·	~~breadth and frequency of product offerings;~~

·	~~access to customers and distribution channels;~~

·	~~backward-forward software support;~~

·	~~conformity to industry standard application programming interfaces;~~

·	~~manufacturing capabilities;~~

·	~~price of processors; and~~

·	~~total system costs of add-in boards and motherboards.~~

We believe that our ability to remain competitive will depend on how well we are able to anticipate the features and functions that customers will demand and whether we are able to deliver consistent volumes of our products at acceptable levels of quality. We expect competition to increase both from existing competitors and new market entrants with products that may be less costly than ours, or may provide better performance or additional features not provided by our products, either of which could harm our business.

For example, we are the largest supplier of AMD 64 chipsets with 61% segment share in the third quarter of calendar year 2007, as reported in the latest PC Processor and Chipset report from Mercury Research. Decline in demand for our chipsets in the AMD segment would harm our business.

An additional significant source of competition is from companies that provide or intend to provide competing product solutions. Some of our competitors may have or be able to obtain greater marketing, financial, distribution and manufacturing resources than we do and may be more able to adapt to customer or technological changes. For example, Intel is working on a multi-core architecture code-named Larrabee, which may compete with our products in various markets. Intel may also release an enthusiast level discrete GPU based on the Larrabee architecture. If Intel devotes more resources to the development of Larrabee as well as future architectures and GPU products than we do, it may produce products that out perform our current and future generations of technology and products.

~~Our current competitors include the following:~~

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

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

suppliers of GPUs or GPU intellectual property for handheld and digital consumer electronics devices that incorporate advanced graphics functionality as part of their existing solutions, such as AMD, Broadcom, Fujitsu Limited, Imagination Technologies Ltd., ARM Holdings plc, Marvell Technology Group Ltd., or Marvell, NEC Corporation, Qualcomm Incorporated, or Qualcomm, Renesas Technology, Seiko-Epson, Texas Instruments Incorporated, and Toshiba America, Inc.; and

·	suppliers of application processors for handheld and digital consumer electronics devices that incorporate multimedia processing as part of their existing solutions such as Broadcom, Texas Instruments Inc., Qualcomm, Marvell, Freescale Semiconductor Inc., Samsung and ST Microelectronics.

If and to the extent we offer products outside of the consumer and enterprise PC, notebook, workstation, personal digital assistant, or PDA, cellular phone, and video game console markets, we may face competition from some of our existing competitors as well as from companies with which we currently do not compete. We cannot accurately predict if we will compete successfully in any new markets we may enter. If we are unable to compete in our current or new markets, our financial results will suffer.

~~Risks Related to Market Conditions~~

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

Our semiconductor wafers are manufactured, assembled, tested and packaged by third-parties located outside of the United States. Additionally, we generated 89% and 87% of total revenue for the third quarter of fiscal years 2008 and 2007, respectively, and 86% and 85% for the first nine months of fiscal years 2008 and 2007, respectively, from sales to customers outside the United States and other Americas. The manufacture, assembly, test and packaging of our products outside of the United States, operation of offices outside of the United States, and sales to customers outside of the United States and other Americas subjects us to a number of risks associated with conducting business outside of the United States and other Americas, including, but not limited to:

·	~~international economic and political conditions;~~

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

·	~~labor issues in foreign countries;~~

·	~~cultural differences in the conduct of business;~~

·	~~inadequate local infrastructure;~~

·	~~delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;~~

·	~~transportation delays;~~

·	~~longer payment cycles;~~

·	~~difficulty in collecting accounts receivable;~~

·	~~fluctuations in currency exchange rates;~~

·	~~impact of currency exchange rate fluctuations on the price of our products to our customers, or on the supplies that we buy;~~

·	~~imposition of additional taxes and penalties;~~

·	~~different legal standards with respect to protection of intellectual property;~~

·	~~the burdens of complying with a variety of foreign laws; and~~

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

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

We have offices outside of the United States, including offices in Taiwan, Japan, Korea, China, Hong Kong, India, France, Russia, Germany, Finland and England. Our operations in our international locations are subject to many of the risks contained in the above list. We intend to continue to expand our existing operations and expect to open other international offices. Difficulties with our international operations, including finding appropriate staffing and office space, may divert management’s attention and other resources any ofoperating expenses which could negatively impact our operating results.

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

We derive the majority of our revenue from the sale of products for use in the desktop PC and notebook PC markets, including professional workstations. We expect to continue to derive most of our revenue from the sale or license of products for use in the desktop PC and notebook PC markets in the next several years. A reduction in sales of PCs, or a reduction in the growth rate of PC sales, will reduce demand for our products. Moreover, changes in demand could be large and sudden. Since PC manufacturers often build inventories during periods of anticipated growth, they may be left with excess inventories if growth slows or if they incorrectly forecast product transitions. In these cases, PC manufacturers may abruptly suspend substantially all purchases of additional inventory from suppliers like us until their excess inventory has been absorbed, which would have a negative impact on our business.

