SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ________________

                                    FORM 10-Q

                                ________________

(Mark One)

  [X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.

                  For the quarterly period ended July 29, 2001

                                       OR

  [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934.

                       For the transition period from    to   .

                         Commission file number: 0-23985

                               NVIDIA CORPORATION
             (Exact Name of Registrant as Specified in Its Charter)

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

                            2701 San Tomas Expressway
                          Santa Clara, California 95050
                                 (408) 486-2000
    (Address, including Zip Code, of Registrant's Principal Executive Offices
             and Registrant's Telephone Number, including Area Code)

                                ________________

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

The number of shares of the registrant's common stock outstanding as of August
26, 2001 was 71,763,363 shares.

                 =============================================

                                        1



                               NVIDIA CORPORATION

                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                   
                                   PART I: FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements (Unaudited)
           Condensed Consolidated Balance Sheets as of July 29, 2001 and January 28, 2001.........     3
           Condensed Consolidated Statements of Income for the three and six
           months ended July 29, and July 30, 2000................................................     4
           Condensed Consolidated Statements of Cash Flow for the six months ended July 29, 2001
           and July 30, 2000 .....................................................................     5
           Notes to Condensed Consolidated Financial Statements ..................................     6

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations....    10

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...............................    16

                                   PART II: OTHER INFORMATION


Item 1.  Legal Proceedings........................................................................    28

Item 6.  Exhibits.................................................................................    28

Signatures .......................................................................................    28


                                        2



PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                       NVIDIA CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
                                   (Unaudited)



                                                                                            July 29,          January 28,
                                                                                              2001               2001
                                                                                          -----------         -----------
                                                                                                        
                                     ASSETS
Current assets:
    Cash and cash equivalents ......................................................      $   681,078         $   674,275
    Restricted cash.................................................................           28,050              24,500
    Accounts receivable, less allowances of $11,765 at July 29, 2001 and
      $8,403 at January 28, 2001 ...................................................          112,846             104,988
    Inventory, net..................................................................           89,610              89,905
    Prepaid expenses and other current assets ......................................           12,235               8,355
    Prepaid and deferred taxes .....................................................           41,911              28,386
                                                                                          -----------         -----------
             Total current assets ..................................................          965,730             930,409
Property and equipment, net ........................................................           94,863              47,280
Deposits and other assets...........................................................           11,681              10,909
Prepaid and deferred taxes..........................................................           36,015               4,034
Goodwill and purchased intangible assets, net ......................................           80,969              23,795
                                                                                          -----------         -----------
                                                                                          $ 1,189,258         $ 1,016,427
                                                                                          ===========         ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable ...............................................................      $    88,737         $    72,241
    Accrued liabilities ............................................................           69,395              37,506
    Current portion of capital lease obligations ...................................            2,019                 588
                                                                                          -----------         -----------
             Total current liabilities .............................................          160,151             110,335
Capital lease obligations, less current portion ....................................            3,672                 378
Deferred revenue....................................................................          197,864             200,000
Long-term debt .....................................................................          300,000             300,000
Stockholders' equity:
    Common stock....................................................................               72                  68
    Additional paid-in capital .....................................................          339,433             277,029
    Deferred compensation ..........................................................                -                  (6)
    Retained earnings ..............................................................          188,066             128,623
                                                                                          -----------         -----------
             Total stockholders' equity ............................................          527,571             405,714
                                                                                          -----------         -----------
                                                                                          $ 1,189,258         $ 1,016,427
                                                                                          ===========         ===========


     See accompanying notes to condensed consolidated financial statements.

                                        3



                       NVIDIA CORPORATION AND SUBSIDIARIES

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)
                                   (Unaudited)



                                                                   Three Months Ended     Six Months Ended
                                                                   ------------------     ----------------
                                                                   July 29,   July 30,   July 29,  July 30,
                                                                     2001       2000       2001      2000
                                                                     ----       ----       ----      ----
                                                                                       
Net revenues ...................................................   $260,259   $170,398   $501,191  $318,881
Cost of revenues ...............................................    156,571    106,631    305,866   199,606
                                                                   --------   --------   --------  --------
Gross profit ...................................................    103,688     63,767    195,325   119,275
                                                                   --------   --------   --------  --------
Operating expenses:
    Research and development ...................................     33,799     20,141     65,005    37,971
    Sales, general and administrative ..........................     19,802     14,603     38,575    26,717
    Amortization of goodwill and purchased
    intangible assets ..........................................      4,020          -      4,667         -
    Acquisition related charges ................................        764          -     10,337         -
                                                                   --------   --------   --------  --------
        Total operating expenses ...............................     58,385     34,744    118,584    64,688
                                                                   --------   --------   --------  --------
        Operating income .......................................     45,303     29,023     76,741    54,587
Interest and other income, net .................................      2,663      4,098      8,178     5,426
                                                                   --------   --------   --------  --------
Income before tax expense ......................................     47,966     33,121     84,919    60,013
Income tax expense .............................................     14,390     10,599     25,476    19,204
                                                                   --------   --------   --------  --------
        Net income .............................................   $ 33,576   $ 22,522   $ 59,443  $ 40,809
                                                                   ========   ========   ========  ========
Basic net income per share .....................................   $   0.47   $   0.35   $   0.85  $   0.64
                                                                   ========   ========   ========  ========
Diluted net income per share ...................................   $   0.39   $   0.28   $   0.71  $   0.52
                                                                   ========   ========   ========  ========
Shares used in basic per share computation .....................     70,938     64,617     70,130    63,988
Shares used in diluted per share computation ...................     85,151     79,487     84,161    78,633


     See accompanying notes to condensed consolidated financial statements.

                                        4



                       NVIDIA CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
                                   (Unaudited)



                                                                                                Six Months Ended
                                                                                                ----------------
                                                                                             July 29,       July 30,
                                                                                               2001           200
                                                                                               ----           ----
                                                                                                     
Cash flows from operating activities:
    Net income .........................................................................    $  59,443      $  40,809
    Adjustments to reconcile net income  to net cash provided by
    operating activities:
      Depreciation and amortization ....................................................       16,815          6,359
      Deferred income taxes ............................................................       (8,301)             -
      Amortization of deferred compensation ............................................            6             85
      Tax benefit from employee stock plans ............................................       30,820         30,325
      Common stock issued in exchange for assets and services ..........................            -          1,324
      Changes in operating assets and liabilities:
        Accounts receivable ............................................................       (7,858)       (17,868)
        Inventory ......................................................................          295        (30,504)
        Prepaid income taxes ...........................................................      (37,205)       (13,903)
        Prepaid expenses and other current assets ......................................       (3,880)        (3,841)
        Deposits and other assets ......................................................       (2,590)        (2,471)
        Accounts payable ...............................................................       16,496         10,477
        Accrued liabilities ............................................................       31,889         13,901
        Deferred revenue ...............................................................       (2,136)             -
                                                                                            ---------      ---------
      Net cash provided by operating activities ........................................       93,794         34,693
                                                                                            ---------      ---------
Cash flows used in investing activities:
    Purchase of property and equipment .................................................      (55,570)       (15,060)
    Acquisitions of businesses .........................................................      (64,109)             -
    Deposit of restricted cash .........................................................       (3,550)             -
                                                                                            ---------      ---------
    Net cash used in investing activities ..............................................     (123,229)       (15,060)
                                                                                            ---------      ---------
Cash flows from financing activities:
    Issuance costs - convertible notes .................................................          (75)             -
    Issuance costs - public offering of common stock ...................................          (75)             -
    Common stock issued under employee stock plans .....................................       31,663          8,984
    Advance in connection with Microsoft agreement .....................................            -        200,000
    Equipment lease financing ..........................................................        5,249              -
    Payments under capital leases ......................................................         (524)          (972)
                                                                                            ---------      ---------
      Net cash provided by financing activities ........................................       36,238        208,012
                                                                                            ---------      ---------
Change in cash and cash equivalents ....................................................        6,803        227,645
Cash and cash equivalents at beginning of period .......................................      674,275         61,560
                                                                                            ---------      ---------
Cash and cash equivalents at end of period .............................................    $ 681,078      $ 289,205
                                                                                            =========      =========
Cash paid for interest .................................................................    $   7,364      $      92
                                                                                            =========      =========
Cash paid for taxes ....................................................................    $  34,158      $     145
                                                                                            =========      =========


