We operate on a 52 or 53-week year, ending on the Sunday nearest January 31. The first ~~and second~~ quarters of fiscal ~~2007~~year 2008 and fiscal ~~2006~~year 2007 were ~~all~~both 13-week quarters.

Certain prior fiscal year balances ~~were~~have been reclassified to conform to the current fiscal year presentation.

Our condensed consolidated financial statements include the accounts of NVIDIA Corporation and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, accounts receivable, inventories, income taxes, goodwill, stock-based compensation ~~income taxes~~ and contingencies. These estimates are based on historical facts and various other assumptions that we believe are reasonable.

Our adoption of SFAS No. 123(R) resulted in a cumulative benefit from accounting change of $0.7 million for the three months ended April 30, 2006, which reflects the net cumulative impact of estimating forfeitures in the determination of period expense by reversing the previously recognized cumulative compensation expense related to those forfeitures, rather than recording forfeitures when they occur as previously permitted.

As of January 30, 2006, we had unearned stock-based compensation related to stock options of $167.9 million before the impact of estimated forfeitures. In our pro forma footnote disclosures prior to the adoption of SFAS No. 123(R), we accounted for forfeitures upon occurrence. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ from those estimates. Accordingly, as of January 30, 2006, we estimated that

The income statement includes stock-based compensation expense for the awards that are not expected to vest was $32.4 million, and, therefore, the unearned stock-based compensation expense related to stock options was adjusted to $135.5 million after estimated forfeitures.

net of amounts capitalized as inventory, as follows:

During the three ~~and six~~ months ended ~~July~~April 29, 2007 and April 30, 2006, we granted approximately ~~0.9~~4.8 million and ~~6.8~~5.9 million stock options, respectively, with an estimated total grant-date fair value of ~~$9.7~~$56.1 million and ~~$73.6~~$63.9 million, respectively, and a per option weighted average ~~grant date~~grant-date fair value of ~~$10.57 per option~~$11.62 and ~~$10.74 per option,~~$10.86, respectively. Of ~~this amount,~~the estimated total grant-date fair value, we estimated that the stock-based compensation expense related to the awards that are not expected to vest was ~~$1.9~~$10.5 million and ~~$14.2~~$12.3 million, ~~for the three and six months ended July 30, 2006,~~ respectively. ~~During the three and six months ended July 30, 2006, we recorded stock-based compensation expense related to stock options of $27.8 million and $49.4 million, respectively.~~

As of ~~July~~April 29, 2007 and April 30, 2006, the aggregate amount of unearned stock-based compensation expense related to our stock options was ~~$176.3~~$185.3 million and $190.3 million, respectively, adjusted for estimated forfeitures, which we will recognize over an estimated weighted average amortization period of ~~2.0 years.~~

~~Approximately $0.4~~2.1 years and ~~$1.4 million~~2.3 years, respectively.

As of April 29, 2007 and April 30, 2006, we had unearned stock-based compensation ~~was capitalized as inventory for~~related to stock options of $208.4 million and $212.8 million, before the ~~three months and six months ending July 30, 2006, respectively.~~

impact of estimated forfeitures.

In fiscal 2006, we transitioned from a Black-Scholes model to a binomial model for calculating the estimated fair value of new stock-based compensation awards granted under our stock option plans. ~~As a result of regulatory guidance, including SEC Staff Accounting Bulletin No. 107,~~~~Share-Based Payment~~~~, and in anticipation of the impending effective date of SFAS No. 123(R), we~~We reevaluated the assumptions we used to estimate the value of employee stock options and shares issued under our employee stock purchase plan, beginning with stock options granted and shares issued under our employee stock purchase ~~plan in the first quarter of fiscal 2006.~~plan. At that time, our management also determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. ~~Additionally, in the first quarter of fiscal 2006, we began segregating~~We also segregated options into groups for employees with relatively homogeneous exercise behavior in order to calculate the best estimate of fair value using the binomial valuation model. As such, the expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical data about ~~employees’~~employees' exercise behavior, vesting schedules, and death and disability probabilities. Our management believes the resulting binomial calculation provides a more refined estimate of the fair value of our employee stock options. For our employee stock purchase plan we continued to use the Black-Scholes model.

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

The fair value of stock options granted under our stock option plans, and shares issued under our employee stock purchase plan have been estimated at the date of grant using a straight-line attribution method with the following assumptions:

On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into ~~an agreement~~the APA to purchase certain graphics chip assets from ~~3dfx. The~~ 3dfx ~~asset purchase agreement~~which closed on April 18, 2001.

In May 2002, we were served with a California state court complaint filed by the landlord of 3dfx’s San Jose, California commercial real estate lease, CarrAmerica. In December 2002, we were served with a California state court complaint filed by the landlord of 3dfx’s Austin, Texas commercial real estate lease, Carlyle Fortran Trust. The landlords’ complaints both ~~assert~~asserted claims for, among other things, interference with contract, successor liability and fraudulent transfer and ~~seek~~sought to recover, among other things, amounts owed on their leases with 3dfx in the aggregate amount of approximately $15 million. In October 2002, 3dfx filed for ~~Chapter~~chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. The landlords’ actions were subsequently removed to the United States Bankruptcy Court for the Northern District of California and consolidated, for purposes of discovery, with a complaint filed by the Trustee in the 3dfx bankruptcy ~~case for purposes of discovery.~~case. Upon motion by NVIDIA in 2005, the District Court withdrew the reference to the Bankruptcy Court and the landlord actions were removed to the United States District Court for the Northern District of California. On November 10, 2005, the District Court granted our motion to dismiss the landlords’ respective amended complaints and allowed the landlords to have until February 4, 2006 to amend their complaints. The landlords re-filed claims against NVIDIA in early February 2006, and NVIDIA again filed motions requesting the District Court to dismiss all such claims. The District Court took both motions under submission. On September 29, 2006, the ~~court~~District Court dismissed the CarrAmerica action in its entirety and without leave to amend. The ~~court~~District Court found, among other things, that CarrAmerica ~~lacks~~lacked standing to bring the lawsuit and that such standing belongs exclusively to the ~~bankruptcy trustee.~~Bankruptcy Trustee. On October 27, 2006, CarrAmerica filed a notice of appeal from that order. ~~We await a ruling on~~On December 15, 2006, the ~~motion to dismiss~~District Court also dismissed the Carlyle ~~Fortran Trust complaint. Discovery is stayed pending this~~complaint in its entirety, finding that Carlyle lacked standing to pursue some of its claims, and that certain other claims were substantively unmeritorious. NVIDIA has filed motions to recover its litigation costs and attorneys fees against both Carlyle and CarrAmerica. Those motions are currently scheduled for hearing ~~and no trial date has been set~~ in ~~that action. We believe the claims asserted against us by the Carlyle Fortran Trust are without merit and we will continue to defend ourselves vigorously.~~

early August 2007.

In March 2003, we were served with a complaint filed by the Trustee appointed by the Bankruptcy Court to represent the interests of the 3dfx bankruptcy estate. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and seeks additional payments from us. On October 13, 2005, the Bankruptcy Court held a hearing on the Trustee’s motion for summary adjudication. On December 23, 2005, the Bankruptcy Court issued its ruling denying the Trustee’s Motion for Summary Adjudication in all material respects and holding that NVIDIA is prevented from disputing that the value of the 3dfx transaction to NVIDIA was less than $108.0 million. The Bankruptcy Court expressly denied the Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA were at least $108.0 million. In early November 2005, after many months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, reached a conditional settlement of the Trustee’s claims against NVIDIA. This conditional settlement, presented as the centerpiece of a proposed Plan of Liquidation in the bankruptcy case, iswas subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court after notice and hearing. The ~~scope and schedule for that confirmation process has yet to be determined. The~~ Trustee ~~has~~ advised that he ~~intends~~intended to object to the ~~settlement. The~~ settlement, ~~with the Creditors’ Committee calls~~which would have called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million ~~relates~~related to various administrative expenses and Trustee fees, and $25.0 million ~~relates~~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~~

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. 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 is scheduled to be concluded on May 25, 2007, and we expect a decision to be forthcoming from the Bankruptcy Court at some point thereafter.

In addition, while the conditional settlement agreement was awaiting the confirmation process, the Bankruptcy Court, over objection of the Creditors’ Committee and NVIDIA, ordered the discovery portion of the Trustee’s litigation to ~~proceed while the conditional settlement is pending approval through the confirmation process.~~proceed. The expert discovery ~~is now~~was completed, but the Bankruptcy Court ~~thereafter~~also ruled on a Trustee discovery motion allowing additional discovery of NVIDIA. Because that order would have required NVIDIA to disclose privileged attorney-client communications, NVIDIA ~~has~~ asked the District Court to review that order and to stay its execution while the District Court’s review is pending. The District Court did issue the requested stay order on August 3, 2006. Oral argument on that matter was held on November 15, 2006, and the ~~matter is now under submission~~District Court reversed the Bankruptcy Court’s order by order of its own dated December 15, 2006. The District Court permitted certain limited additional discovery, but concluded that on the record before it, there was no basis to set aside the ~~District Court. No trial date has been set in the Trustee’s action. In addition, following~~attorney-client privilege.