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

Our success depends in part upon continued broad adoption of our processors for 3D graphics and multimedia in consumer and enterprise PC, notebook PC, workstation, high-performance computing, PDA, cellular handheld devices, and video game console applications. The market for processors has been characterized by unpredictable and sometimes rapid shifts in the popularity of products, often caused by the publication of competitive industry benchmark results, changes in pricing of dynamic random-access memory devices and other changes in the total system cost of add-in boards, as well as by severe price competition and by frequent new technology and product introductions. Broad market acceptance is difficult to achieve and such market acceptance, if achieved, is difficult to sustain due to intense competition and frequent new technology and product introductions. Our GPU and MCP businesses together comprised of approximately 80% of revenue for each of the third quarter of fiscal years 2008 and 2007 and 78% and 77% of revenue during first nine months of fiscal years 2008 and 2007, respectively. As such, our financial results would suffer if for any reason our current or future GPUs or MCPs do not continue to achieve widespread adoption by the PC market. If we are unable to complete the timely development of products or if we were unable to successfully and cost-effectively manufacture and deliver products that meet the requirements of the consumer and enterprise PC, notebook, workstation, high-performance computing, PDA, cellular phone, and video game console markets, we may experience a decrease in revenue which could negatively impact our operating results. Additionally, there can be no assurance that the industry will continue to demand new products with improved standards, features or performance. If our customers, OEMs, ODMs, add-in-card and motherboard manufacturers, system builders and consumer electronics companies, do not continue to design products that require more advanced or efficient processors and/or the market does not continue to demand new products with increased performance, features, functionality or standards, sales of our products could decline. Decreased sales of our products for these markets could negatively impact our financial results.

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

We may be subject to various state, federal and international laws and regulations governing the environment, including restricting the presence of certain substances in electronic products and making producers of those products financially responsible for the collection, treatment, recycling and disposal of those products. The European Union Directive on Restriction of Hazardous Substances Directive, or RoHS Directive, is European legislation that restricts the use of a number of substances, including lead, and other hazardous substances in electrical and electronic equipment in the market in the European Union which became effective on July 1, 2006. Similarly, the State of California has adopted certain restrictions, which go into effect in 2007, that restrict the use of certain materials in electronic products, which are intended to harmonize with the RoHS directive and other states are contemplating similar legislation. China has adopted similar legislation to the RoHS directive which began to go into effect on March 1, 2007.

Also, we could face significant costs and liabilities in connection with the European Union Directive on Waste Electrical and Electronic Equipment, or WEEE. The WEEE directs members of the European Union to enact laws, regulations, and administrative provisions to ensure that producers of electric and electronic equipment are financially responsible for the collection, recycling, treatment and environmentally responsible disposal of certain products sold into the market after August 15, 2005. Implementation in certain European Union member states has been delayed into 2007. Similar legislation has been or may be enacted in other jurisdictions, including the United States, Canada, Mexico, China and Japan, the cumulative impact of which could be significant. We continue to evaluate the impact of specific registration and compliance activities required by WEEE.

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

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

At October 28, 2007 and January 28, 2007, we had $1.85 billion and $1.12 billion in cash, cash equivalents and marketable securities. We invest our cash in a variety of financial instruments, consisting principally of investments in commercial paper, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. These investments are denominated in U.S. dollars.

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

~~Our business is cyclical in nature and an industry downturn could harm our financial results.~~

Our business is directly affected by market conditions in the highly cyclical semiconductor industry, including alternating periods of overcapacity and capacity constraints, variations in manufacturing costs and yields, significant expenditures for capital equipment and product development and rapid technological change. If we are unable to respond to changes in our industry, which can be unpredictable and rapid, in an efficient and timely manner, our operating results could suffer. In particular, from time to time, the semiconductor industry has experienced significant and sometimes prolonged downturns characterized by diminished product demand and accelerated erosion of average selling prices. If we cannot take appropriate actions such as reducing our manufacturing or operating costs to sufficiently offset declines in demand during a downturn, our revenue and earnings will suffer.

~~Political instability in Taiwan and in The People’s Republic of China or elsewhere could harm our business.~~

Because of our reliance on foundries and independent contractors located in Taiwan and The People’s Republic of China, and because we have offices in these locations, our business may be harmed by political instability in Taiwan, including the worsening of the strained relations between The People’s Republic of China and Taiwan.

~~Risks Related to Government Action, Regulatory Action, Intellectual Property, and Litigation~~

~~The pending investigation by the United States Department of Justice regarding investigation into the market for Graphics Processors could adversely affect our business.~~

On November 29, 2006, we received a subpoena from the San Francisco Office of the Antitrust Division of the United States Department of Justice, or DOJ, in connection with the DOJ's investigation into potential antitrust violations related to graphics processing units, or GPUs, and cards. No specific allegations have been made against us. We are cooperating with the DOJ in its investigation.

As of November 12, 2007, over 50 civil complaints have been filed against us. The majority of the complaints were filed in the Northern District of California, several were filed in the Central District of California, and other cases were filed in several other Federal district courts. On April 18, 2007, the Judicial Panel on Multidistrict Litigation transferred the actions currently pending outside of the Northern District of California to the Northern District of California for coordination of pretrial proceedings before the Honorable William H. Alsup. By agreement of the parties, Judge Alsup will retain jurisdiction over the consolidated cases through trial or other resolution.