     See accompanying notes to condensed consolidated financial statements.

                                        5



                       NVIDIA CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

(1) Basis of presentation

     The accompanying condensed consolidated unaudited financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for annual financial
statements. In the opinion of management, all adjustments, consisting only of
normal recurring adjustments except as otherwise noted, considered necessary for
a fair presentation have been included. The results for the interim periods
presented are not necessarily indicative of the results expected for any future
period. The following information should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended January 28, 2001.

Reclassifications

     Certain prior year balances were reclassified to conform to the current
period presentation.

(2) Recent Pronouncements

     On June 29, 2001, the Financial Accounting Standards Board (FASB), voted
unanimously to approve Statement of Financial Accounting Standards 141 (FAS
141), "Business Combinations" and Statement of Financial Accounting Standards
142 (FAS 142), "Goodwill and Other Intangible Assets". FAS 141 will require the
purchase method of accounting on all transactions initiated after June 30, 2001
and the pooling of interests method will no longer be allowed. FAS 142 will
require that goodwill and all identifiable intangible assets that have an
indeterminable life, be recognized as assets but not amortized. These assets
will be assessed for impairment on an annual basis. Identifiable intangible
assets that have a determinable life will continue to be segregated from
goodwill and amortized over their useful lives. These assets will be assessed
for impairment pursuant to guidance in FAS 121. Companies will be required to
maintain documentation of their impairment testing activities and include
significant disclosure in filings in the event of an impairment charge. Goodwill
and other intangible assets arising from acquisitions completed before July 1,
2001 (previously recognized goodwill and intangible assets) will be accounted
for in accordance with the provisions of FAS 142 beginning January 28, 2002. The
Company has not determined the impact of these pronouncements on its financial
position and results of operations. Any acquisitions consummated between July 1,
2001 and January 27, 2002 will be accounted for in accordance with the
provisions of FAS 141 and 142.

(3) Business Combination

     During the first half of fiscal year 2002, the Company completed the
purchase of certain assets from various businesses, including 3dfx Interactive,
Inc. ("3dfx") and other acquisitions, for an aggregate purchase price of
approximately $78.7 million. These acquisitions have been accounted for under
the purchase method of accounting. Excluding the 3dfx transaction, the aggregate
purchase price for all other acquisitions are immaterial to the financials of
the Company.

     On April 18, 2001, the Company completed the purchase of certain assets of
3dfx, including patents and patent applications. Under the terms of the Asset
Purchase Agreement, the cash consideration due at the closing was $70 million,
less $15.0 million that was loaned to 3dfx pursuant to a Credit Agreement dated
December 15, 2000, between the Company and 3dfx. Pursuant to the Asset Purchase
Agreement, following the closing, the Company is to pay 3dfx additional
consideration in the form of stock equal to one million shares of the Company's
common stock, subject to 3dfx satisfying certain conditions. If the debts and
liabilities of 3dfx cannot be satisfied, under some circumstances, 3dfx could
receive a post-

                                        6


                       NVIDIA CORPORATION AND SUBSIDIARIES

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

closing advance from the Company of up to $25.0 million and this advance would
reduce the number of shares of the Company's common stock receivable by 3dfx by
up to 500,000 shares. Consequently, due to the possibility of contingent
consideration, the components of the estimated purchase price could differ from
that presented below. In addition, following the closing, the Company and 3dfx
filed a stipulation to dismiss with prejudice the patent litigation between the
parties. The litigation was dismissed on April 26, 2001, pursuant to a judicial
order.

     As of July 29, 2001, the 3dfx asset purchase price of $70.0 million and
direct transaction costs of $4.1 million related to the closing were allocated
based on fair values as follows:

                                                                 Straight-Line
                                                                 Amortization
                                                    3dfx            Period
                                              ----------------   -------------
                                                (In thousands)       (Years)

            Property and equipment .........     $ 2,433               1-2
            Workforce in place .............       3,010                 2
            Patents and trademarks .........      11,510                 5
            Goodwill .......................      57,208                 5
                                                 -------
            Total ..........................     $74,161
                                                 =======

     The final allocation will depend upon the composition of 3dfx assets
acquired and the Company's evaluation of the fair value of the net assets.
Consequently, the actual allocation of the purchase price could differ from that
presented above.

Pro Forma Results of Operations

     The following summary, prepared on a pro forma basis, presents the results
of operations as if 3dfx assets were purchased as of the beginning of the
periods presented. Pro forma net income for the three and six months ending July
29, 2001 includes the impact of amortization of goodwill and intangible assets
of $4.0 million and $8.2 million, respectively. Excluded are acquisition related
charges of $764,000 and $10.3 million for the three and six months ending July
29, 2001, and assumed tax benefits of $229,000 and $2.0 million for the same
periods. For the three and six months ending July 30, 2000, pro forma net income
includes the same amount of amortization of goodwill and intangible assets. Also
included are assumed salary related expenses of $4.2 million and $8.3 million
and tax benefits of $2.6 million and $5.3 million for the three and six months
ending July 30, 2000.



                                                                     Three Months Ended                Six Months Ended
                                                                ---------------------------     --------------------------
                                                                 July 29,        July 30,        July 29,       July 30,
                                                                   2001            2000            2001           2000
                                                                -----------     -----------     -----------    -----------
                                                                        (In thousands)                (In thousands)
                                                                                                 
Pro forma revenue ......................................        $   260,259     $   170,398     $   501,191    $   318,881
Pro forma net income ...................................        $    34,111     $    16,954     $    64,222    $    29,579
Pro forma basic net income  per share ..................        $      0.48     $      0.26     $      0.92    $      0.46
Pro forma diluted net income  per share ................        $      0.40     $      0.21     $      0.76    $      0.38




                                        7



                       NVIDIA CORPORATION AND SUBSIDIARIES

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

(4) Net Income Per Share

     Basic net income per share is computed using the weighted average number of
common shares outstanding during the period. Diluted net income per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period, using the as-if-converted
method for convertible debt and the treasury stock method for options. The
common-equivalent shares which were antidilutive for the three and six months
ended July 29, 2001 were 3,235,897 and 3,431,896, respectively.