Following the Trustee’s filing of a Form 8-K on behalf of 3dfx, in which the Trustee disclosed the terms of the proposed settlement agreement between NVIDIA and the Creditor’s Committee, certain shareholders of 3dfx filed a petition with the Bankruptcy Court to appoint an official committee to represent the claimed interests of 3dfx shareholders. That petition was granted and an Equity Holders Committee was appointed. Since that appointment, the Equity Holders Committee has filed a competing plan of reorganization/liquidation. The Equity Holders plan assumes that 3dfx can raise additional equity capital that would be used to retire all of 3dfx’s debts. Upon the payment of that debt, the Equity Holders Committee contends that NVIDIA would be obliged to pay the stock consideration provided for in the ~~asset purchase agreement.~~APA. By virtue of stock splits since the execution of the ~~asset purchase agreement,~~APA, the stock consideration would now total four million shares of our common stock. The

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)~~

~~(Unaudited)~~

Equity Holders’ Committee filed a motion with the Bankruptcy Court for an order giving it standing to bring that lawsuit to enforce the ~~Asset Purchase Agreement.~~APA. Over our objection, the Bankruptcy Court granted that motion on May 1, 2006 and the Equity Holders’ Committee filed its Complaint for Declaratory Relief against NVIDIA that same day. NVIDIA moved to dismiss the Complaint for Declaratory Relief, and the Bankruptcy Court granted that motion with leave to amend. The Equity Committee thereafter amended its complaint, and NVIDIA ~~has~~ moved to dismiss that amended complaint as well. ~~The~~At the hearing on ~~that motion is scheduled for~~ December 21, ~~2006.~~2006, the Bankruptcy Court granted the motion as to one of the Equity Holders’ Committee’s claims, and denied it as to the others. However, the Bankruptcy Court also ruled that NVIDIA would only be required to answer the first three causes of action by which the Equity Holders’ Committee seeks a determination that the APA was not terminated before 3dfx filed for bankruptcy protection, that the 3dfx bankruptcy estate still holds some rights in the APA, and that the APA is capable of being assumed by the bankruptcy estate. In addition, the Equity Holders Committee ~~has~~ filed a motion seeking Bankruptcy Court approval of investor protections for Harbinger Capital Partners Master Fund I, Ltd., an equity investment firm that has conditionally agreed to pay no more than $51.5 million for preferred stock in 3dfx. The hearing on that motion ~~is now scheduled for December 20, 2006. The~~was held on January 18, 2007, and the Bankruptcy Court ~~still has not set a schedule for presentation of either~~approved the proposed protections.

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

We voluntarily contacted the SEC regarding the Audit Committee’s review and, as of the present date, the SEC is continuing the inquiry of our historical stock option grant practices it began in late August 2006. In October 2006, we met with the SEC and provided it with a review of the status of the Audit Committee’s review and in November 2006 we voluntarily provided the SEC with further documents. We continue to cooperate with the ~~creditors for a vote. The judge who has been handling this matter has now retired~~SEC in its inquiry.

Concurrently with our internal review and the ~~bankruptcy case, along with~~SEC’s inquiry, since September 29, 2006, ten derivative cases have been filed in state and federal courts asserting claims concerning errors related to our historical stock option granting practices and associated accounting for stock-based compensation expense. These complaints have been filed in various courts, including the ~~Trustee’s~~California Superior Court, Santa Clara County, the United States District Court for the Northern District of California, and ~~Equity Holders’ Committee lawsuits, has been reassigned to a newly appointed Bankruptcy Judge.~~

~~Opti Incorporated~~

~~On October 19, 2004, Opti Incorporated, or Opti,~~the Court of Chancery of the State of Delaware in and for New Castle County. Plaintiffs filed a consolidated complaint ~~for patent infringement against NVIDIA~~ in the United States District Court for the ~~Eastern~~Northern District of ~~Texas. In its~~California on February 28, 2007. The California Superior Court cases have been consolidated and plaintiffs filed a consolidated complaint ~~Opti asserted that~~on April 23, 2007. All of the cases purport to be brought derivatively on behalf of NVIDIA against members of our Board and several of our current and former officers and directors. Plaintiffs in these actions allege claims for, among other things, breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, gross mismanagement, waste, and constructive fraud. The Northern District of California action also alleges violations of federal provisions, including Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA, among other things, damages in an unspecified amount, rescission, punitive damages, treble damages for insider selling, and fees and costs. Plaintiffs also seek an accounting, a constructive trust and other equitable relief. We intend to take all appropriate action in response to these complaints. Between May 14, 2007 and May 17, 2007, we filed several motions to dismiss the federal, Delaware and Santa Clara actions. All of the motions are yet to be fully briefed, and remain pending.

On November 29, 2006, we received a subpoena from the San Francisco Office of the Antitrust Division of the United States ~~patents held by Opti. Opti sought unspecified damages for~~Department of Justice, or DOJ, in connection with the DOJ's investigation into potential antitrust violations related to graphics processing units and cards. No specific allegations have been made against us. We are cooperating with the DOJ in its investigation. As of May 14, 2007, 51 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. Although the complaints differ, they generally purport to assert federal and state antitrust claims based on alleged price fixing, market allocation, and other alleged anti-competitive agreements between us and Advanced Micro Devices, Inc., or AMD, as a result of its acquisition of ATI Technologies, Inc., or ATI. Many of the cases also assert a variety of state law unfair competition or consumer protection claims on the same allegations and some cases assert unjust enrichment or other common law claims. The complaints are putative class actions alleging classes of direct and/or indirect purchasers of our ~~alleged conduct, attorneys’ fees~~graphic processing units and ~~triple damages for alleged willful infringement by NVIDIA. We~~cards. The plaintiffs in a few of the Northern District of California actions filed a ~~response~~motion with the Judicial Panel on Multidistrict Litigation, or JPML, asking that all pending and subsequent cases be consolidated in one court for all pre-trial discovery and motion practice. A hearing on this motion took place on March 29, 2007. The JPML subsequently granted the motion and conditionally transferred all of the actions currently pending outside of the Northern District of California to ~~this complaint in December 2004. A~~the Northern District of California for coordination of pretrial proceedings. An initial case management conference ~~was~~for the coordinated cases is scheduled to be held ~~in July 2005 where a trial date was set for July 2006. A Court mandated mediation was held in January 2006 and did not resolve the matter. The discovery period formally ended~~ on May ~~6, 2006. On April~~ 24, ~~2006,~~2007. We believe the ~~District Court issued a Markman ruling adopting Opti’s proposed construction on 13 of~~allegations in the ~~15 terms at issue~~complaints are without merit and ~~Opti dropped from~~intend to vigorously defend the ~~lawsuit two of the five United States patents that Opti alleged NVIDIA infringes, and elected to pursue the three remaining patents at trial.~~

In August 2006, Opti and NVIDIA settled this litigation. Under that settlement, NVIDIA was obligated to pay to Opti $11.0 million dollars for past and present licenses to the patents in suit and NVIDIA agreed to make additional quarterly payments to Opti should NVIDIA use certain patented technology after January 31, 2007. The case has now been dismissed with prejudice.

cases.

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 media and communications processor, or MCP, Business; the Handheld GPU Business, and the Consumer Electronics Business. Our GPU Business is composed of products that support desktop personal computers, or PCs, notebook PCs and professional workstations; our MCP Business is composed of NVIDIA nForce products that operate as a single-chip or chipset that can off-load system functions, such as audio processing and network communications, and perform these operations independently from the host central processing unit, or CPU; our Handheld GPU Business is composed of products that support handheld personal digital assistants, cellular phones and other handheld devices; and our Consumer Electronics Business is concentrated in products that support video game consoles and other digital consumer electronics devices and is composed of our contractual arrangements with Sony Computer Entertainment, or SCE, to jointly develop a custom GPU for SCE’s PlayStation3, sales of our Xbox-related products, revenue from our license agreement with Microsoft Corporation, or Microsoft, relating to the successor product to their initial Xbox gaming console, the Xbox360, and related devices, and embedded graphics processor products. 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~~.

Original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, add-in-card manufacturers, system builders and consumer electronics companies worldwide utilize NVIDIA embedded graphics processors as a core component of their entertainment and business solutions. Our GPUs deliver superior performance and crisp visual quality for PC-based applications such as manufacturing, science, e-business, entertainment and education. Our MCPs perform highly demanding multimedia processing for secure broadband connectivity, communications and breakthrough audio functions. Our handheld GPUs deliver an advanced visual experience by accelerating graphics and video applications while implementing design techniques that are designed to result in high performance and low power consumption.

~~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.

~~Recent Developments, Future Objectives and Challenges~~

~~GPU Business~~

The combination of our GeForce 7 and GeForce 6 series of GPUs and our Scalable Link Interface, or SLI, technology has created a new class of gaming PCs and professional workstations. SLI technology takes advantage of the increased bandwidth of the peripheral component interconnect, or PCI, Express bus architecture to allow up to four NVIDIA-based graphics cards to operate in a single PC or up to two NVIDIA-based graphics cards to operate in a notebook PC or professional workstation.

During the first quarter of fiscal 2007, we shipped eight new GeForce 7 series GPUs for desktop and notebook PCs, and now offer a top-to-bottom family of GeForce 7 GPUs. In March 2006, we shipped our first Quad SLI system for desktop PCs, enabling the use of four GPUs per system. We also shipped the GeForce Go 7800 GTX notebook GPU featuring SLI technology for notebook PCs.

During the second quarter of fiscal 2007, our NVIDIA GeForce Go notebook GPU product line achieved record revenue for the second consecutive quarter. In addition, our NVIDIA Quadro professional product line increased its revenue 27% from the second quarter of fiscal 2006 and achieved record revenue. In the performance segment, where the price/performance ratio is critical, we continue to gain momentum. We transitioned from our highly popular NVIDIA GeForce 6600 to the NVIDIA GeForce 7600, which delivers almost a 100% performance increase at the same price points.