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

~~Expensing employee stock options materially and adversely affects our reported operating results and could also adversely affect our competitive position.~~

Since inception, we have used stock options and our employee stock purchase program as fundamental components of our compensation packages. We believe that these incentives directly motivate our employees and, through the use of vesting, encourage our employees to remain with us. As a result of adjustments arising from our restatement related to stock option grant dates, our operating results for fiscal years prior to fiscal year 2007 contain recorded amounts of stock-based compensation expense. For our fiscal years 2000 through 2006, this stock-based compensation expense was calculated using primarily the intrinsic value-based method under Accounting Principles Board Opinion No. 25, or APB 25, ~~Accounting for Stock Issued to Employees and related interpretations.~~

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123(R) which requires the measurement and recognition of compensation expense for all stock-based compensation payments. SFAS No. 123(R) requires that we record compensation expense for stock options and our employee stock purchase plan using the fair value of those awards. During the third quarter of fiscal years 2008 and 2007 we recorded $32.0 million and $31.7 million, respectively, and $98.9 million and $82.8 million for the first nine months of fiscal years 2008 and 2007, respectively, related to non-cash stock-based compensation, resulting from our compliance with SFAS 123 (R), which negatively impacted our operating results. We believe that SFAS No. 123(R) will continue to negatively impact our operating results.

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

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

We are a party to ~~litigation.~~litigation as both a defendant and as a plaintiff. There can be no assurance that ~~actions that have been brought against us or~~ any ~~brought by us~~litigation to which we are a party will be resolved in our favor. Any claim that is successfully asserted against us may cause us to pay substantial damages, including punitive damages, and other related fees. Regardless of whether ~~these~~ lawsuits are resolved in our favor or if we are the plaintiff or the defendant in the litigation, any lawsuits to which we are a party will likely be expensive and time consuming to defend or resolve. Such lawsuits could also harm our relationships with existing customers and result in the diversion of management’s time and attention away from business operations, which could harm our business. Costs of defense and any damages resulting from litigation, a ruling against us, or a settlement of the litigation could adversely affect our cash flow and financial results.

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

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

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

·	~~the location in which our products are manufactured;~~

·	~~our strategic technology or product directions in different countries; and~~

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

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

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

We expect that as the number of issued hardware and software patents increases and as competition intensifies, the volume of intellectual property infringement claims and lawsuits may increase. We may become involved in lawsuits or other legal proceedings alleging patent infringement or other intellectual property rights violations by us or by our customers that we have agreed to indemnify them for certain claims of infringement. An unfavorable ruling could include significant damages, invalidation of a patent or family of patents, indemnification of customers, payment of lost profits, or, when it has been sought, injunctive relief.

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

·	~~assert claims of infringement of our intellectual property;~~

·	~~enforce our patents;~~

·	~~protect our trade secrets or know-how; or~~

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

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

If infringement claims are made against us or we are found to infringe a third parties’ patent, we may seek licenses under the third parties’ patents or other intellectual property rights. In addition, an indemnified customer may be required to obtain a license to a third parties’ patents or intellectual property. However, licenses may not be offered to us at all or on terms acceptable to us, particularly by competitors. If we fail to obtain a license from a third party for technology that we use or that is used in one of our products that is used by an indemnified customer, we could be subject to substantial liabilities or have to suspend or discontinue the manufacture and sale of one or more of our products which could reduce our revenue and harm our business. Furthermore, the indemnification of a customer may increase our operating expenses which could negatively impact our operating results.

5253

We are subject to the risks of owning real property.

In the first half of fiscal year 2009, we used approximately $150.0 million of our cash to purchase real property in Santa Clara, California that includes approximately 25 acres of land and ten commercial buildings. We also own real property in China and India. We have limited experience in the ownership and management of real property and are subject to the risks of owning real property, including:

·	the possibility of environmental contamination and the costs associated with fixing any environmental problems;
·	adverse changes in the value of these properties, due to interest rate changes, changes in the neighborhood in which the property is located, or other factors;
·	increased cash commitments for the possible construction of a campus;
·	the possible need for structural improvements in order to comply with zoning, seismic and other legal or regulatory requirements;
·	increased operating expenses for the buildings or the property or both;
·	possible disputes with third parties, such as neighboring owners or others, related to the buildings or the property or both; and
·	the risk of financial loss in excess of amounts covered by insurance, or uninsured risks, such as the loss caused by damage to the buildings as a result of earthquakes, floods and or other natural disasters.

We may need to raise additional capital to fund the construction of our new campus, which may not be available on favorable terms, or at all.

Currently, we are in the process of planning to construct a new campus in Santa Clara, California. If we move forward with our plans, we will spend a significant amount for materials and related construction costs. If we are unable to control our construction related expenses or costs or such costs are higher than we anticipate, we may not have sufficient balances of cash, cash equivalents and marketable securities to fund our operations. As a result, we may need to raise additional financing. Such additional financing may not be available on favorable terms, or at all. Use of our available funds may also prevent us from making other necessary investments in our business such as in research and development of new products.

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

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

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

·	adjustments to estimated taxes upon finalization of various tax returns;

·	changes in available tax credits;

·	changes in share-based compensation expense;

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

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

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

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

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

While we believe that we ~~currently~~ have adequate internal control over financial reporting, if we ~~are exposed to risks from legislation requiring companies to evaluate those internal controls.~~or our independent registered public accounting firm determines that we do not, our reputation may be adversely affected and our stock price may decline.

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

Changes in financial accounting standards or interpretations of existing standards could affect our reported results of operations.

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

~~Risks Related to our Common Stock~~

Provisions in our certificate of incorporation, our bylaws and our agreement with Microsoft could delay or prevent a change in control.