                                                                                 Three Months Ended           Six Months Ended
                                                                              ----------------------       ---------------------
                                                                              July 29,       July 30,       July 29,     July 30,
                                                                                2001          2000           2001        2000
                                                                              ------         -------       -------     ---------
Denominator:                                                                       (In thousands)              (In thousands)
                                                                                                           
    Denominator  for basic net  income  per  share,
    weighted average shares ........................................          70,938          64,617        70,130      63,988
Effect of dilutive securities:
    Stock options outstanding ......................................          14,213          14,870        14,031      14,645
                                                                              ------         -------       -------     -------
Denominator for diluted net income per share .......................          85,151          79,487        84,161      78,633
                                                                              ======         =======       =======     =======



 (5) Inventory

                                                 July 29,      January 28,
                                                   2001            2001
                                               -----------     -----------
                                                       (In thousands)

    Raw material .........................     $    6,927       $   22,906
    Work in-process ......................         21,414           11,815
    Finished goods .......................         61,269           55,184
                                               ----------       ----------
            Total inventory ..............     $   89,610       $   89,905
                                               ==========       ==========

     At July 29, 2001, the Company had non-cancelable inventory purchase
commitments totaling $159.2 million.

(6) Accrued Liabilities

                                                      July 29,       January 28,
                                                        2001            2001
                                                     ---------       ---------
                                                            (In thousands)

    Accrued sales and marketing allowances........   $  30,784       $  11,303
    Taxes payable ................................      17,097          10,369
    Accrued payroll and related expenses .........      14,911          11,026
    Other ........................................       6,603           4,808
                                                     ---------       ---------
        Total accrued liabilities ................   $  69,395       $  37,506
                                                     =========       =========

 (7) Segment Information

     The Company operates in a single industry segment: the design, development
and marketing of 3D graphics processors for the PC market. The Company's chief
operating decision maker, the Chief Executive Officer, reviews financial
information presented on a consolidated basis for purposes of making operating
decisions and assessing financial performance. Enterprise-wide information
provided on geographic sales is based upon the billing location of the customer.
The following table summarizes geographic information on net sales:

                                        8



                       NVIDIA CORPORATION AND SUBSIDIARIES

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



                                        Three Months Ended            Six Months Ended
                                        ------------------            ----------------
                                      July 29,      July 30,       July 29,      July 30,
    Revenue:                             2001          2000           2001          2000
                                         ----          ----           ----          ----
                                          (In thousands)               (In thousands)
                                                                     
       U.S. .....................     $   29,676    $   23,298     $   44,926    $   38,143
       Asia Pacific .............        221,567       121,440        433,191       231,325
       Europe ...................          9,016        25,660         23,074        49,413
                                      ----------    ----------     ----------    ----------
        Total revenue ...........     $  260,259    $  170,398     $  501,191    $  318,881
                                      ==========    ==========     ==========    ==========


     Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods and the related accounts
receivable, are summarized as follows:



                                               Three Months Ended         Six Months Ended
                                               ------------------         ----------------
                                             July 29,      July 30,     July 29,    July 30,
                                                2001          2000         2001        2000
                                                ----          ----         ----        ----
                                                                        
    Revenue:
       EDOM .....................                21%           21%          26%         22%
       Celestica ................                11%           11%          10%         10%
       Atlantic Semiconductor ...                11%            6%          12%          5%


                                                    As of                  As of
                                                 July 29,2001         January 28, 2001
                                                 ------------         ----------------
                                                                
    Accounts Receivable:
       EDOM .....................                      12%                   18%
       Celestica ................                      14%                   16%
       Atlantic Semiconductor ...                      11%                    3%


(8) Microsoft Agreement

     On March 5, 2000, the Company entered into an agreement with Microsoft in
which the Company agreed to develop and sell graphics chips and to license
certain technology to Microsoft and its licensees for use in the Xbox video game
console under development by Microsoft. In April 2000, Microsoft paid us $200.0
million as an advance against graphics chip purchases. Microsoft may terminate
the agreement at any time. If termination occurs prior to offset in full of the
advance payments, the Company would be required to return to Microsoft up to
$100.0 million of the prepayment and to convert the remainder into our preferred
stock at a 30% premium to the 30-day average trading price of our common stock
preceding Microsoft's termination of the agreement. In addition, in the event
that an individual or corporation makes an offer to purchase shares equal to or
greater than thirty percent (30%) of the outstanding shares of our common stock,
Microsoft has first and last rights of refusal to purchase the stock. The
graphics chip contemplated by the agreement is highly complex, and the
development and release of the Microsoft Xbox video game console and its
commercial success are dependent upon a number of parties, such as hardware and
software developers, and a number of factors, many of which are outside of our
control.

     On February 14, 2001, the Company announced that the Xbox GPU and Xbox
media communications processor were released to Taiwan Semiconductor
Manufacturing Company for prototype fabrication. In July 2001, the Company began
to ship production units to Microsoft. The $200.0 million advance was drawn down
in relation to the shipments made during the quarter.

                                        9



                       NVIDIA CORPORATION AND SUBSIDIARIES

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

(9) Litigation

     On February 22, 2000, Graphiques Matrox, Inc. and Systemes Electroniques
Matrox Ltd. (collectively "Matrox") filed suit against the Company in the
Superior Court, Judicial District of Montreal, Province of Quebec, Canada. The
suit alleged that the Company improperly solicited and recruited Matrox
employees and encouraged Matrox employees to breach their Matrox confidentiality
and/or non-competition agreements. The suit by Matrox sought, among other
things, certain injunctive relief. The trial of this matter occurred during
April 2001. On July 12, 2001, the court issued its ruling in favor of the
Company and dismissed all of Matrox's claims. Matrox has not appealed this
ruling and the time for appeal passed on August 13, 2001.

     Sunonwealth Electric Machine Industry Co., Ltd. filed a complaint against
the Company in the United States District Court for the Central District of
California, for infringement of US Patent Nos. 6,109,892 and 6,114,785. The
underlying case is Sunonwealth v. Adda Corporation, et al, filed in the United
States District Court for the Central District on October 19, 2000. Both cases
have been consolidated. The patents are for a positioning device for a sensor
element of a miniature fan. The Company purchased these fans from Adda. Adda has
agreed to defend the Company and to pay any judgment rendered against the
Company as well as the cost of any settlement to the extent that the Company's
liability in such settlement arises from patent infringement resulting from its
purchase of products from Adda.

     On August 3, 2001 the Court of Appeals for the Federal Circuit issued its
decision in a patent infringement action originally brought in 1998 by S3
Incorporated (now SONICblue Incorporated). The decision vacated the district's
court summary judgment in favor of the Company and dismissal of the action
relative to certain disputed claims and remanded the matter back to the district
court. Under a previous settlement agreement with S3, the Company agreed to pay
up to $2.0 million if S3's appeal of the district court judgment was decided in
favor of S3. The Company made a payment of $1.9 million in August 2001 to fully
satisfy its obligation under the settlement.