In June 2006, we shipped the GeForce 7950 GX2, which provides 2500x1600 resolution. This is the resolution of cinematic film, thirteen times the resolution of television, and brings the 16:9 panoramic experience of cinema to gaming. We also announced PureVideo HD technology – a combination of hardware acceleration from an NVIDIA GPU, high definition movie player integration and HDCP feature support, to enable manufacturers and consumers to build PCs that can play HD DVD or Blu-ray movies.

In August 2006, we introduced the NVIDIA Quadro Plex 1000, the world’s first dedicated Visual Computing System. The NVIDIA Quadro Plex 1000 offers advanced scalability in a desktop or dense 3U rackmount configuration for demanding professional applications such as those powering multiple streams of 4K high-definition video, 3D styling and design, scientific and medical visualization, oil and gas exploration, or visual simulation and training.

We expect additional growth in our GPU Business during the remainder of fiscal 2007. We believe that sales of our desktop and notebook GPU products will be increased by share gains from our anticipated position in the market, the release of Microsoft’s next generation operating system, Microsoft Windows Vista, or Vista, the introduction of high-definition, or HD, and Blu-ray video. The GeForce 7 and GeForce 6 series of desktop and notebook GPUs are designed to be compatible with Vista. We believe that in the upcoming year there will be increased demand for HD and Blu-ray video, and that SCE’s PlayStation3 will be a key driver of demand for HD. We expect HD and Blu-ray video to promote increased demand for the video processing capabilities of our next generation GPUs.

~~MCP Business~~

In February 2006, we completed our acquisition of ULi Electronics, Inc., or ULi, a core logic developer for the PC industry. This acquisition represents our ongoing investment in our platform solution strategy and is expected to strengthen our sales, marketing, and customer engineering presence in Taiwan and China.

In March 2006, we shipped our first integrated graphics processor, or IGP, core-logic solution for Advanced Micro Devices, or AMD,-based notebook PCs - the GeForce Go 6100 GPU and NVIDIA nForce Go 430 MCP. This core logic solution is the industry’s first high-definition IGP to provide hardware accelerated H.264 high-definition video playback.

In May 2006, we shipped our new NVIDIA nForce 590 SLI, a high-performance motherboard solution for the latest and upcoming x86 PC platforms, including those based on socket AM2 processors by AMD. The NVIDIA nForce 590 SLI can utilize the power of up to one, two, or even four NVIDIA GeForce GPUs for extreme HD gaming.

~~In June 2006, we introduced the NVIDIA nForce 590 SLI for Intel Core2 Duo and Core 2 Extreme CPUs.~~

Our NVIDIA nForce product line has achieved record revenue for eight consecutive quarters. We believe that the transition by AMD to K8, our extension into new segments, and our entry into the Intel market with our first ever mainstream Intel nForce4 MCPs will make our MCP Business one of our fastest growing businesses. Furthermore, we believe that our ability to simultaneously innovate using our GPU, MCP, and software knowledge base will allow us to make additional platform innovations in the future.

~~Handheld GPU Business~~

In March 2006, NVIDIA and Intel Corporation, or Intel, announced a collaboration to bring a high-performance 3D gaming and multimedia platform to handheld devices. The collaboration combines the NVIDIA GoForce family of handheld GPUs with Intel’s newest processor family, which is based on the third-generation Intel XScale architecture, to deliver a powerful development platform to content developers.

Our GoForce handheld GPUs are now shipping in the Motorola 3G RAZR V3X, SLVR L6i, SLVR L7i, MOTORAZR Maxx, and Sony Ericsson Walkman phones. Our newest handheld GPU, the NVIDIA GoForce 5500 GPU, has been designed into Digital Video Broadcast - Handheld, or DVB-H, phones in North America, Europe, and Integrated Services Digital Broadcasting - Terrestrial, or ISDB-T, in Japan. Two out of the first three DVB-H television service launches in the world are based on phones powered by our handheld GPU.

In addition, in March 2006 we acquired Hybrid Graphics Ltd., a developer of embedded 2D and 3D graphics software for handheld devices. We believe that this acquisition will enable the customers of both companies to deploy rich graphics solutions for the worldwide handheld market.

In June 2006, we launched our MobileMedia Platform for handheld devices running Windows Mobile 5.0. The MobileMedia Platform is a development kit, containing both software and hardware components, that enables handheld manufacturers to design and release digital media-rich devices with Windows Mobile 5.0.

Our strategy in the Handheld GPU Business is to lead innovation and capitalize on the emergence of the cellular phone as a versatile consumer lifestyle device and to build a new class of low power GPUs for multimedia rich devices like 3G cell phones, smart phones, and portable media players. The increasing availability of digital media content for 3G has increased demand for our handheld GPUs. We believe that the graphics and multimedia capability of our handheld GPUs has put us in the position to benefit from the increasing multimedia demands of smart phones. We believe that there will be an increase in demand for mobile video products that deliver compelling and tangible improvements to the overall end user experience of these new services, and we believe that we are well positioned to increase our share of the handheld segment.

~~Gross Margin Improvement~~

We continue to remain intensely focused on improving our gross margin. Beginning in fiscal 2005, we implemented profit improvement initiatives across our company, which were designed to improve business and operational processes. During the second quarter of fiscal 2007, our gross margin was 42.5%, which represents an increase of 470 basis points from our gross margin of 37.8% for the second quarter of fiscal 2006. In addition to the positive impact on our gross margin of our implementation of profit improvement measures, we realized a significant contribution from our GeForce 7 products, which have experienced higher average gross margins than previous generations of our products.

Our gross margin is significantly impacted by product mix, which is often difficult to estimate with accuracy and thus if we achieve significant revenue growth in our lower margin businesses, it may negatively impact our gross margin. We believe that we can continue to improve our gross margin during the second half of fiscal 2007.

~~Stock-Based Compensation~~

~~Effective January 30, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R),~~~~Share-Based Payment~~. SFAS No. 123(R) establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation cost is measured at grant date, based on the fair value of the awards, and is recognized as expense over the requisite employee service period. As such, our stock-based compensation expense, net of associated payroll taxes, totaled $28.9 and $51.1 million during the second quarter and first half of fiscal 2007, respectively.

~~Subsequent Events~~

~~Opti Incorporated.~~ In early August 2006, we entered into settlement and license agreements associated with a litigation matter involving Opti. The agreements with Opti call for us to pay $11.0 million in exchange for Opti’s dismissal of its lawsuit against us and for certain patent license rights. The agreements also provide for us to pay additional quarterly royalty payments in future periods commencing in February 2007 under certain circumstances. As a result of the settlement, during the three months ended July 30, 2006, we accrued a liability of $11.0 million in our consolidated balance sheet. Of this $11.0 million, we recorded $8.0 million as a patent-related intangible asset and $3.0 million as a charge to cost of revenue. Please refer to Note 14 of our Notes to Condensed Consolidated Financial Statements for further information.

~~Listing on the NASDAQ Stock Market~~. On September 11, 2006, NVIDIA filed a Form 12b-25 with the SEC to report that we would not timely file our Quarterly Report on Form 10-Q for the quarter ended July 30, 2006. On September 12, 2006 NVIDIA announced that we would request a hearing before the NASDAQ Listing Qualifications Panel, or the Panel, in response to the receipt of a NASDAQ Staff Determination letter on September 11, 2006 indicating that NVIDIA was not in compliance with the filing requirements for continued listing as set forth in Marketplace Rule 4310(c)(14). As anticipated, the letter was issued in accordance with NASDAQ procedures due to the delayed filing of our Form 10-Q for the quarter ended July 30, 2006. Pending a decision by the Panel, NVIDIA common stock will remain listed on the NASDAQ Global Select Market. On October 19, 2006, we appeared for an oral hearing before the Panel and the Panel confirmed that our appeal had stayed the delisting action pending a final written decision by the Panel. The Panel’s decision is still pending. There can be no assurances that the Panel will grant our request for continued listing; however, by filing all of our required periodic reports with the SEC, we believe that we will have remedied our non-compliance with Marketplace Rule 4310(c)(14).

~~Lawsuits related to our historical stock option granting practices~~. Since September 29, 2006, nine derivative cases have been filed in state and federal courts asserting claims concerning errors related to our historical stock option granting practices and associated accounting for stock-based compensation expense. These complaints have been filed in various courts, including the California Superior Court, Santa Clara County, the United States District Court for the Northern District of California, and the Court of Chancery of the State of Delaware in and for New Castle County. All cases purport to be brought derivatively on behalf of NVIDIA against members of our board of directors and several of our current and former officers. The cases are not currently consolidated, although all allege in substantially similar fashion claims for, among other things, breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, gross mismanagement, waste, constructive fraud, and violations of Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA, among other things, damages in an unspecified amount, rescission, punitive damages, treble damages for insider selling, and fees and costs. Plaintiffs also seek an accounting, a constructive trust and other equitable relief. We intend to take all appropriate action in response to these complaints.

We voluntarily contacted the SEC regarding the Audit Committee’s review and, as of the date of the filing of this Form 10-Q, the SEC is continuing the inquiry of our historical stock option grant practices it began in late August 2006. In October 2006, we met with the SEC and provided it with a review of the status of the Audit Committee’s review and in November 2006 we voluntarily provided the SEC with further documents. We plan to continue to cooperate with the SEC in its inquiry.

~~PortalPlayer, Inc.~~ On November 6, 2006, we entered into a definitive Agreement and Plan of Merger, or the Merger Agreement, with PortalPlayer, Inc., or PortalPlayer. PortalPlayer is a leading supplier of semiconductors, firmware, and software for personal media players (PMPs) and secondary display-enabled computers.