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

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

·	the prohibition of stockholder action by written consent;

·	a classified Board; and

·	advance notice requirements for director nominations and stockholder proposals.

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

5455

ITEM 22.. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

During fiscal year 2005, we announced that our ~~Board of Directors, or~~ Board had authorized a stock repurchase program to repurchase shares of our common stock, subject to certain specifications, up to an aggregate maximum amount of $300 million. During fiscal year 2007, the Board further approved an increase of $400 million to the original stock repurchase program. In fiscal year 2008, ~~on May 21, 2007,~~ we announced a stock repurchase program under which we may purchase up to an additional $1.0 billion of our common stock over a three year period through May 2010. On August 12, 2008, we announced that our Board further authorized an additional increase of $1.0 billion to the stock repurchase program. As a result of these increases, we have an ongoing authorization from the Board, subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of ~~$1.7 billion.~~$2.7 billion through May 2010.

~~During the three months ended October 28, 2007,~~ Through July 27, 2008, we ~~entered into a structured share repurchase transaction to repurchase 4.0 million shares for $125.0 million which we recorded on the trade date of the transaction. Through October 28, 2007, we have~~had repurchased ~~56.0~~68.0 million shares under our stock repurchase program for a total cost of ~~$862.5 million.~~

Period

Total Number of Shares Purchased

Average Price Paid per Share (2)

Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs (3)

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)

July 30, 2007 through August 26, 2007
-
$ -
-
$
962,482,529

August 27, 2007 through September 26, 2007
-
$ -
-
$
962,482,529

September 27, 2007 through October 28, 2007
3,989,363
$ 31.34
3,989,363
$
837,441,904

Total

3,989,363
$
31.34

3,989,363

~~(1)~~ On August 9, 2004, we announced that our Board had authorized a stock repurchase program to repurchase shares of our common stock, subject to certain specifications, up to an aggregate maximum amount of $300.0 million. On March 6, 2006, we announced that the Board had approved a $400.0 million increase to the original stock repurchase program. Subsequently, on May 21, 2007, we announced a stock repurchase program under which we may purchase up to an additional $1.0 billion of our common stock over a three year period through May 2010. As a result of these increases, we have an ongoing authorization from the Board, subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of $1.7 billion on the open market, in negotiated transactions or through structured stock repurchase agreements that may be made in one or more larger repurchases.

~~(2)~~ ~~Represents weighted average price paid per share during the quarter ended October 28, 2007.~~

~~(3)~~ ~~As part of our share repurchase program, we have entered into and we may continue to enter into structured share repurchase transactions with financial institutions.~~$1.16 billion. During the three months ended ~~October 28, 2007,~~July 27, 2008, we ~~entered~~did not enter into aany structured share repurchase transaction to repurchase 4.0 million shares for $125.0 million which we recorded on the trade date of the transaction. Subsequent to October 28, 2007, we entered into a structured share repurchase transaction to repurchase shares of our common stock for $125.0 million that we expect to settle prior to the end of our fourth quarter of fiscal year 2008 ending on January 27, 2008.transactions.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

5556

ITEM 4.3. ~~DEFAULTS~~ ~~UPON SENIOR SECURITIES~~

~~Not applicable.~~

~~ITEM~~ 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Annual Meeting of Stockholders held on June 19, 2008 the following proposals were adopted by the margin indicated. Proxies for the Annual Meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934 and there was no solicitation in opposition of management’s solicitation.

1.	The election of three (3) directors to serve for a three-year term until the 2011 Annual Meeting of Stockholders. The results of the voting were as follows:

a.	Steven Chu
	Number of shares For	487,245,948
	Number of shares Against	4,972,489
	Number of shares Abstain	4,012,543

b.	Harvey C. Jones
	Number of shares For	479,745,136
	Number of shares Against	12,460,467
	Number of shares Abstain	4,025,376

c.	William J. Miller
	Number of shares For	474,938,642
	Number of shares Against	17,017,103
	Number of shares Abstain	4,275,235

The other directors whose term of office as a director continued after the Annual Meeting of Stockholders are Tench Coxe, James C. Gaither, Jen-Hsun Huang, Mark L. Perry and A. Brooke Seawell.

2.	The approval of the amendment to the NVIDIA Corporation Amended and Restated Certificate of Incorporation. The results of the voting were as follows:

Number of shares voted For	402,773,505
Number of shares voted Against	89,092,095
Number of shares Abstaining	4,365,380
Number of Broker Non-Votes	0

3.	The ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered accounting firm for our fiscal year ending January 25, 2009. The results of the voting were as follows:

Number of shares voted For	488,656,413
Number of shares voted Against	3,637,439
Number of shares Abstaining	3,937,128
Number of Broker Non-Votes	0

ITEM 5. OTHER INFORMATION

None.

~~ITEM~~ 5. ~~OTHER~~ ~~INFORMATION~~

~~None.~~

5657

ITEM 6. EXHIBITS

~~ITEM~~ 6. ~~EXHIBITS~~

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit Description

Schedule/Form

File Number

~~Exhibit~~

Exhibit

Filing Date

3.1

Certificate of Amendment of Amended and Restated Certificate of Incorporation

31.1

Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1#

Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934

32.2#

Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934

* Filed Herewith

# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 21, 2008
	NVIDIA Corporation
By:	/s/ MARVIN D. BURKETT
	Marvin D. Burkett
	(Duly Authorized Officer and Principal Financial and Accounting Officer)

EXHIBIT INDEX

Incorporated by Reference

Exhibit No.