(10) Subsequent Event

     In August 2001, the Company's Board of Directors approved a two-for-one
stock split of the Company's common stock for stockholders of record on August
28, 2001, to be effected in the form of a 100% stock dividend. The transfer
agent is expected to distribute the additional shares resulting from the stock
dividend on September 11, 2001.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     The following discussion contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor" created
by those sections. These forward-looking statements include but are not limited
to: statements related to industry trends and future growth in the markets for
3D graphics processors; our product development efforts; the timing of our
introduction of new products; industry and consumer acceptance of our products;
and future profitability. These forward-looking statements involve risks and
uncertainties that could cause our actual results to differ materially from
those in the forward-looking statements. We undertake no obligation to publicly
release any revisions to the forward-looking statements or reflect events or
circumstances after the date of this document. The "Certain Business Risks"
section, among other things, should be considered in evaluating our prospects
and future financial performance.

                                       10



Overview

     We design, develop and market graphics processors and related software for
personal computers and digital entertainment platforms. We provide a
"top-to-bottom" family of award-winning performance 3D graphics processors and
GPUs that set the standard for performance, quality and features for a broad
range of desktop PCs, from professional workstations to low-cost PCs, and mobile
PCs, from performance laptops to thin-and-light notebooks. Our 3D graphics
processors are used for a wide variety of applications, including games, digital
image editing, business productivity, the Internet and industrial design. Our
graphics processors were the first to incorporate a 128-bit multi-texturing
graphics architecture designed to deliver to users of our products a highly
immersive, interactive 3D experience with compelling visual quality, realistic
imagery and motion, stunning effects and complex object and scene interaction at
real-time frame rates. The NVIDIA TNT2, TNT2 M64 and Vanta graphics processors
deliver high performance 3D and 2D graphics at affordable prices, making them
the graphics hardware of choice for a wide range of applications for both
consumer and commercial use. Our graphics processors are designed to be
architecturally compatible backward and forward between generations, giving our
original equipment manufacturer, or OEM, customers and end users a low cost of
ownership. We are recognized for developing the world's first GPU, the GeForce
256, which incorporates independent hardware transform and lighting processing
units along with a complete rendering pipeline into a single-chip architecture.
Our GPUs, the GeForce3, the GeForce2 Ultra, the GeForce2 GTS, the GeForce2 MX,
the GeForce2 Go, the NVIDIA Quadro2 Pro and the Quadro2 MXR, process hundreds of
billions of operations per second and increase the PC's ability to render
high-definition 3D scenes in real-time. Our GPU families provide superior
processing and rendering power at competitive prices and are architected to
deliver the maximum performance from industry standards such as Microsoft's
Direct3D Application Programming Interface (API) and Silicon Graphics, Inc.'s
(SGI's) OpenGL API on Windows operating systems and Linux platforms.

     We recognize revenue from product sales to customers when a contract is in
place, the price is determined, shipment is made and collectability is
reasonably assured. Our policy on sales to distributors and stocking
representatives is to defer recognition of sales and related cost of sales until
the distributors and representatives resell the product. Royalty revenue is
recognized upon shipment of product by the licensee to its customers. We believe
that the software sold with our products is incidental to the product as a
whole.

     Currently, all of our product sales and our arrangements with third-party
manufacturers provide for pricing and payment in U.S. dollars. We have not
engaged in any foreign currency hedging activities, although we may do so in the
future. Since we have no other product line, our business would suffer if for
any reason our graphics processors do not achieve widespread acceptance in the
PC market.

     A majority of our sales have been to a limited number of customers and
sales are highly concentrated. We sell graphics processors to add-in board and
motherboard manufacturersand contract equipment manufacturers, or CEMs. These
manufacturers incorporate our processors into the boards they sell to PC OEMs,
retail outlets and systems integrators. The average selling prices for our
products, as well as our customers' products, vary by distribution channel. Our
three largest customers accounted for approximately 43% of revenues for the
second quarter of fiscal 2002 and 48% of revenues for the first half of fiscal
2002. Sales to Edom Technology Co., Ltd. accounted for 21%, sales to Celestica
accounted for 11%, and sales to Atlantic Semiconductor accounted for 11% of our
total revenue for the second quarter of fiscal 2002. For the first half of
fiscal 2002, sales to Edom accounted for 26%, sales to Celestica accounted for
10%, and sales to Atlantic Semiconductor account for 12% of our total revenue.
For the second quarter of fiscal 2001, sales to Edom accounted for 21% and sales
to Celestica accounted for 11% of our total revenue. For the first half of
fiscal 2001, sales to Edom accounted for 22% and sales to Celestica accounted
for 10% of our total revenue. The number of potential customers for our products
is limited, and we expect sales to be concentrated to a few major customers for
the foreseeable future.

     As markets for our 3D graphics processors develop and competition
increases, we anticipate that product life cycles in the high end will remain
short and average selling prices will continue to decline. In

                                       11



particular, average selling prices and gross margins are expected to decline as
each product matures. Our add-in board and motherboard manufacturers and major
OEM customers typically introduce new system configurations as often as twice
per year for the high end, typically based on spring and fall design cycles. In
order to maintain average selling prices and gross margins, our existing and new
products must achieve competitive performance levels to be designed into new
system configurations and must be produced at low costs, in sufficient volumes
and on a timely basis, especially with respect to our new products.

     We currently utilize Taiwan Semiconductor Manufacturing Company, or TSMC,
to produce semiconductor wafers, and utilize independent contractors to perform
assembly, test and packaging. 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. These manufacturers may not
always be able to meet our near-term or long-term manufacturing requirements.
Yields or product performance could suffer due to difficulties associated with
adapting our technology and product design to the proprietary process technology
and design rules of a new manufacturer. The level of finished goods inventory we
maintain may fluctuate and therefore a manufacturing disruption experienced by
these manufacturers would impact the production of our products, which could
harm our business. In addition, as the complexity of our products and the
accompanying manufacturing process increases, there is an increasing risk that
we will experience problems with the performance of new products and that there
will be yield problems or other delays in the development or introduction of
these products.

     Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
production of products without having received advance purchase commitments from
customers. Any inability to sell products to which we have devoted significant
resources could harm our business. In addition, cancellation or deferral of
product orders could result in our holding excess inventory, which could
adversely affect our profit margins and restrict our ability to fund operations.
We may build memory and component inventories during periods of anticipated
growth and in connection with selling workstation boards directly to major OEMs.
We could be subject to excess or obsolete inventories and be required to take
corresponding write-downs if growth slows or if we incorrectly forecast product
demand. A reduction in demand could negatively impact our gross margins and
financial results. Product returns or delays or difficulties in collecting
accounts receivable could result in significant charges against income, which
could harm our business.

     On April 18, 2001, we completed the purchase of certain assets of 3dfx
Interactive, Inc., including patents and patent applications. Under the terms of
the Asset Purchase Agreement, the cash consideration due at the closing was
$70.0 million, less $15.0 million that was loaned to 3dfx pursuant to a Credit
Agreement dated December 15, 2000, between us and 3dfx. Pursuant to the Asset
Purchase Agreement, following the closing, we are to pay 3dfx additional
consideration in the form of stock equal to one million shares of NVIDIA common
stock, subject to 3dfx satisfying certain conditions. In addition, following the
closing, we and 3dfx filed a stipulation to dismiss with prejudice the patent
litigation between us. The litigation was dismissed on April 26, 2001, pursuant
to a judicial order. The transaction is accounted for under the purchase method
of accounting. See Note 3 of Notes to Condensed Consolidated Financial
Statements.