Under terms of the Merger Agreement, we will pay $13.50 in cash for each outstanding share of PortalPlayer common stock, which represents a total purchase price of approximately $357 million, plus direct acquisition costs incurred. This acquisition has been approved by the Board of Directors of each company and is subject to regulatory approvals and other customary closing conditions. The consummation of the acquisition is subject to certain customary closing conditions, including antitrust approvals and adoption of the Merger Agreement by the stockholders of PortalPlayer. The acquisition is expected to close during our fourth quarter of fiscal 2007 and may not be completed if any of the closing conditions are not satisfied or waived.

~~Critical Accounting Policies and Estimates~~

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

~~Stock-Based Compensation.~~ Effective January 30, 2006, we adopted the provisions of SFAS No. 123(R). We estimate the fair value of stock options using a binomial model, consistent with the provisions of SFAS No. 123(R) and SEC Staff Accounting Bulletin No. 107,~~Share-Based Payment~~. Option-pricing models require the input of highly subjective assumptions, including the price volatility of the underlying stock. During the first quarter of fiscal 2006, we determined that the use of implied volatility is expected to be more reflective of market conditions and, therefore, could reasonably be expected to be a better indicator of our expected volatility than historical volatility. Additionally, during the first quarter of fiscal 2006 we began segregating options into groups for employees with relatively homogeneous exercise behavior in order to calculate the best estimate of fair value using the binomial valuation model. As such, the expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical data about employees’ exercise behavior, vesting schedules, and death and disability probabilities. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. We estimate the forfeiture rate based on historical experience of our stock-based awards that are granted, exercised and cancelled. We believe the resulting binomial calculation provides a more refined estimate of the fair value of our employee stock options. For our employee stock purchase plan, we decided to continue to use the Black-Scholes model to calculate the estimated fair value.

Other than related to our implementation of SFAS No. 123(R) during the six months ended July 30, 2006, as described above, there were no other material changes in our critical accounting policies and estimates during the first six months of fiscal 2007 from those disclosed in our Annual Report on Form 10-K/A, or Form 10-K/A, for the year ended January 29, 2006. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Form 10-K/A for a discussion of our critical accounting policies and estimates.

~~Results of Operations~~

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

   Three Months Ended Six Months Ended
   July 30,
2006 July 31, 2005 July 30, 2006 July 31, 2005
   (As Restated) (As Restated)
Revenue
   100.0 % 100.0 % 100.0 % 100.0 %
Cost of revenue
   57.5 62.2 57.6 63.1

Gross profit
   42.5 37.8 42.4 36.9
Operating expenses:

Research and development
   18.6 15.1 18.3 15.1
Sales, general and administrative
   10.0 9.2 9.7 8.3

Total operating expenses
   28.6 24.3 28.0 23.4

Operating income
   13.9 13.5 14.4 13.5
Interest and other income, net
   1.3 0.9 1.3 0.8

Income before income tax expense
   15.2 14.4 15.7 14.3
Income tax expense
   2.6 1.6 2.7 2.3

Cumulative effect of change in accounting principle, net of income tax
   —   —   0.1 —
Net income
   12.6 % 12.8 % 13.1 % 12.0 %

~~Three and Six Months Ended July 30, 2006 and July 31, 2005~~

~~Revenue~~

Our operating segments are organized to bring all of our major product groups in line with our strategy to position ourselves as the worldwide leader in programmable graphics processor technologies. We report financial information for four product-line operating segments to our Chief Executive Officer, who is considered to be our chief operating decision maker, ~~as follows:~~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 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 and 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 primarily of mobile and consumer products that support handheld PDAs, cellular phones and other handheld devices, plus license, royalty and 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 ~~Handheld GPU Business,~~“All Other” category that includes human resources, legal, finance, general administration and corporate marketing expenses, which total $68.0 million and $50.1 million for three months ended April 29, 2007 and April 30, 2006, respectively, that we do not allocate to our other operating segments. “All Other” also includes the ~~Consumer Electronics Business.~~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 ~~memory devices. Please refer~~components. All relevant prior period amounts have been restated to ~~Note 13~~conform to the presentation of our ~~Notes~~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 ~~Condensed Consolidated Financial Statements~~be reported. The accounting policies for ~~further information.~~

~~Revenue was $687.5 million~~segment reporting are the same as for the second quarter of fiscal 2007 and $574.8 million for the second quarter of fiscal 2006, which represented an increase of 19.6%. Revenue was $1.37 billion for the first half of fiscal 2007 and $1.16 billion for the first half of fiscal 2006, which represented an increase of 18.2%. A discussion of our revenue results for each of our operating segments is as follows:

~~GPU Business.~~GPU Business revenue increased by 19.0% to $459.1 million for the second quarter of fiscal 2007 compared to $385.8 million for the second quarter of fiscal 2006. The $73.3 million increase was a result of increased sales of our desktop products, led by our GeForce 7-based products, which we began selling in the second quarter of fiscal 2006. In addition, sales of our NVIDIA ~~professional workstation products and notebook products also continued to improve due to an increased mix of GeForce 7-based products.~~

GPU Business revenue increased by 14.5% to $911.5 million for the first half of fiscal 2007 compared to $795.8 million for the first half of fiscal 2006. The $115.7 million increase was primarily the result of increased sales of our GeForce 7 families of desktop GPUs that serve the high-end segment. Sales of our NVIDIA Quadro workstation and notebook products continued to improve, offset by lower average selling prices.

~~MCP Business.~~MCP Business revenue increased by 83.4% to $139.1 million for the second quarter of fiscal 2007 compared to $75.9 million for the second quarter of fiscal 2006. MCP Business revenue increased by 74.4% to $257.5 million for the first half of fiscal 2007 compared to $147.7 million for the first half of fiscal 2006. The overall increase in MCP business revenue is primarily due to sales of newer NVIDIA nForce4 products, NVIDIA nForce5 products, and integrated AMD-based desktop products, all of which we first began shipping during fiscal periods subsequent to the second quarter of fiscal 2006. In addition, revenue also increased as a ~~result of our acquisition of ULi in February 2006.~~

~~Handheld GPU Business.~~Handheld GPU Business revenue increased by $25.2 million to $27.3 million for the second quarter of fiscal 2007 compared to $2.1 million for the second quarter of fiscal 2006. Handheld GPU Business revenue increased by $48.2 million to $58.1 million for the first half of fiscal 2007 compared to $9.9 million for the first half of fiscal 2006. The overall increase in Handheld GPU Business revenue is due to increased product sales related to high-end feature phone products and revenue recognized as a result of a development contract.

~~Consumer Electronics Business.~~Consumer Electronics Business revenue decreased by 65.9% to $27.8 million for the second quarter of fiscal 2007 compared to $81.5 million for the second quarter of fiscal 2006. Consumer Electronics Business revenue decreased by 61.3% to $54.0 million for the first half of fiscal 2007 compared to $139.6 million for the first half of fiscal 2006. The decrease in our Consumer Electronics Business is a result of discontinued sales of our Xbox-related products to Microsoft, partially offset by revenue recognized from our contractual arrangements with SCE to jointly develop a custom GPU for SCE’s PlayStation3. The second quarter of fiscal 2006 was the last quarter during which we recognized revenue from the sale of our Xbox-related products to Microsoft.

~~Concentration of Revenue~~

Revenue from sales to customers outside of the United States and other Americas accounted for 83% and 76% of revenue for the second quarter of fiscal 2007 and 2006, respectively. Revenue from sales to customers outside of the United States and other Americas accounted for 84% and 79% of revenue for the first half of fiscal 2007 and 2006, respectively. whole.

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’~~our customers’ revenue is attributable to end customers that are located in a different location. The ~~increase in the percentage of~~following tables summarize information pertaining to our revenue from ~~sales to~~ customers ~~outside~~based on invoicing address in different geographic regions:

Accounts receivable from significant customers, those representing approximately 10% or more of total ~~revenue, net~~accounts receivable, was from two customers for 26.7% 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, overhead and non-cash stock-based compensation 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 profittotal accounts receivable balances at April 29, 2007.

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 and high-performance computing products. Our MCP Business is comprised of NVIDIA nForce core logic and motherboard GPU products. Our CPB is comprised primarily of mobile and consumer products that support handheld personal digital assistants, or PDAs, cellular phones and other handheld devices, plus license, royalty and other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

We continue to remain focused on improving our gross margin. During the first quarter of fiscal 2008, our gross margin was a record 45.0%, an increase of 270 basis points from our gross margin of 42.3% for the first 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 and, thus, if we achieve significant revenue growth in our lower margin product lines, it may negatively impact our gross margin. We expect to continue to focus on improving our gross margin during the remainder of fiscal 2008.

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.

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 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 and 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 primarily of mobile and consumer products that support handheld PDAs, cellular phones and other handheld devices, plus license, royalty and 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 $68.0 million and $50.1 million for first quarter of fiscal year 2008 and first quarter of fiscal year 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 restated 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.

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

We invest 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 United States dollars. As of ~~July 30, 2006,~~April 29, 2007, we had ~~$851.2 million~~$1.3 billion in cash, cash equivalents and marketable securities.

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~~States’ dollar relative to other currencies would make our products more expensive, ~~to our customers and could result in decreased sales of our products,~~ which could negatively impact our ability to ~~compete and our financial results.~~compete. Conversely, decreases in the value of the United ~~States~~States’ dollar relative to other currencies could result in our suppliers raising their prices in order to continue doing business with us. To date, we have not engaged in any currency hedging activities, although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.

There were no changes in our internal ~~control~~controls over financial reporting during our ~~last fiscal~~ quarter ended April 29, 2007, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

Please see Part I, Item 1, Note ~~14, “Litigation” and Note 18, “Subsequent Events Related~~13 of the Notes to ~~the Review of Stock Option Practices”~~Condensed Consolidated Financial Statements for a discussion of our legal proceedings.