Exhibit Description

Schedule/Form

File Number

Exhibit

Filing Date

3.1

Certificate of Amendment of Amended and Restated Certificate of Incorporation

31.1

Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

31.2

Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1#

Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934

32.2#

Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934

* Filed Herewith

~~Copies of above exhibits not contained herein are available to any stockholder upon written request to:~~

~~Investor Relations: NVIDIA Corporation, 2701 San Tomas Expressway, Santa Clara, CA 95050.~~

5760

~~SIGNATURE~~

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.~~

~~Date: November 21, 2007~~
~~NVIDIA Corporation~~
~~By:~~	~~/s/ MARVIN D. BURKETT~~
	~~Marvin D. Burkett~~
	~~(Duly Authorized Officer and Principal Financial and Accounting Officer)~~

~~EXHIBIT INDEX~~

				~~Incorporated by Reference~~
~~Exhibit No.~~			~~Exhibit Description~~	~~Schedule/Form~~	~~File Number~~	~~Exhibit~~	~~Filing Date~~


	~~31.1~~	*	~~Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934~~

	~~31.2~~	*	~~Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934~~

	~~32.1#~~	*	~~Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934~~

	~~32.2#~~	*	~~Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934~~

* Filed Herewith

# In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release Nos. 33-8238 and 34-47986, Final Rule: Management’s Reports on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purpose of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

~~Copies of above exhibits not contained herein are available to any stockholder upon written request to:~~

~~Investor Relations: NVIDIA Corporation, 2701 San Tomas Expressway, Santa Clara, CA 95050.~~

Delaware	94-3177549
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

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

			Page
PART I : FINANCIAL INFORMATION		~~Page~~
Item 1.	Financial Statements (Unaudited)			3
	a) Condensed Consolidated Statements of ~~Income~~Operations for the three and ~~nine~~six months ended ~~October 28,~~July 27, 2008 and July 29, 2007 ~~and October 29, 2006~~			3
	b) Condensed Consolidated Balance Sheets as of ~~October 28, 2007~~July 27, 2008 and January ~~28, 2007~~27, 2008			4
	c) Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~October 28,~~July 27, 2008 and July 29, 2007 ~~and October 29, 2006~~			5
	d) Notes to Condensed Consolidated Financial Statements			6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24		26
Item 3.	Quantitative and Qualitative Disclosures ~~About~~about Market Risk	38		39
Item 4.	Controls and Procedures	39		40
PART II : OTHER INFORMATION
	~~PART II : OTHER INFORMATION~~
Item 1.	Legal Proceedings			40
Item 1A.	Risk Factors			40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55		56
Item 3.	Defaults ~~Upon~~upon Senior Securities			56
Item 4.	Submission of Matters to a Vote of Security Holders	56		57
Item 5.	Other Information	56		57
Item 6.	Exhibits	57		58
Signature	58			59

	Three Months Ended					Nine Months Ended
	October 28, 2007		October 29, 2006			October 28, 2007		October 29, 2006

Revenue	$	1,115,597	$	820,572		$	2,895,130	$	2,189,898
Cost of revenue		600,044		486,630			1,575,447		1,275,155
Gross profit		515,553		333,942			1,319,683		914,743
Operating expenses:
Research and development		179,529		140,732			495,802		391,191
Sales, general and administrative		88,183		75,597			250,034		208,614
Total operating expenses		267,712		216,329			745,836		599,805
Operating income		247,841		117,613			573,847		314,938
Interest income		17,416		10,652			46,250		28,278
Interest expense		—		(22	)		—		(29	)
Other income (expense), net		1,542		84			1,342		(266	)
Income before income tax expense		266,799		128,327			621,439		342,921
Income tax expense		31,138		21,816			80,787		58,297
Income before change in accounting principle		235,661		106,511			540,652		284,624
Cumulative effect of change in accounting principle		—		—			—		704
Net income	$	235,661	$	106,511		$	540,652	$	285,328

Basic net income per share:
Prior to cumulative effect of change in accounting principle	$	0.42	$	0.20		$	0.99	$	0.55
Cumulative effect of change in accounting principle		—		—			—		—
Basic net income per share	$	0.42	$	0.20		$	0.99	$	0.55
Shares used in basic per share computation		554,966		528,986			547,796		514,112

Diluted net income per share:
Prior to cumulative effect of change in accounting principle	$	0.38	$	0.18		$	0.89	$	0.50
Cumulative effect of change in accounting principle		—		—			—		—
Diluted net income per share	$	0.38	$	0.18		$	0.89	$	0.50
Shares used in diluted per share computation		612,985		586,733			605,733		570,422

	October 28, 2007			January 28, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	1,056,702		$	544,414
Marketable securities		796,251			573,436
Accounts receivable, net		552,407			518,680
Inventories		306,143			354,680
Prepaid expenses and other current assets		44,551			40,560
Total current assets		2,756,054			2,031,770
Property and equipment, net		322,946			260,828
Goodwill		292,934			301,425
Intangible assets, net		78,173			45,511
Deposits and other assets		25,156			35,729
Total assets	$	3,475,263		$	2,675,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	449,792		$	272,075
Accrued liabilities		406,650			366,732
Total current liabilities		856,442			638,807
Deferred tax and other long-term liabilities		140,895			29,537
Commitments and contingencies - see Note 13
Stockholders’ equity:
Preferred stock		—			—
Common stock		615			583
Additional paid-in capital		1,598,291			1,295,455
Treasury stock, at cost		(861,547	)		(487,120	)
Accumulated other comprehensive income, net		3,350			1,436
Retained earnings		1,737,217			1,196,565
Total stockholders' equity		2,477,926			2,006,919
Total liabilities and stockholders' equity	$	3,475,263		$	2,675,263