Results of Operations

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



                                         Three Months Ended          Six Months Ended
                                         ------------------          ----------------
                                       July 29,      July 30,      July 29,     July 30,
                                         2001          2000          2001          2000
                                      ----------    ----------    ----------   ----------
                                                                   
Revenue .........................       100.0%        100.0%        100.0%        100.0%
Cost of revenue .................        60.2          62.6          61.0          62.6
                                       ------        ------        ------        ------
Gross profit ....................        39.8          37.4          39.0          37.4
Operating expenses:


                                       12




                                                                                         
    Research and development ........................        13.0          11.8          13.0          11.9
    Sales, general and administrative ...............         7.6           8.6           7.7           8.4
    Amortization of goodwill and purchased
    intangible assets ...............................         1.5            --           0.9            --
    Acquisition related charges .....................         0.3            --           2.0            --
                                                           ------        ------        ------        ------
         Total operating expenses ...................        22.4          20.4          23.6          20.3
                                                           ------        ------        ------        ------
        Operating income ............................        17.4          17.0          15.4          17.1
Interest and other income, net ......................         1.0           2.4           1.6           1.7
                                                           ------        ------        ------        ------
Income before income tax expense ....................        18.4          19.4          17.0          18.8
Income tax expense ..................................         5.5           6.2           5.1           6.0
                                                           ------        ------        ------        ------
        Net income ..................................        12.9%         13.2%         11.9%         12.8%
                                                           ======        ======        ======        ======


Three months and six months ended July 29, 2001, and July 30, 2000.

   Revenue

     Revenue increased 53% to $260.3 million in the second quarter ended July
29, 2001 from $170.4 million in the second quarter ended July 30, 2000. Revenue
of $501.2 million for the first half of fiscal 2002 grew 57% over the first half
of fiscal 2001. The growth was primarily the result of increased sales of our
graphics processors and the strong demand for new products at higher unit
average selling prices. Revenue from sales outside of the United States
accounted for 89% of total revenue for the second quarter ended July 29, 2001
and 91% of total revenue for the first half of fiscal 2002. Revenue from sales
outside of the U.S. represented 86% of total revenue in the second quarter ended
July 30, 2000 and 88% in the first half of fiscal 2001. This increase in revenue
from sales outside of the United States is primarily attributable to (i)
expanded use of CEMs, add-in board and motherboard manufacturers located outside
of the United States, and (ii) increased demand for our products in the Asia
Pacific region. Revenue by geographical region is allocated to individual
countries based on the location to which the products are initially billed. The
portion of revenue derived from foreign CEMs and add-in board and motherboard
manufacturers that are attributable to end customers in the United States is not
separately disclosed. Although we achieved substantial growth in product revenue
for the first half of 2002 from the same period in fiscal 2001, we do not expect
to sustain this rate of growth in future periods. In addition, we expect that
the average selling prices of our products will decline over the lives of the
products. The declines in average selling prices of 3D graphics processors
generally may also accelerate as the market develops and competition increases.

   Gross Profit

     Gross profit consists of total revenue net of allowances less cost of
revenue. Cost of revenue consists primarily of the costs of semiconductors
purchased from contract manufacturers (including assembly, test and packaging),
manufacturing support costs (labor and overhead associated with such purchases),
inventory provisions and shipping costs. Our gross profit margin can vary in any
period depending on the mix of types of graphics processors sold. Gross profit
increased 63% from the second quarter of fiscal 2001 to the same period of
fiscal 2002, and 64% from the first half of fiscal 2001 to the same period of
fiscal 2002, primarily due to significant increases in unit shipments and the
favorable impact of the higher margin GeForce graphics processors, partially
offset by declining profit margins in our older product families. Although we
achieved substantial growth in gross profit and margin from the first half of
fiscal 2001 to the same period of fiscal 2002, we do not expect to sustain these
rates of growth in future periods.

   Operating Expenses

     Research and Development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, costs of
prototypes of new products and consultant costs. Research and development
expenses increased by 68% from the second quarter of fiscal 2001 to the same
period of fiscal 2002, and 71% from the first half of fiscal 2001 to the first
half of fiscal 2002, primarily due to new employees from 3dfx, a move to new
headquarters, the addition of personnel and related engineering costs to support
our next generation's products, such as depreciation charges incurred on capital
expenditures and

                                       13



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

     Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses, promotional
tradeshow and advertising expenses, travel and entertainment expenses and legal
and accounting expenses. Sales, general and administrative expenses increased by
36% from the second quarter of fiscal 2001 to the same period of fiscal 2002,
and 44% from the first half of fiscal 2001 to the first half of fiscal 2002,
primarily due to costs associated with additional personnel and commissions and
bonuses on sales of the GeForce families of graphic processors. We expect sales
and marketing expenses to continue to increase in absolute dollars as we
continue to expand our operations and our sales. General and administrative
expenses are also likely to increase in absolute dollars as we continue to
expand our operations. However, we do not expect significant changes in these
expenses as a percentage of revenue in future periods.

     Amortization of goodwill and purchased intangible assets. Amortization of
goodwill and purchased intangible assets consist primarily of goodwill and
intangible assets from the asset purchase of 3dfx. The initial allocation of the
purchase price was to (i) workforce in place, amortized over two years, (ii)
patents and trademarks, amortized over five years and (iii) goodwill, amortized
over five years. The final allocation will depend upon the additional
consideration given to 3dfx, subject to 3dfx satisfying certain conditions.
Consequently, the actual allocation of the purchase price could differ from that
presented in Note 3 of Notes to Condensed Consolidated Financial Statements.

     Acquisition related charges. Acquisition related charges are attributable
to expenses related to the acquisition of 3dfx. These charges primarily
consisted of bonuses for employees.

     Interest and Other Income (Expense), Net

     Interest expense increased for the second quarter and the first half of
fiscal 2002 compared to the same periods in fiscal 2001 due to the issuance of
$300.0 million of convertible debt in October 2000. Interest income increased
63% during the second quarter and the first half of fiscal 2002 from the same
periods in fiscal 2001 due to higher average cash balances as a result of the
$200.0 million advance received from Microsoft in connection with our agreement
with Microsoft and the receipt of $387.4 million from our combined convertible
debt and common stock offerings which closed in October 2000.

     Income Taxes

     Income taxes as a percentage of pretax income was 30% for the first half
of fiscal 2002 and 32% for the same period in fiscal 2001. Foreign income which
is taxed at rates lower than the United States statutory rates contributed to
the lower tax rate for the first half of fiscal 2002.

     Stock-Based Compensation

     With respect to stock options granted to employees, we recorded deferred
compensation of $4.3 million in 1997 and $361,000 in the one month ended January
31, 1998. These amounts are being amortized over the vesting period of the
individual options, generally four years. We amortized approximately $6,000 in
the first half of fiscal 2002 and $85,000 in the first half of fiscal 2001.
Deferred compensation was fully amortized during the first half of fiscal 2002.