On August 10, 2006, NVIDIA announced that the Audit Committee of the Board, ~~of Directors,~~ with the assistance of outside legal counsel, was conducting a review of our stock option practices covering the time from NVIDIA’s initial public offering in 1999, ~~(our~~our fiscal year ~~2000)~~2000, through June 2006. ~~As described in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the~~The Audit Committee ~~has~~ reached athe conclusion that incorrect measurement dates were used for financial accounting purposes for stock option grants in certain prior periods. As a result, NVIDIA ~~has~~ 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 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 ~~30,~~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 ~~has~~ required us to incur substantial expenses for legal, accounting, tax and other professional services, ~~has~~ diverted our management’s attention from our business, and ~~could~~ in the future could adversely affect our business, financial condition, results of operations and cash flows.

Our historical stock option granting practices and the restatement of our prior financial statements have exposed us to greater risks associated with litigation and regulatory proceedings. ~~As described in Part II, Item 3, “Legal Proceedings”, several~~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. The conduct and resolution of these matters will be time consuming, expensive and ~~distracting~~could distract our management’s attention from the conduct of our business which could negatively impact our business.

We voluntarily contacted the Securities Exchange Commission, or SEC, regarding the Audit Committee’s review and, as of the present date, ~~of the filing of this Form 10-Q,~~ the SEC is continuing the inquiry of our historical stock option grant practices it began in late August 2006. In October 2006, we met with the SEC and provided it with a review of the status of the Audit Committee’s review and in November 2006 we voluntarily provided the SEC with further documents. We plan to continue to cooperate with the SEC in its inquiry.

While we believe that we have made appropriate judgments in concluding the correct measurement dates for option grants, the SEC may ~~also~~ disagree with the manner in which we have accounted for and reported, or not reported, the financial impact of past option grant measurement date errors, and there is a risk that its inquiry could lead to circumstances in which we may have to further restate our prior financial statements, amend prior filings made with the SEC, ~~filings,~~ or otherwise take other actions not currently contemplated. Any such circumstance could also lead to future delays in filing our ~~subsequent~~ SEC ~~reports and delisting of our common stock from the NASDAQ Global Select Market.~~reports. Furthermore, if we are subject to adverse findings in any of these matters, 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. ~~Please see Note 2, “Restatement of Consolidated Financial Statements, Audit Committee and Company Findings” of the Notes to Condensed Consolidated Financial Statements for further information.~~

We continue to pursue ~~measures in an effort to improve our~~improved gross margin. Our gross margin for any period depends on a number of factors, such as: 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 incorrectly forecast the impact of any of the ~~aforementioned~~relevant factors on our business, we may be unable to take action 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.

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.

Semiconductor manufacturing yields are a function both of product design, which is developed largely by us, and process technology, which typically is proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. 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 fabrication capacity from our manufacturers, any decrease in manufacturing yields 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 and our gross profit. Our wafer manufacturers may be unable to achieve or maintain acceptable manufacturing yields in the future. Our inability to achieve planned yields from our wafer manufacturers could also reduce our gross margin. We also face the risk of product recalls or product returns resulting from design or manufacturing defects that are not discovered during the manufacturing and testing process. 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.

Our operating expenses, which are comprised of research and development expenses and sales, general and administrative expenses, represented ~~28.6% of our total revenue as compared to 24.3%~~28.3% and 27.5% of our total revenue during the ~~second~~first quarter of fiscal ~~2006.~~years 2008 and 2007, respectively. Operating expenses were $34.6 million and $21.0 million for ~~the second~~first quarter of fiscal years 2008 and 2007, ~~included $28.9 million~~respectively, related to non-cash stock-based compensation, ~~net~~which we began to record in fiscal year 2007 as a result of ~~associated payroll taxes.~~our adoption of SFAS No. 123(R). 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 revenue shortfalls. If we are unable to reduce operating expenses quickly in response to any revenue shortfalls, our financial results would be negatively impacted.

Our strategy is to utilize the most advanced manufacturing process technology appropriate for our products and available from commercial third-party foundries. Use of advanced processes may have greater risk of initial yield problems and higher product cost. Manufacturing process technologies are subject to rapid change and require significant expenditures for research and development. We continuously evaluate 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 9065 nanometer process technologies for our families of ~~GPUs, MCPs~~the graphics processing unit, or GPU, the media and ~~Handheld GPUs.~~

communications processor, or MCP, and the consumer products business, or CPB.

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 products to smaller geometry processes. Moreover, we are dependent on our relationships with our third-party manufacturers to migrate to smaller geometry processes successfully. Additionally, some of our competitors own their own manufacturing facilities. These competitors may be able to move to a new state of the art manufacturing process more quickly than our manufacturing partners. 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 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.

Our inventory purchases are based upon future demand forecasts or orders from our customers, which may not accurately predict the quantity or type of our products that our customers will want in the future or ultimately end up purchasing. 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:

Conversely, if we underestimate our customers’ demand for either our older or newer products, we may have inadequate manufacturing capability and 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 our customers’ orders on a timely basis could damage our customer relationships, result in lost revenue, cause a loss in market share or damage our reputation, any of which could impact our financial results.

Many of our revenue components fluctuate and are difficult to predict, and our operating expenses are largely independent of revenue in any particular period. ItTherefore, it is ~~therefore,~~ 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, perhaps substantially.~~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. In addition, 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.

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 OEMs, 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:

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 ~~design~~ systems until at least the next design configuration. Therefore, we endeavor to develop close relationships with our original equipment manufacturers, or OEMs, and original design manufacturers, or 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.

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~~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 ~~both~~ 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.

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

A critical component of our product development effort is our partnerships with leaders in the ~~computer aided~~computer-aided design, or CAD industry. We have invested significant resources to develop relationships with industry leaders, including Cadence Design Systems, Inc. and Synopsys, Inc., often assisting these companies in the product definition of their new products. We believe that forming these relationships and utilizing next-generation development tools to design, simulate and verify our products will help us remain at the forefront of the 3D graphics, 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 PC OEMs and other manufacturers. If these relationships are not successful, we may not be able to develop new 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. Our failure to successfully develop, introduce or achieve market acceptance for new processors would harm our business.

As our GPUs orand 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 ~~margins.~~margin. In order for our processors to achieve high volumes, leading PC OEMs, ODMs, and add-in board and motherboard manufacturers must select our processor 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’, and 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 to the production of current or future products or other factors that may delay the introduction 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 render our processors non-competitive or obsolete or result in our holding excess inventory, any of which would harm our business.

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. ~~We have in~~In the past, we have discovered defects and incompatibilities with customers’ hardware in some of our products and may experience delays or loss of revenue to correct any defects or incompatibilities in the future. Errors in new products or releases 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. If these defects or flaws exist and 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 resulting from design or manufacturing defects that are not discovered during the manufacturing and testing process. 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~~

Risks Related ~~to Our Partners and Customers~~

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

~~In April 2005, we finalized our definitive agreement with SCE~~ to ~~jointly develop a custom GPU for SCE’s PlayStation3.~~ Our ~~collaboration with SCE includes license fees~~Partners 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. During the second quarter of fiscal 2007, we recognized $18.1 million of revenue from our contractual arrangements with SCE. Depending on the ultimate success of this next-generation platform, we expect to generate up to $100 million in revenue annually from license fees and royalties over the next five years, with the possibility of additional royalties for several years thereafter. There can be no assurance that the PlayStation3 will achieve long term commercial success, given the intense competition in the game console market. If we do not receive royalties as we anticipate, our revenue and gross margin may be adversely affected.

Customers

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 ~~and~~Electronics, Inc., or ULi, in March 2006 we completed the acquisition of Hybrid ~~Graphics. In November 2006,~~Graphics Ltd., or Hybrid Graphics and in January 2007 we ~~entered into a merger agreement to acquire~~completed the acquisition of PortalPlayer, Inc. ~~The merger is expected to close in the fourth quarter of fiscal 2007.~~, 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. ~~For any previous~~Any of the following risks associated with past or future ~~acquisition~~acquisitions or ~~investment, including the~~

~~acquisitions of ULi and Hybrid Graphics, the following risks~~investments could impair our ability to grow our business, ~~and~~ develop new products, ~~and ultimately, could impair~~ our ability to sell our products, ~~which~~and ultimately could ~~negatively~~have a negative impact on our growth or our financial results:

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.~~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 do not manufacture the semiconductor wafers used for our products and do not own or operate a wafer fabrication facility. Our products require wafers manufactured with state-of-the-art fabrication equipment and ~~techniques. We~~techniques so we utilize industry-leading suppliers ~~such as Chartered, Semiconductor Manufacturing International Corporation, or SMIC, TSMC, and UMC~~ to produce our semiconductor ~~wafers and utilize independent subcontractors to perform assembly, testing and packaging.~~wafers. We depend on these suppliers to allocate to us a portion of their manufacturing capacity sufficient to meet our needs, to produce products of acceptable quality and at acceptable manufacturing yields, and to deliver those products to us on a timely basis at acceptable prices. ~~These~~Currently, one foundry manufactures the majority of our products. Our manufacturers may be unable to meet our near-term or long-term manufacturing or pricing requirements. We obtain manufacturing services on a purchase order basis. The foundries we use have no obligation to provide us with any specified minimum quantities of product. ~~Suppliers, such as Chartered, SMIC, TSMC, and UMC,~~These suppliers, including the fabrication facility that produces a majority of our products, fabricate wafers for other companies, including some of our competitors, and could choose to prioritize 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 third-party manufacturers we may use to ensure adequate product supply and competitive pricing so that we are able to respond to customer demand.