	Three Months Ended					Six Months Ended
	July 27, 2008			July 29, 2007		July 27, 2008			July 29, 2007

Revenue	$	892,676		$	935,253	$	2,046,064		$	1,779,533
Cost of revenue		742,759			511,261		1,381,304			975,403
Gross profit		149,917			423,992		664,760			804,130
Operating expenses
Research and development		212,910			157,952		431,740			316,273
Sales, general and administrative		92,399			81,280		185,433			161,851
Total operating expenses		305,309			239,232		617,173			478,124
Income (loss) from operations		(155,392	)		184,760		47,587			326,006
Interest income		12,081			15,625		26,404			28,833
Other income (expense), net		(3,289	)		466		(7,573	)		(199	)
Income (loss) before income tax expense		(146,600	)		200,851		66,418			354,640
Income tax expense (benefit)		(25,671	)		28,119		10,542			49,649
Net income (loss)	$	(120,929	)	$	172,732	$	55,876		$	304,991

Basic net income (loss) per share	$	(0.22	)	$	0.32	$	0.10		$	0.56
Shares used in basic per share computation (1)		555,417			547,305		555,531			544,275

Diluted net income (loss) per share	$	(0.22	)	$	0.29	$	0.09		$	0.51
Shares used in diluted per share computation (1)		555,417			603,830		592,181			600,957

	July 27, 2008			January 27, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	719,143		$	726,969
Marketable securities		938,087			1,082,509
Accounts receivable, net		679,416			666,494
Inventories		432,279			358,521
Prepaid expenses and other		45,294			54,336
Total current assets		2,814,219			2,888,829
Property and equipment, net		599,478			359,808
Goodwill		365,800			354,057
Intangible assets, net		145,148			106,926
Deposits and other assets		35,404			38,051
Total assets	$	3,960,049		$	3,747,671

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	438,892		$	492,099
Accrued liabilities		696,124			475,062
Total current liabilities		1,135,016			967,161
Other long-term liabilities		162,118			162,598
Commitments and contingencies - see Note 12
Stockholders’ equity:
Preferred stock		-			-
Common stock		625			619
Additional paid-in capital		1,776,698			1,654,681
Treasury stock, at cost		(1,163,528	)		(1,039,632	)
Accumulated other comprehensive income (loss)		(966	)		8,034
Retained earnings		2,050,086			1,994,210
Total stockholders' equity		2,662,915			2,617,912
Total liabilities and stockholders' equity	$	3,960,049		$	3,747,671

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share
Balances, January 27, 2008		44,044,004			90,581,073		$	13.18
Granted		(9,656,565	)		9,656,565		$	18.30
Exercised		-			(4,494,733	)	$	4.81
Cancelled		1,035,615			(1,035,615	)	$	22.25
Balances, July 27, 2008		35,423,054			94,707,290		$	14.00

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share
Balances, January 28, 2007		32,672,486			110,988,289		$	8.87
Additional shares reserved		25,114,550			-			-
Granted		(15,920,384	)		15,920,384		$	26.80
Exercised					(29,893,595	)	$	5.84
Cancelled		2,314,552			(2,314,552	)	$	17.56
Balances, October 28, 2007		44,181,204			94,700,526		$	12.62

	Fair Market Value		Straight-Line Amortization Period
	(In thousands)		(Years)
Property and equipment	$	2,433		1-2
Trademarks		11,310		5
Goodwill		85,418		--
Total	$	99,161

	Fair Market Value		Straight-Line Amortization Period
	(In thousands)		(Years)
Property and equipment	$	2,433		1-2
Trademarks		11,310		5
Goodwill		85,418		--
Total	$	99,161

	ULi			Hybrid Graphics			PortalPlayer
	(In thousands)									Mental Images			Ageia
Fair Market Values										(In thousands)
Cash and cash equivalents	$	21,551		$	1,180		$	10,174		$	988		$	1,744
Marketable Securities		-			-			176,492
Marketable securities											-			28
Accounts receivable		8,148			808			16,850			1,462			911
Inventories		4,896			-			2,326
Other assets		935			73			12,761
Prepaid and other current assets											214			3,825
Property and equipment		1,010			134			19,996			1,212			166
In-process research and development		-			602			13,400			4,000			-
Goodwill		31,204			27,906			106,172			58,271			16,558
Intangible assets:
Existing technology		2,490			5,179			6,700			14,400			13,450
Customer relationships		653			2,650			2,700			6,500			170
Backlog		-			-			2,200
Patents		-			-			600			5,000			-
Trademark		-			482			-			1,200			900
Non-compete agreements		-			72			-
Total assets acquired		70,887			39,086			370,371			93,247			37,752
Current liabilities		(17,031	)		(1,373	)		(14,380	)		(1,177	)		(6,994	)
Acquisition related costs		(781	)		(740	)		(8,101	)		(1,208	)		(1,038	)
Long-term liabilities		-			(301	)		(46	)		(2,542	)		-
Total liabilities assumed		(17,812	)		(2,414	)		(22,527	)		(4,927	)		(8,032	)
Net assets acquired	$	53,075		$	36,672		$	347,844
Purchase price allocation										$	88,320		$	29,720