Liquidity and Capital Resources

     As of July 29, 2001, we had $681.1 million in cash and cash equivalents, an
increase of $6.8 million from the end of fiscal 2001. We historically have held
our cash balances in cash equivalents such as money

                                       14



market funds or as cash. We place the money market funds with high-quality
financial institutions and limit the amount of exposure with any one financial
institution. We had $159.2 million of non-cancelable manufacturing commitments
outstanding at July 29, 2001.

     Operating activities generated cash of $93.8 million during the first half
of fiscal 2002 and $34.7 million during the first half of fiscal 2001. The
increase from the first half of fiscal 2001 to the same period in fiscal 2002
was due to a substantial increase in net income and changes in operating assets
and liabilities. Our accounts receivable are highly concentrated. At July 29,
2001, the three largest customers accounted for approximately 37% of accounts
receivable. Although we have not experienced any significant bad debt write-offs
to date, we may be required to write off bad debt in the future, which could
harm our business.

     To date, our investing activities have consisted primarily of acquisitions
of businesses and purchases of property and equipment and leasehold improvements
for our new facility under construction. We incurred acquisition costs of $64.1
million during the first half of fiscal 2002, primarily due to the closing of
3dfx asset purchase. There were no acquisitions during the same period a year
ago. Our capital expenditures increased from $15.1 million in the first half of
fiscal 2001 to $55.6 million in the first half of fiscal 2002. The increase was
primarily attributable to the construction of our new facility as well as for
purchases of computer and emulation equipment to support increased research and
development activities. We expect capital expenditures to increase as we further
expand research and development initiatives and as our employee base grows. The
timing and amount of future capital expenditures will depend primarily on our
future growth. We expect to spend approximately $70.0 million to $80.0 million
for capital expenditures in fiscal 2002, primarily for software licenses,
emulation equipment, purchase of computer and engineering workstations, future
phases of enterprise resource planning system implementation and tenant and
leasehold improvements in our new headquarters facility.

     In April 2000, we entered into leases for our new headquarters complex in
Santa Clara, California. Our new complex will comprise four buildings,
representing approximately 500,000 total square feet. The first phase of two
buildings consisting of approximately 250,000 square feet was completed in June
2001, and the second phase of one building consisting of approximately 125,000
square feet was completed in July 2001. We expect the last phase consisting of
approximately 125,000 square feet to be completed in March 2002. As of August
31, 2001, restricted cash related to the construction decreased to $7.1 million
from $28.1 million at July 29, 2001. The leases expire in 2012 and include two
seven-year renewals at our option. The future minimum lease payments under these
operating leases total approximately $224.8 million over the terms of the
leases. We currently are in the process of locating a subtenant for our former
office space and a subtenant for one of the buildings that will comprise part of
our new office complex. We may be unable to secure subtenants for both spaces
due to the recent decrease in demand for commercial rental space in Santa Clara.
See "Certain Business Risks - We recently moved into new headquarters. If we are
unable to sublease our excess space, we will have increased operating expenses
which may have a negative impact on our net income."

     Financing activities provided cash of $36.2 million in the first half of
fiscal 2002 compared to $208.0 million in the same period of fiscal 2001. 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 a product under development by Microsoft. In April
2000, Microsoft paid us $200.0 million as an advance against graphics chip
purchases. Microsoft may terminate the agreement at any time. If termination
occurs prior to offset in full of the advance payments, we would be required to
return to Microsoft up to $100.0 million of the prepayment and to convert the
remainder into shares of our preferred stock a 30% premium to the 30-day average
trading price of our common stock preceding Microsoft's termination of the
agreement. In July 2001, we began to ship production units to Microsoft, and the
$200.0 million advance was drawn down in relation to the shipments made during
the quarter.

     We believe that our existing cash balances and anticipated cash flows from
operations will be sufficient to meet our operating and capital requirements for
at least the next 12 months. However, there is no assurance that we will not
need to raise additional equity or debt financing within this time frame.
Additional financing may not be available on favorable terms or at all and may
be dilutive to our then-current stockholders. We also may require additional
capital for other purposes not presently contemplated.

                                       15



If we are unable to obtain sufficient capital, we could be required to curtail
capital equipment purchases or research and development expenditures, which
could harm our business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

     The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from the investments
without significantly increasing risk. To minimize potential loss arising from
adverse changes in interest rates, we maintain a portfolio of cash and cash
equivalents primarily in highly rated domestic money market funds. In general,
money market funds are not subject to market risk because the interest paid on
such funds fluctuates with the prevailing interest rate. Our convertible
subordinated notes are at a fixed interest rate of 4 3/4% and are not subject to
interest rate fluctuations.

Exchange Rate Risk

     We consider our exposure to foreign exchange rate fluctuations to be
minimal. Currently, sales and arrangements with third-party manufacturers
provide for pricing and payment in U.S. dollars, and therefore are not subject
to exchange rate fluctuations. 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.

Certain Business Risks

     In addition to the risks discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations," our business is subject to
the risks set forth below.

     Our operating results are unpredictable and may fluctuate.

     Many of our revenue components fluctuate and are difficult to predict, and
our operating expenses are largely independent of revenue in any particular
period. 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 and
investors, which could cause the trading price of our common stock to decline,
perhaps substantially. We believe that our quarterly and annual results of
operations will be affected by a variety of factors that could adversely affect
our revenue, gross profit and results of operations.

     Factors that have affected our results of operations in the past, and could
affect our results of operations in the future, include the following:

     .    demand and market acceptance for our products and/or our customers'
          products;

     .    the successful development and volume production of next-generation
          products;

     .    new product announcements or product introductions by our competitors;

     .    our ability to introduce new products in accordance with OEM design
          requirements and design cycles;

     .    changes in the timing of product orders due to unexpected delays in
          the introduction of our customers' products;

     .    fluctuations in the availability of manufacturing capacity or
          manufacturing yields;

     .    declines in spending by corporations and consumers related to
          perceptions regarding an economic downturn in the U.S. and
          international regions;

                                       16



     .    competitive pressures resulting in lower than expected average selling
          prices;

     .    rates of return in excess of that forecasted or expected due to
          quality issues;

     .    the rescheduling of shipments or cancellation of customer orders;

     .    the loss of a key customer or the termination of a strategic
          relationship;

     .    seasonal fluctuations associated with the PC market;

     .    substantial disruption in our suppliers' operations, either as a
          result of a natural disaster, equipment failure or other cause;

     .    supply constraints for and changes in the cost of the other components
          incorporated into our customers' products, including memory devices;

     .    our ability to reduce the manufacturing costs of our products;

     .    legal and other costs related to defending intellectual property;

     .    bad debt write-offs;

     .    costs associated with the repair and replacement of defective
          products;

     .    unexpected inventory write-downs; and

     .    introductions of enabling technologies to keep pace with faster
          generations of processors and controllers.

     Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.

     Because most operating expenses are relatively fixed in the short term, we
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall. We may be required to reduce prices in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other competitive
factors require us to invest significantly greater resources than anticipated in
research and development or sales and marketing efforts, our business could
suffer. 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 period are not indicative of results
to be expected for a full fiscal year.

     Our 3D graphics solution may not continue to be accepted by the PC market.