Our processors are assembled, tested and ~~tested~~packaged by independent subcontractors, such as Advanced Semiconductor Engineering, Inc., or ASE, Amkor Technology, ~~Inc.,~~or Amkor, King Yuan Electronics Co., ~~LTD,~~or KYEC, Siliconware Precision Industries ~~Company~~Co. Ltd., or SPIL, and ~~STATS ChipPAC Incorporated, all of which are located outside of the United States.~~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 ~~or political instability outside of the United States~~ 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 ~~test~~package our products or components. Any such delays could result in a loss of reputation or a decrease in sales to our customers.

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. During the first quarter of fiscal years 2008 and 2007, we recognized $22.7 million and $23.4 million of revenue, respectively, from our contractual arrangements with SCE. 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.

Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our ~~customers’~~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. ~~In addition, we purchase credit insurance on selected customers’ accounts receivable balances in an effort to further mitigate our exposure for such losses.~~ 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, which could adversely affect our operating results. WeIn the future, we may have to record additional reserves or write-offs and/or defer revenue on certain sales transactions ~~in the future,~~ 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. Although we currently are not dependent on any one vendor for the supply of these tools, some or all of these tools may not be readily available in the future. Additionally, the software development tools available at the time that we are designing, simulating or verifying a product may not be sophisticated enough or technologically advanced enough for our purposes. For example, we have experienced delays in the introduction of products in the past as a result of the inability of then available software development tools to fully simulate the complex features and functionalities of our products. Therefore, the design requirements necessary to meet consumer demands for more features and greater functionality from our processors in the future 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 either of which could result in a loss of market share, a decrease in revenue or negatively impact our operating results.

We have only a limited number of customers and our sales are highly concentrated. In the first quarter of fiscal year 2008, there were no sales for any customers in excess of 10% of our total revenue. However, in the first quarter of fiscal year 2007, sales to one significant customer accounted for approximately 14% of our total revenue. 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.

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. In addition to the Centrino notebook platform solution, Intel has announced a desktop initiative branded as VIIV. AMD has also announced a platform solution. Additionally, we expect that Intel and AMD will extend this strategy to other segments. If AMD and Intel continue to pursue platform solutions, we may not be able to successfully compete and our business would be negatively impacted.

The market for ~~GPUs, MCPs and Handheld GPUs~~our products is ~~intensely~~highly competitive and is characterized by rapid technological change, evolving industry standards and declining average selling prices. We believe that the principal competitive factors in this market are performance, breadth of product offerings, access to customers and distribution channels, 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, which could harm our business.

For example, we are the largest supplier of AMD 64 chipsets with 61.1% segment share in the first quarter of calendar year 2007, based on the latest PC Processor and Chipset report from Mercury Research. Decline in demand in the AMD segment would harm our business.

An additional significant source of competition is from companies that provide or intend to provide ~~GPU, MCP, and Handheld GPU~~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. Our current competitors include the following:

If and to the extent we offer products outside of the consumer and enterprise PC, notebook, workstation, ~~PDA,~~personal digital assistants, or PDAs, 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 ~~and any~~or new markets, our financial results will suffer.

Our semiconductor wafers are manufactured, assembled, tested and packaged by third-parties located outside of the United States. Additionally, we generated ~~83% and 84%~~81.5% of our revenue for the ~~second~~first quarter of fiscal year 2008 and 84.6% of our revenue for the first ~~half~~quarter of fiscal year 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:

We have offices outside of the United States, including offices in Taiwan, Japan, Korea, China, Hong Kong, India, France, Russia, Germany, Finland and England. ~~We also have a subsidiary in Finland. During the second quarter of fiscal 2007, we added 174 international employees to our international operations.~~ 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 ~~international~~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 of which could negatively impact our operating results.

Currently, all of our arrangements with third-party manufacturers and subcontractors provide for pricing and payment in United States dollars as are sales to our customers located outside of the United States and other Americas. Increases in the value of the United States’ dollar relative to other currencies would make our products more expensive, which would negatively impact our ability to compete and could impact our financial results. 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. To date, we have not engaged in any currency hedging activities, although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.

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.

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, PDA, cellular ~~phone,~~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. ~~Only a small number of products have achieved broad~~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. ~~Since~~Our GPU and MCP businesses together comprised over 74.8% and 76.7% of revenue for the ~~GPU Business is our core business,~~first quarter of fiscal year 2008 and fiscal year 2007. 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, 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.

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 ~~beginning~~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, ~~that~~which are intended to harmonize with the RoHS directive and other states are contemplating similar legislation. China has ~~promulgated use restrictions on the same substances as~~adopted similar legislation to the RoHS directive ~~but has not yet defined either the scope of the affected products or an effective date of any such restrictions.~~

which began to go into effect on March 1, 2007.

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 ~~in the European Union.~~

that have adopted these types of regulations.

At April 29, 2007 and January 28, 2007, we had $1.3 billion and $1.1 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 ~~United States~~U.S. dollars.

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.

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.

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 and cards. No specific allegations have been made against us. We are cooperating with the DOJ in its investigation. As of May 14, 2007, 51 civil complaints have been filed against us. The majority of our 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. Although the complaints differ, they generally purport to assert federal and state antitrust claims based on alleged price fixing, market allocation, and other alleged anti-competitive agreements between us and AMD, as a result of its acquisition of ATI. Many of the cases also assert a variety of state law unfair competition or consumer protection claims on the same allegations and some cases assert unjust enrichment or other common law claims. The complaints are putative class actions alleging classes of direct and/or indirect purchasers of our graphic processing units and cards. The plaintiffs in a few of the Northern District of California actions have filed a motion with the Judicial Panel on Multidistrict Litigation, or JPML, asking that all pending and subsequent cases be consolidated in one court for all pre-trial discovery and motion practice. A hearing on this motion took place on March 29, 2007. The JPML subsequently granted the motion and conditionally transferred all of the actions currently pending outside of the Northern District of California to the Northern District of California for coordination of pretrial proceedings. An initial case management conference for the coordinated cases is scheduled to be held on May 24, 2007. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases. Costs of defense and any damages resulting from a ruling against us or a settlement of the litigation could adversely affect our business.

In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123(R),~~Share-Based Payment,~~ which requires the measurement and recognition of compensation expense for all stock-based compensation payments. ~~Although the SEC delayed the effective date of SFAS No. 123(R), it is now effective.~~ 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 ~~second~~first quarter ~~and first half~~ of fiscal years 2008 and 2007 we recorded ~~$28.9~~$37.4 million and ~~$51.1~~$22.2 million, respectively, related to non-cash stock-based compensation, ~~net of associated payroll taxes~~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 ~~may become involved in intellectual property or other litigation either as~~are a ~~plaintiff or as a defendant.~~party to litigation. There can be no assurance that actions that ~~may be~~have been brought against us or any brought by us will be resolved in our favor. Any claim that is successfully asserted against us may cause us to pay substantial damages ~~or result in an injunction prohibiting us from shipping some of our products.~~and other related fees. Regardless of whether ~~any future~~these lawsuits are resolved in our favor or if we are the plaintiff or the defendant in the litigation, any ~~future~~ lawsuits to which we ~~may become~~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 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.

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 ~~future~~ 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 arising out of the sale of our products to these customers. 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:

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 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 either of 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.

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:

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, 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. ~~This legislation is relatively new~~However, the manner in which companies and ~~neither companies nor~~their independent public accounting firms ~~have significant experience in complying with its requirements. As a result,~~apply these requirements and testing companies’ internal controls, remains subject to some uncertainty. 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 internal controls, there can be no assurance that we will be able to remediate such 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.

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

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

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

None.

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


	PART I : FINANCIAL INFORMATION			Page
~~PART I: FINANCIAL INFORMATION~~

Item 1.		Financial Statements (Unaudited)

		~~Condensed Consolidated Balance Sheets as of July 30, 2006 and January 29, 2006, as restated~~		3

		a) Condensed Consolidated Statements of Income for the three ~~and six~~ months ended ~~July~~April 29, 2007 and April 30, 2006	3
	b) Condensed Consolidated Balance Sheets as of April 29, 2007 and ~~July 31, 2005, as restated~~January 28, 2007		4

		c) Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~July~~April 29, 2007 and April 30, 2006 ~~and July 31, 2005, as restated~~		5

		d) Notes to Condensed Consolidated Financial Statements		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2421

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3330

Item 4.		Controls and Procedures	30
		34
	PART II : OTHER INFORMATION
~~PART II: OTHER INFORMATION~~Item 1.	Legal Proceedings	31

~~Item 1.~~		~~Legal Proceedings~~		37

Item 1A.		Risk Factors		3731

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		5045

Item 3.		Defaults Upon Senior Securities		5045

Item 4.		Submission of Matters to a Vote of Security Holders		5045

Item 5.		Other Information		5145
Item 6.	Exhibits	46
~~Item 6.~~			~~Exhibits~~		51

Signature				5247


	July 30, 2006			January 29, 2006
				(As Restated) (1)
ASSETS
Current assets:
Cash and cash equivalents	$	388,423		$	551,756
Marketable securities		462,744			398,418
Accounts receivable, net		459,636			318,186
Inventories		378,661			254,870
Prepaid expenses and other current assets		34,143			24,387
Deferred income taxes		2,682			2,682

Total current assets		1,726,289			1,550,299
Property and equipment, net		177,144			178,152
Deposits and other assets		37,527			27,477
Goodwill		203,657			145,317
Intangible assets, net		29,428			15,421
Deferred income taxes, non-current		9,784			38,021

	$	2,183,829		$	1,954,687

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	230,916		$	179,395
Accrued liabilities		274,128			259,264

Total current liabilities		505,044			438,659
Other long-term liabilities		24,237			20,036
Commitments and contingencies - see Note 12 and Note 14