	~~ULi~~		~~Hybrid Graphics~~ Mental Images	~~PortalPlayer~~	Ageia
		(Straight-line ~~depreciation /~~ depreciation/amortization ~~period~~				period)
Property and equipment			~~4 - 49 months~~2 -5 years		~~1 - 36 months~~		~~3 - 60 months~~1-2 years
Intangible assets:
Existing technology			34-5 years		~~3 years~~		34 years
Customer relationships			34-5 years		35 years
Patents			~~1-3~~5 years
~~Backlog~~		-			-		~~2 months~~
~~Patents~~		-			-		~~3 years~~
Trademark		-		35 years		-
~~Non-compete agreements~~		-			35 years		-

	October 28, 2007							January 28, 2007
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Technology licenses	$	87,350	$	(29,550	)	$	57,800	$	37,516	$	(20,480	)	$	17,036
Patents		35,098		(26,924	)		8,174		34,623		(24,569	)		10,054
Acquired intellectual property		50,812		(38,613	)		12,199		50,212		(31,894	)		18,318
Trademarks		11,310		(11,310	)		-		11,310		(11,310	)		-
Other		1,494		(1,494	)		-		1,494		(1,391	)		103
Total intangible assets	$	186,064	$	(107,891	)	$	78,173	$	135,155	$	(89,644	)	$	45,511

	July 27, 2008							January 27, 2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
(In thousands)
Technology licenses	$	112,263	$	(28,128	)	$	84,135	$	94,970	$	(32,630	)	$	62,340
Acquired intellectual property		75,880		(26,242	)		49,638		77,900		(41,030	)		36,870
Patents		17,183		(5,808	)		11,375		35,348		(27,632	)		7,716
Other		-		-			-		1,494		(1,494	)		-
Total intangible assets	$	205,326	$	(60,178	)	$	145,148	$	209,712	$	(102,786	)	$	106,926

	July 27, 2008			January 27, 2008			Estimated Useful Life
	(In thousands)						(Years)
Property and Equipment:
Test equipment	$	225,546		$	186,774		3
Land		208,908			38,442		(A)
Software and licenses		190,145			246,725		3 - 5
Computer equipment		138,588			137,642		3
Leasehold improvements		118,335			103,353		(B )
Office furniture and equipment		31,675			28,220		5
Building		29,199			4,104		25
Construction in process		9,990			8,258		(C )
		952,386			753,518
Accumulated depreciation and amortization		(352,908	)		(393,710	)
Total property and equipment, net	$	599,478		$	359,808

	July 27, 2008		January 27, 2008
Accrued Liabilities:	(In thousands)
Accrued customer programs (1)	$	297,545	$	271,869
Warranty accrual (2)		187,131		5,707
Accrued payroll and related expenses		91,276		122,284
Accrued costs related to purchase of property		37,948		-
Accrued legal settlement (3)		30,600		30,600
Deferred rent		12,273		11,982
Deferred revenue		10,823		5,856
Taxes payable		7,317		7,766
Other		21,211		18,998
Total accrued liabilities	$	696,124	$	475,062

	July 27, 2008		January 27, 2008
Other Long-term Liabilities:	(In thousands)
Deferred income tax liability	$	88,956	$	86,900
Income taxes payable, long term		47,886		44,235
Asset retirement obligation		6,597		6,470
Other long-term liabilities		18,679		24,993
Total other long-term liabilities	$	162,118	$	162,598

	GPU			PSB		MCP			CPB			All Other			Consolidated
	(In thousands)
Three Months Ended July 27, 2008:
Revenue	$	503,489		$	179,653	$	166,781		$	34,625		$	8,128		$	892,676
Depreciation and amortization expense	$	13,826		$	5,241	$	7,756		$	4,600		$	14,440		$	45,863
Operating income (loss)	$	(41,595	)	$	83,686	$	(107,072	)	$	(6,359	)	$	(84,052	)	$	(155,392	)
Three Months Ended July 29, 2007:
Revenue	$	579,034		$	127,321	$	161,058		$	62,182		$	5,658		$	935,253
Depreciation and amortization expense	$	8,932		$	1,960	$	6,844		$	5,004		$	9,710		$	32,450
Operating income (loss)	$	167,828		$	66,363	$	12,401		$	2,767		$	(64,599	)	$	184,760
Six Months Ended July 27, 2008:
Revenue	$	1,204,978		$	383,080	$	361,874		$	77,090		$	19,042		$	2,046,064
Depreciation and amortization expense	$	26,540		$	9,866	$	15,426		$	9,518		$	26,081		$	87,431
Operating income (loss)	$	127,452		$	194,014	$	(103,492	)	$	(10,209	)	$	(160,178	)	$	47,587
Six Months Ended July 29, 2007:
Revenue	$	1,062,529		$	268,194	$	309,808		$	129,408		$	9,594		$	1,779,533
Depreciation and amortization expense	$	17,217		$	4,147	$	13,437		$	11,099		$	18,872		$	64,772
Operating income (loss)	$	292,245		$	135,670	$	20,240		$	12,935		$	(135,084	)	$	326,006