     Our success will depend in part upon continued broad adoption of our 3D
graphics processors for high performance 3D graphics in PC applications. The
market for 3D graphics 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 dynamic random
memory devices pricing 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
market acceptance and such market acceptance, if achieved, is difficult to
sustain due to intense competition. Since we have no other product lines, our
business would suffer if for any reason our current or future 3D graphics
processors do not continue to achieve widespread acceptance in the PC market. If
we are unable to complete the timely development of or successfully and
cost-effectively manufacture and deliver products that meet the requirements of
the PC market, our business would be harmed.

     Our integrated graphics product may not be accepted by the PC market.

     We expect that integrated graphics chipset products will become an
increasing part of the lower cost segment of the PC graphics market. We recently
announced an integrated chipset product and are currently developing future
products. If these products are not competitive in this segment and the
integrated chipset

                                       17



segment continues to account for an increasing percentage of the units sold in
the PC market, our business may suffer.

     We need to develop new products and to manage product transitions in order
to succeed.

     Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
and motherboard manufacturers and major OEM customers typically introduce new
system configurations as often as twice per year, typically based on spring and
fall design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:

     .  anticipate the features and functionality that consumers will demand;

     .  incorporate those features and functionality into products that meet the
        exacting design requirements of PC OEMs, or add-in board and motherboard
        manufacturers and CEMs;

     .  price our products competitively; and

     .  introduce the products to the market within the limited window for PC
        OEMs, and add-in board and motherboard manufacturers.

     As a result, we believe that significant expenditures for research and
development will continue to be required in the future. The success of new
product introductions will depend on several factors, including the following:

     .  proper new product definition;

     .  timely completion and introduction of new product designs;

     .  the ability of TSMC, our primary  manufacturer,  and any additional
        third-party  manufacturers  to effectively  manufacture our new products
        in a timely manner;

     .  the quality of any new products;

     .  differentiation of new products from those of our competitors;

     .  market acceptance of our products and our customers' products; and

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

     Our strategy is to utilize the most advanced semiconductor process
technology appropriate for our products and available from commercial
third-party foundries. Use of advanced processes has in the past resulted in
initial yield problems. New products that we introduce may not incorporate the
features and functionality demanded by PC OEMs, add-in board and motherboard
manufacturers and consumers of 3D graphics. In addition, we may not successfully
develop or introduce new products in sufficient volumes within the appropriate
time to meet both the PC OEMs' design cycles and market demand. We have in the
past experienced delays in the development of some new products. Our failure to
successfully develop, introduce or achieve market acceptance for new 3D graphics
products would harm our business.

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

     As markets for our 3D graphics processors develop and competition
increases, we anticipate that product life cycles at the high end will remain
short and average selling prices will continue to decline. In particular, we
expect average selling prices and gross margins for our 3D graphics 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 overall average selling prices and gross margins. In order for our 3D
graphics processors to achieve high volumes, leading PC OEMs and add-in board
and motherboard manufacturers must select our 3D graphics processor for design
into their products, and then successfully complete the designs of their
products and sell them. We may be unable to successfully

                                       18



identify new product opportunities or to develop and bring to market in a timely
fashion any new products. In addition, we cannot guarantee that any new products
we develop will be selected for design into PC OEMs' 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 products increases, there is an
increasing risk that we will experience problems with the performance of
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 may delay the
introduction or volume sale of new products we developed. 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 3D
graphics products non-competitive or obsolete or result in our holding excess
inventory, either of which would harm our business.

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

     In the design and development of new products and product enhancements, we
rely on third-party software development tools. While 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. 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. The design requirements
necessary to meet consumer demands for more features and greater functionality
from 3D graphics products in the future may exceed the capabilities of the
software development tools available to us. If the software development tools we
use become unavailable or fail to produce designs that meet consumer demands,
our business could suffer.

     Our industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions that could result in substantial costs
to us.

     The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
protracted and expensive litigation. The 3D graphics market in particular has
been characterized recently by the aggressive pursuit of intellectual property
positions, and we expect our competitors to continue to pursue aggressive
intellectual property positions. In addition, from time to time we receive
notices alleging that we have infringed patents or other intellectual property
rights owned by third parties. We expect that, as the number of issued hardware
and software patents increases, and as competition in our markets intensifies,
the volume of intellectual property infringement claims may increase. If
infringement claims are made against us, we may seek licenses under the
claimants' patents or other intellectual property rights. However, licenses may
not be offered at all or on terms acceptable to us. The failure to obtain a
license from a third party for technology used by us could cause us to incur
substantial liabilities and to suspend the manufacture of products. Furthermore,
we may initiate claims or litigation against third parties for infringement of
our proprietary rights or to establish the validity of our proprietary rights.
We have agreed to indemnify certain customers for claims of infringement arising
out of sale of our products.

     Litigation by or against us or our customers concerning infringement would
likely result in significant expense to us and divert the efforts of our
technical and management personnel, whether or not the litigation results in a
favorable determination for us.

     We have in the past been subject to patent infringement suits, and we may
be subject to patent infringement suits brought by other parties in the future.
These future lawsuits could divert our resources and result in the payment of
substantial damages.

                                       19



     We may be unable to adequately protect our intellectual property.

     We rely primarily on a combination of patents, trademarks, trade secrets,
employee and third-party nondisclosure agreements and licensing arrangements to
protect our intellectual property. As of August 28, 2001, we owned 52 issued
United States patents and 6 issued foreign patents, and have 104 United States
patent applications pending. Our issued patents have expiration dates from June
9, 2012 to December 6, 2019. As of August 28, 2001, our issued patents and
pending patent applications related to technology developed by us in connection
with the development of our products, including our 3D graphics processors. 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 graphics processors, and expect to
continue to enter into license agreements for future products. 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.

     Our failure to achieve one or more design wins would harm our business.

     Our future success will depend in large part on achieving design wins,
which entails having our existing and future products chosen as the 3D graphics
processors for hardware components or subassemblies designed by PC OEMs and
add-in board and motherboard manufacturers. Our add-in board and motherboard
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, generally based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. Our failure to achieve one or more design wins would harm our
business. The process of being qualified for inclusion in a PC OEM's product can
be lengthy and could cause us to miss a cycle in the demand of end users for a
particular product feature, which also could harm our business.

     Our ability to achieve design wins also depends in part on our ability to
identify and ensure compliance 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 Intel and Microsoft. This would require us to invest significant time
and resources to redesign our products to ensure compliance 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.

     We are dependent on the PC market and the slowdown in its growth may have a
negative impact on our business.

     During the first half of fiscal 2002, we derived most of our revenue from
the sale of products for use in the entire desktop PC market, from professional
workstations to low-cost PCs. We expect to continue to derive most of our
revenue from the sale or license of products for use in the entire desktop PC
market in the next several years. The PC market is characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and significant price competition. These factors result in short
product life cycles and regular reductions of average selling prices over the
life of a specific product. A reduction in sales of PCs, or a reduction in the
growth rate of PC sales, could 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 have incorrectly forecast product
transitions. In these cases, PC manufacturers may abruptly suspend substantially
all purchases of additional inventory from suppliers like us until the excess
inventory has been absorbed. It is possible that the recent slowing of the
economy in the U.S. and international regions, which has negatively impacted
some PC manufacturers and led to some reductions in the demand for PCs, could
lead to reductions in inventory purchases by PC manufacturers. Any reduction in
the

                                       20



demand for PCs generally, or for a particular product that incorporates our 3D
graphic processors, could harm our business.