Stockholders’ equity:
Preferred stock		—			—
Common stock		373			360
Additional paid-in capital		1,117,121			965,604
Deferred compensation		—			(3,604	)
Treasury stock		(387,120	)		(212,142	)
Accumulated other comprehensive loss, net		(2,374	)		(1,957	)
Retained earnings		926,548			747,731

Total stockholders’ equity		1,654,548			1,495,992

	$	2,183,829		$	1,954,687

	Three Months Ended
	April 29, 2007			April 30, 2006
Revenue	$	844,280		$	681,807
Cost of revenue		464,142			393,134
Gross profit		380,138			288,673
Operating expenses:
Research and development		158,321			123,202
Sales, general and administrative		80,571			63,962
Total operating expenses		238,892			187,164
Income from operations		141,246			101,509
Interest income		13,208			8,808
Other expense, net		(665	)		(245	)
Income before income tax expense		153,789			110,072
Income tax expense		21,530			18,712
Income before change in accounting principle		132,259			91,360
Cumulative effect of change in accounting principle, net of tax		-			704
Net income	$	132,259		$	92,064

Basic income per share:
Income before change in accounting principle	$	0.37		$	0.26
Cumulative effect of change in accounting principle		-			-
Basic net income per share	$	0.37		$	0.26

Shares used in basic per share computation		360,831			347,937

Diluted income per share:
Income before change in accounting principle	$	0.33		$	0.23
Cumulative effect of change in accounting principle		-			0.01
Diluted net income per share	$	0.33		$	0.24

Shares used in diluted per share computation		398,866			389,428


	Three Months Ended						Six Months Ended
	July 30, 2006			July 31, 2005			July 30, 2006			July 31, 2005
				(As Restated) (1)						(As Restated) (1)
Revenue	$	687,519		$	574,812		$	1,369,326		$	1,158,658
Cost of revenue (A)		395,391			357,437			788,525			731,422

Gross profit		292,128			217,375			580,801			427,236
Operating expenses:
Research and development (A)		127,257			87,113			250,459			174,948
Sales, general and administrative (A)		69,055			52,669			133,017			95,886

Total operating expenses		196,312			139,782			383,476			270,834

Operating income		95,816			77,593			197,325			156,402
Interest income		8,818			4,867			17,626			8,762
Interest expense		(6	)		(2	)		(7	)		(12	)
Other income (expense), net		(106	)		354			(350	)		842

Income before income tax expense		104,522			82,812			214,594			165,994
Income tax expense		17,769			8,979			36,481			26,639

Income before change in accounting principle		86,753			73,833			178,113			139,355
Cumulative effect of change in accounting principle		—			—			704			—

Net income	$	86,753		$	73,833		$	178,817		$	139,355

Basic net income per share:
Prior to cumulative effect of change in accounting principle	$	0.25		$	0.22		$	0.51		$	0.41
Cumulative effect of change in accounting principle		—			—			—			—

Basic net income per share	$	0.25		$	0.22		$	0.51		$	0.41


Shares used in basic per share computation		350,244			337,886			349,090			337,590

Diluted net income per share:
Prior to cumulative effect of change in accounting principle	$	0.22		$	0.20		$	0.46		$	0.39
Cumulative effect of change in accounting principle		—			—			—			—

Diluted net income per share	$	0.22		$	0.20		$	0.46		$	0.39


Shares used in diluted per share computation		385,589			361,674			387,485			361,287

	April 29, 2007			January 28, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	678,951		$	544,414
Marketable securities		628,073			573,436
Accounts receivable, net		471,519			518,680
Inventories		332,635			354,680
Prepaid expenses and other current assets		43,055			40,560
Total current assets		2,154,233			2,031,770
Property and equipment, net		271,190			260,828
Goodwill		291,077			301,425
Intangible assets, net		50,914			45,511
Deposits and other assets		33,454			35,729
	$	2,800,868		$	2,675,263

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	334,046		$	272,075
Accrued liabilities		289,821			366,732
Total current liabilities		623,867			638,807
Other long-term liabilities		81,107			29,537
Commitments and contingencies - see Note 13
Stockholders’ equity:
Preferred stock		—			—
Common stock		393			388
Additional paid-in capital		1,377,513			1,295,650
Treasury stock, at cost		(612,120	)		(487,120	)
Accumulated other comprehensive income, net		1,284			1,436
Retained earnings		1,328,824			1,196,565
Total stockholders' equity		2,095,894			2,006,919
	$	2,800,868		$	2,675,263


	Three Months Ended July 31, 2005		Six Months Ended July 31, 2005
	(As Restated)(1)		(As Restated)(1)
Cost of revenue	$	159	$	451
Research and development		1,299		3,221
Sales, general and administrative		986		(3,855	)


	Three Months Ended July 31, 2005			Six Months Ended July 31, 2005
	(As Restated)			(As Restated)
	(In thousands, except per share data)			(In thousands, except per share data)
Net income, as reported	$	73,833		$	139,355
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		2,101			4,288
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(25,438	)		(44,589	)

Pro forma net income	$	50,496		$	99,054

Basic net income per share - as reported	$	0.22		$	0.41
Basic net income per share - pro forma	$	0.15		$	0.29
Diluted net income per share - as reported	$	0.20		$	0.39
Diluted net income per share - pro forma	$	0.14		$	0.28


	Three Months Ended July 30, 2006			Six Months Ended July 30, 2006
	(In thousands, except per share data)			(In thousands, except per share data)
Stock-based compensation expense by type of award:
Employee stock options	$	27,786		$	49,405
Employee stock purchase plan		1,539			3,140
Amount capitalized as inventory		(459	)		(1,454	)

Total stock-based compensation		28,866			51,091
Tax effect of stock-based compensation		(3,009	)		(5,745	)

Net effect on net income	$	25,857		$	45,346

Effect on net income per share:
Basic	$	0.07		$	0.13
Diluted	$	0.07		$	0.12


	Three Months Ended July 30, 2006			Six Months Ended July 30, 2006
	(In thousands)			(In thousands)
Cash flows from operations	$	(7,032	)	$	(14,362	)
Cash flows from financing activities	$	7,032		$	14,362

	Three Months Ended
	April 29,		April 30,
	2007		2006
	(In thousands)
Cost of revenue	$	2,809	$	1,227
Research and development		22,400		14,426
Sales, general and administrative		12,196		6,572
Total	$	37,405	$	22,225


	Stock Options		Employee Stock Purchase Plan
	Three Months Ended		Three Months Ended
	July 30, 2006	July 31, 2005	July 30, 2006	July 31, 2005
	(Using a binomial model)	(Using a binomial model)	(Using the Black- Scholes model)	(Using the Black- Scholes model)
Expected life (in years)	3.6 - 5.1	3.6 - 5.1	0.5 – 2.0	0.5 - 2.0
Risk free interest rate	5.1%	4.1%	2.3% – 4.6%	1.1% - 2.1%
Volatility	41% - 51%	40% - 46%	30% - 41%	41%
Dividend yield	—	—	—	—

	Three Months Ended
	April 29, 2007			April 30, 2006
	(Using a binomial model)			(Using a binomial model)
Weighted average expected life of stock options (in years)		3.9 - 5.8			3.6 - 5.1
Risk free interest rate		4.6	%		4.7	%
Volatility		39% - 45	%		39% - 41	%
Dividend yield		—			—

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share
Balances, January 28, 2007		21,780,284			73,994,662		$	13.29
Granted		(4,833,408	)		4,833,408			28.79
Exercised		-			(3,900,292	)		7.75
Cancelled		739,335			(739,335	)		26.59
Balances, April 29, 2007		17,686,211			74,188,443		$	14.47


	Options Available for Grant		Options Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balances, January 29, 2006	31,310,976		87,958,480		$	9.50
Authorized	—		—			—
Granted	(6,807,088	)	6,807,088			27.01
Exercised	—		(11,544,368	)		7.86
Cancelled	1,090,344		(1,090,344	)		12.19

Balances, July 30, 2006	25,594,222		82,130,866		$	11.14	4.1	$	978,467,916
Vested and expected to vest at July 30, 2006			79,509,041		$	11.02	4.0	$	927,026,941
Options exercisable at July 30, 2006			47,268,849		$	8.30	3.7	$	679,744,670


	~~Three Months~~ ~~Ended~~ ~~July 30, 2006~~		~~Six Months~~ ~~Ended~~ ~~July 30, 2006~~

~~Weighted average grant date fair value of options granted~~	$	~~10.57 per share~~	$	~~10.74 per share~~

~~Total intrinsic value of options exercised~~	$	~~34.8 million~~	$	~~196.5 million~~

~~Total cash received from employees as a result of employee stock option exercises~~	$	~~15.8 million~~	$	~~90.7 million~~

~~Tax benefits realized as a result of employee stock option exercises~~	$	~~11.1 million~~	$	~~22.5 million~~

	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)
Fair Market Values
Cash and cash equivalents	$	21,551		$	1,180		$	10,174
Marketable Securities		-			-			176,492
Accounts receivable		8,148			808			16,850
Inventories		4,896			-	��		2,326
Other assets		935			73			12,798
Property and equipment		1,010			134			19,991
In-process research and development		-			602			13,400
Goodwill		31,051			27,906			104,468
Intangible assets:
Existing technology		2,490			5,179			6,700
Backlog		-			-			2,200
Patents		-			-			600
Customer relationships		653			2,650			2,700
Trademark		-			482			-
Non-compete agreements		-			72			-
Total assets acquired		70,734			39,086			368,699
Current liabilities		(16,878	)		(1,373	)		(12,766	)
Acquisition related costs		(781	)		(740	)		(8,043	)
Long-term liabilities		-			(301	)		(46	)
Total liabilities assumed		(17,659	)		(2,414	)		(20,855	)
Net assets acquired	$	53,075		$	36,672		$	347,844