	July 27, 2008			January 27, 2008
Accounts Receivable:
Customer A		11	%	12	%

			Fair value measurement at reporting date using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs
	July 27, 2008		(Level 1)		(Level 2)
	(In thousands)
Asset-backed Securities (1)	$	68,811	$	-	$	68,811
Commercial paper (2)		397,504		-		397,504
Corporate debt securities (3)		280,061		-		280,061
Debt securities issued by United States Treasury (1)		55,977		-		55,977
Other Debt securities issued by U.S. Government agencies (4)		434,899		-		434,899
Mortgage-backed securities issued by Government-sponsored entities (1)		124,120		-		124,120
Money market funds (5)		125,991		125,991		-
Equity securities (1)		1,358		-		1,358
Total assets	$	1,488,721	$	125,991	$	1,362,730

	As of July 27, 2008			As of January 27, 2008
	(In millions)
Cash and cash equivalents		$	719.1		$	727.0
Marketable securities			938.1			1,082.5
Cash, cash equivalents, and marketable securities		$	1,657.2		$	1,809.5

	Six Months Ended
	July 27,				July 29,
	2008				2007
		(In millions)
Net cash provided by operating activities		$	226.2			$	616.9
Net cash used in investing activities		$	(150.1	)		$	(128.2	)
Net cash used in financing activities		$	(83.9	)		$	(118.3	)

	GPU		PSB		MCP		CPB		All Other			Consolidated
	(In thousands)
Three Months Ended October 28, 2007:
Revenue	$	689,909	$	152,158	$	198,151	$	65,873	$	9,506		$	1,115,597
Depreciation and amortization expense	$	8,834	$	1,926	$	7,219	$	5,676	$	10,054		$	33,709
Operating income (loss)	$	207,938	$	82,182	$	17,005	$	7,788	$	(67,072	)	$	247,841
Nine Months Ended October 28, 2007:
Revenue	$	1,752,438	$	420,353	$	507,959	$	195,281	$	19,099		$	2,895,130
Depreciation and amortization expense	$	26,051	$	6,073	$	20,656	$	16,775	$	28,926		$	98,481
Operating income (loss)	$	500,182	$	217,852	$	37,245	$	20,724	$	(202,156	)	$	573,847
Three Months Ended October 29, 2006:
Revenue	$	471,057	$	111,257	$	187,416	$	48,943	$	1,899		$	820,572
Depreciation and amortization expense	$	6,929	$	1,799	$	4,577	$	3,774	$	8,162		$	25,241
Operating income (loss)	$	114,851	$	52,320	$	27,897	$	4,989	$	(82,444	)	$	117,613
Nine Months Ended October 29, 2006:
Revenue	$	1,248,972	$	328,425	$	444,941	$	162,022	$	5,538		$	2,189,898
Depreciation and amortization expense	$	19,389	$	5,286	$	13,262	$	13,347	$	24,423		$	75,707
Operating income (loss)	$	277,418	$	151,901	$	38,743	$	38,751	$	(191,875	)	$	314,938

	October 28, 2007			January 28, 2007
Accounts Receivable:
Customer A		14	%		5	%
Customer B		11	%		18	%
Customer C		10	%		3	%

	Three Months Ended												Nine Months Ended
	October 28, 2007			October 29, 2006			$ Change			% Change			October 28, 2007			October 29, 2006			$ Change			% Change
	(In millions)												(In millions)
Research and Development:
Salaries and benefits	$	99.0		$	70.5		$	28.5			40	%	$	276.5		$	205.5		$	71.0			35	%
Stock-based compensation		18.7			18.7			-			-	%		57.5			49.7			7.8			16	%
Depreciation and amortization		17.9			14.5			3.4			23	%		51.6			44.6			7.0			16	%
Computer software and lab equipment		17.6			15.2			2.4			16	%		48.1			41.5			6.6			16	%
Facility expense		14.5			10.1			4.4			44	%		38.9			27.0			11.9			44	%
New product development		7.5			10.9			(3.4	)		(31	)%		14.3			25.7			(11.4	)		(44	)%
License and development project costs		(1.4	)		(3.9	)		2.5			64	%		(5.3	)		(14.6	)		9.3			64	%
Other		5.7			4.7			1.0			21	%		14.2			11.8			2.4			20	%
Total	$	179.5		$	140.7		$	38.8			28	%	$	495.8		$	391.2		$	104.6			27	%

Research and development as a percentage of net revenue		16	%		17	%								17	%		18	%

	As of October 28, 2007		As of January 28, 2007
	(In millions)
Cash and cash equivalents	$	1,056.7	$	544.4
Marketable securities		796.3		573.4
Cash, cash equivalents, and marketable securities	$	1,853.0	$	1,117.8

	Nine Months Ended
	As of October 28, 2007			As of October 29, 2006
	(In millions)
Net cash provided by operating activities	$	1,017.7		$	356.7
Net cash used in investing activities	$	(335.4	)	$	(168.9	)
Net cash provided by (used in) financing activities	$	(170.0	)	$	2.2

Period	Total Number of Shares Purchased		Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs (3)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 30, 2007 through August 26, 2007		-	$	-		-	$	962,482,529
August 27, 2007 through September 26, 2007		-	$	-		-	$	962,482,529
September 27, 2007 through October 28, 2007		3,989,363	$	31.34		3,989,363	$	837,441,904
Total		3,989,363	$	31.34		3,989,363