	April 29, 2007								January 28, 2007
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Technology licenses	$	49,368	$	(23,437	)	$	25,931	$		37,516	$	(20,480	)	$	17,036
Patents		34,539		(25,489	)		9,050			34,623		(24,569	)		10,054
Acquired intellectual property		50,812		(34,899	)		15,913			50,212		(31,894	)		18,318
Trademarks		11,310		(11,310	)		-			11,310		(11,310	)		-
Other		1,494		(1,474	)		20			1,494		(1,391	)		103
Total intangible assets	$	147,523	$	(96,609	)	$	50,914	$		135,155	$	(89,644	)	$	45,511


	Fair Market Value			Straight-Line Depreciation/ Amortization Period
	(In thousands)
Cash	$	21,551
Accounts receivable		8,148		—
Inventories		4,023		—
Other assets		935		—
Property and equipment		1,013		4 - 49 months
Goodwill		30,864		—
Intangible assets:
Existing technology		2,490		3 years
Customer relationships		653		3 years

Total assets acquired		69,677

Current liabilities		(15,721	)	—
Acquisition related costs		(881	)	—

Total liabilities assumed		(16,602	)

Net assets acquired	$	53,075

	April 29, 2007		January 28, 2007
	(In thousands)
3dfx	$	75,326	$	75,326
MediaQ		35,342		35,342
ULi		31,051		31,051
Hybrid Graphics		27,906		27,906
PortalPlayer		104,468		114,816
Other		16,984		16,984
Total goodwill	$	291,077	$	301,425

Description	Balance at Beginning of Period		Additions ⁽¹⁾		Deductions ⁽²⁾			Balance at End of Period ⁽³⁾
	(In thousands)
Three months ended April 29, 2007	$	17,958	$	4,980	$	(3,875	)	$	19,063

Three months ended April 30, 2006	$	10,239	$	11,775	$	(10,448	)	$	11,566


Description	Balance at Beginning of Period		Additions (1)		Deductions (2)			Balance at End of Period
	(In thousands)
Three months ended July 30, 2006
Allowance for sales returns	$	11,566	$	12,417	$	(11,602	)	$	12,381

Three months ended July 31, 2005
Allowance for sales returns	$	10,805	$	8,213	$	(8,331	)	$	10,687

Six months ended July 30, 2006
Allowance for sales returns	$	10,239	$	24,192	$	(22,050	)	$	12,381

Six months ended July 31, 2005
Allowance for sales returns	$	11,687	$	14,144	$	(15,144	)	$	10,687


	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


	July 30, 2006							January 29, 2006
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Technology licenses	$	23,086	$	(15,549	)	$	7,537	$	21,586	$	(13,595	)	$	7,991
Patents		32,750		(21,967	)		10,783		23,750		(19,911	)		3,839
Acquisition-related		38,612		(27,815	)		10,797		27,086		(24,516	)		2,570
Trademarks		11,310		(11,310	)		—		11,310		(10,807	)		503
Other		1,494		(1,183	)		311		1,494		(976	)		518

Total intangible assets	$	107,252	$	(77,824	)	$	29,428	$	85,226	$	(69,805	)	$	15,421


	GPU		MCP		Handheld GPU			Consumer Electronics		All Other			Consolidated
										(As Restated)
	(In thousands)
Three Months Ended July 31, 2005:
Revenue	$	385,826	$	75,872	$	2,135		$	81,543	$	29,436		$	574,812
Depreciation expense	$	8,219	$	3,080	$	2,882		$	337	$	8,062		$	22,580
Operating income (loss)	$	72,737	$	5,340	$	(10,115	)	$	40,787	$	(31,156	) (A)	$	77,593
Six Months Ended July 31, 2005:
Revenue	$	795,752	$	147,677	$	9,897		$	139,621	$	65,711		$	1,158,658
Depreciation expense	$	16,279	$	6,190	$	6,040		$	697	$	15,702		$	44,908
Operating income (loss)	$	150,868	$	12,263	$	(25,975	)	$	69,727	$	(50,481	) (A)	$	156,402

	GPU		PSB		MCP		CPB		All Other			Consolidated
	(In thousands)
Three Months Ended April 29, 2007:
Revenue	$	483,495	$	140,873	$	148,750	$	67,226	$	3,936		$	844,280
Depreciation and amortization expense	$	8,285	$	2,187	$	6,593	$	6,095	$	9,162		$	32,322
Operating income (loss)	$	124,417	$	69,307	$	7,839	$	10,168	$	(70,485	)	$	141,246
Three Months Ended April 30, 2006:
Revenue	$	404,807	$	100,042	$	118,384	$	57,385	$	1,189		$	681,807
Depreciation and amortization expense	$	6,870	$	1,828	$	4,278	$	3,786	$	8,109		$	24,871
Operating income (loss)	$	87,239	$	45,064	$	2,983	$	17,165	$	(50,942)		$	101,509


	Three Months Ended						$ Change			% Change		Six Months Ended						$ Change			% Change
	July 30, 2006			July 31, 2005			$ Change			% Change		July 30, 2006			July 31, 2005			$ Change			% Change
				(As Restated)											(As Restated)
	(in millions)
Research and Development:
Salaries and benefits	$	67.0		$	50.1		$	16.9		34	%	$	135.0		$	99.0		$	36.0		36	%
Computer software and lab equipment		13.4			11.5			1.9		17	%		26.3			22.4			3.9		17	%
New product development		7.3			8.5			(1.2	)	(14	)%		14.8			15.3			(0.5	)	(3	)%
Facility expense		8.8			8.3			0.5		6	%		16.9			16.1			0.8		5	%
Depreciation and amortization		15.1			14.3			0.8		6	%		30.1			28.6			1.5		5	%
Stock-based compensation		16.6			1.3			15.3		1,177	%		31.0			3.2			27.8		869	%
License and development project costs		(4.9	)		(9.6	)		4.7		(49	)%		(10.7	)		(14.3	)		3.6		(25	)%
Other		4.0			2.7			1.3		48	%		7.1			4.6			2.5		54	%

Total	$	127.3		$	87.1		$	40.2		46	%	$	250.5		$	174.9		$	75.6		43	%

Research and development as a percentage of net revenue		19	%		15	%							18	%		15	%


	As of July 30, 2006		As of January 29, 2006
	(In millions)
Cash and cash equivalents	$	388.4	$	551.8
Marketable securities		462.7		398.4

Cash, cash equivalents, and marketable securities	$	851.1	$	950.2

	Three Months Ended						Change
	April 29, 2007			April 30, 2006			$		%
	(In millions)
Research and Development:
Salaries and benefits	$	87.7		$	68.0		$	19.7	29%
Stock-based compensation		22.4			14.4			8.0	56%
Depreciation and amortization		16.5			15.0			1.5	10%
Computer software and lab equipment		14.9			12.9			2.0	16%
Facility expense		11.6			8.1			3.5	43%
New product development		4.2			7.5			(3.3)	(44)%
In-process research and development
License and development project costs		(2.4)			(5.8	)		3.4	(59)%
Other		3.4			3.1			0.3	10%
Total	$	158.3		$	123.2		$	35.1	29%

Research and development as a percentage of net revenue		19	%		18	%

	As of April 29, 2007		As of January 28, 2007
	(In millions)
Cash and cash equivalents	$	678.9	$	544.4
Marketable securities		628.1		573.4
Cash, cash equivalents, and marketable securities	$	1,307.0	$	1,117.8

Period	Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs				Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ⁽¹⁾
January 29, 2007 - February 25, 2007		-			$	-				-			211,869,417
February 26, 2007 - March 25, 2007		-			$	-				-			211,869,417
March 26, 2006 - April 29, 2007		3,958,555	⁽³	⁾	$	31.58	⁽²	⁾		3,958,555	⁽³	⁾	86,869,417
Total		3,958,555			$	31.58				3,958,555


Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
May 1, 2006 through May 28, 2006	—		$	—		—		$	436,846,554
May 29, 2006 through June 25, 2006	2,174,223		$	22.99		2,174,223		$	386,869,417
July 26, 2006 through July 30, 2006	3,215,643	(3)	$	23.32		3,215,643	(3)	$	311,869,417

Total	5,389,866		$	23.19	(2)	5,389,866


~~a. Tench Coxe~~

~~Number of shares voted For~~		~~268,544,926~~
~~Number of shares Withholding Authority~~		~~46,329,448~~

~~b. Mark L. Perry~~

~~Number of shares voted For~~		~~303,968,313~~
~~Number of shares Withholding Authority~~		~~10,906,061~~


~~Number of shares voted For~~		~~311,279,920~~
~~Number of shares voted Against~~		~~1,914,381~~
~~Number of shares Abstaining~~		~~1,680, 109~~
~~Number of Broker Non-votes~~		0


~~Exhibit No.~~	~~Exhibit Description~~	~~Filed~~ ~~Herewith~~
~~31.1~~	~~Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended~~	*
~~31.2~~	~~Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended~~	*
~~32.1#~~	~~Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended~~	*
~~32.2#~~	~~Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended~~	*

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

10.22	Fiscal Year 2008 Variable Compensation Plan	8-K	0-23985	10.1	4/5/2007

10.23	2007 Equity Incentive Plan	8-K	0-23985	10.1	4/30/2007

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

Date: May 24, 2007
NVIDIA Corporation
By:
~~By:~~		/s/ MARVIN D. BURKETT
		Marvin D. Burkett
		~~Chief Financial Officer~~
		(Duly Authorized Officer and Principal Financial and Accounting Officer)