     The acceptance of next generation products in business PC 3D graphics may
not continue to develop.

     Our success will depend in part upon the demand for performance 3D graphics
for business PC applications. The market for performance 3D graphics on business
PCs has only recently begun to emerge and is dependent on the future development
of, and substantial end-user and OEM demand for, 3D graphics functionality. As a
result, the market for business PC 3D graphics computing may not continue to
develop or may not grow at a rate sufficient to support our business. The
development of the market for performance 3D graphics on business PCs will in
turn depend on the development and availability of a large number of business PC
software applications that support or take advantage of performance 3D graphics
capabilities. Currently there are only a limited number of software applications
like this, most of which are games, and a broader base of software applications
may not develop in the near term or at all. Consequently, a broad market for
full function performance 3D graphics on business PCs may not develop. Our
business prospects will suffer if the market for business PC 3D graphics fails
to develop or develops more slowly than expected.

     We are dependent on a small number of customers and we are subject to order
and shipment uncertainties.

     We have only a limited number of customers and our sales are highly
concentrated. We primarily sell our products to add-in board and motherboard
manufacturers and CEMs, which incorporate graphics products in the boards they
sell to PC OEMs and system builders. Sales to add-in board and motherboard
manufacturers and CEMs are primarily dependent on achieving design wins with
leading PC OEMs. The number of add-in board and motherboard manufacturers, CEMs
and leading PC OEMs is limited. We expect that a small number of add-in board
and motherboard manufacturers and CEMs directly, and a small number of PC OEMs
indirectly, will continue to account for a substantial portion of our revenue
for the foreseeable future. As a result, our business could be harmed by the
loss of business from PC OEMs or add-in board and motherboard manufacturers and
CEMs. In addition, revenue from add-in board and motherboard manufacturers, CEMs
and PC OEMs that have directly or indirectly accounted for significant revenue
in past periods, individually or as a group, may not continue, or may not reach
or exceed historical levels in any future period.

     Our business may be harmed by instability in Asia due to the concentration
of customers who are located or have substantial operations in Asia, including
Taiwan. The People's Republic of China and Taiwan have in the past experienced
and currently are experiencing strained relations. A worsening of these
relations or the development of hostilities between the two could result in
disruptions in Taiwan and possibly other areas of Asia, which could harm our
business. In addition, if foreign relation matters strain the relationship
between the U.S. and The People's Republic of China, situations in Asia could
remain unstable. While we believe political instability in Asia has not
adversely affected our business, because of our reliance on companies with
operations in Asia, continued economic and political instability in Asia might
harm it.

     We may be unable to manage our growth and, as a result, may be unable to
successfully implement our strategy.

     Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. As of
July 29, 2001, we had 907 employees as compared to 796 employees as of January
28, 2001. We expect that the number of our employees will increase substantially
over the next 12 months. Our future growth, if any, will depend on our ability
to continue to implement and improve operational, financial and management
information and control systems on a

                                       21



timely basis, as well as our ability to maintain effective cost controls.
Further, we will be required to manage multiple relationships with various
customers and other third parties. Our systems, procedures or controls may not
be adequate to support our operations and our management may be unable to
achieve the rapid execution necessary to successfully implement our strategy.

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

     Our performance will be substantially dependent on the performance of our
executive officers and key employees. None of our officers or employees is bound
by an employment agreement, and our relationships with these officers and
employees are, therefore, 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.

     We depend on third-party fabrications to produce our products.

     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
utilize TSMC to produce our semiconductor wafers and utilize independent
contractors to perform assembly, test and packaging. 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.
These manufacturers may be unable to meet our near-term or long-term
manufacturing requirements. We obtain manufacturing services on a purchase order
basis and TSMC has no obligation to provide us with any specified minimum
quantities of product. TSMC fabricates wafers for other companies, including
certain of our competitors, and could choose to prioritize capacity for other
users or reduce or eliminate deliveries to us on short notice. 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. We believe that long-term market
acceptance for our products will depend on reliable relationships with TSMC and
any other manufacturers used by us to ensure adequate product supply to respond
to customer demand.

     Because of our reliance on TSMC, 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, or if relations between the U.S. and
The People's Republic of China are strained due to foreign relations events.
Furthermore, any substantial disruption in our suppliers' operations, either as
a result of a natural disaster, political unrest, economic instability,
equipment failure or other cause, could harm our business.

     We are dependent primarily on TSMC and we expect in the future to continue
to be dependent upon third-party manufacturers to do the following:

     .    produce wafers of acceptable quality and with acceptable manufacturing
          yields;

     .    deliver those wafers to us and our independent assembly and testing
          subcontractors on a timely basis; and

     .    allocate to us a portion of their manufacturing capacity sufficient to
          meet our needs.

     Our wafer requirements represent a significant portion of the total
production capacity of TSMC. Although our products are designed using TSMC's
process design rules, TSMC may be unable to achieve or maintain acceptable
yields or deliver sufficient quantities of wafers on a timely basis and/or at an
acceptable cost. Additionally, TSMC may not continue to devote resources to the
production of our products, or to advance the process design technologies on
which the manufacturing of our products are based. Any difficulties like these
would harm our business.

                                       22



     Failure to achieve expected manufacturing yields for both or either
existing or new products would reduce our product supply and harm our business.

     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, and resolution of yield problems would require cooperation by and
communication between us and the manufacturer.

     The risk of low yields is compounded by the offshore location of most of
our manufacturers, increasing the effort and time required to identify,
communicate and resolve manufacturing yield problems. 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 as well as revenue and 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 harm our business. 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. In
the event of a significant number of product returns due to a defect or recall,
our business could suffer.

     Failure to transition to new manufacturing process technologies could
affect our ability to compete effectively.

     Our strategy is to utilize the most advanced 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.
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 have migrated to the .15-micron
technology with the GeForce3 family of graphics processors, and we believe that
the transition of our products to increasingly smaller geometries will be
important to our competitive position. Other companies in the industry have
experienced difficulty in migrating to new manufacturing processes and,
consequently, have suffered reduced yields, delays in product deliveries and
increased expense levels. We may experience similar difficulties and the
corresponding negative effects. Moreover, we are dependent on our relationships
with our third-party manufacturers to migrate to smaller geometry processes
successfully. We may be unable to migrate to new manufacturing process
technologies successfully or on a timely basis.

     The 3D graphics industry is highly competitive and we may be unable to
compete.

     The market for 3D graphics processors for PCs in which we compete is
intensely 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 APIs,
manufacturing capabilities, price of graphics processors and total system costs
of add-in boards and motherboards. We expect competition to increase both from
existing competitors and new market entrants with products that may be less
costly than our 3D graphics processors or may provide better performance or
additional features not provided by our products. We may be unable to compete
successfully in the emerging PC graphics market.

     Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include the
following:

                                       23



     .    suppliers of graphics add-in boards that utilize their internally
          developed graphics chips, such as ATI Technologies Inc. and Matrox
          Electronics Systems Ltd.;

     .    suppliers of integrated core logic chipsets that incorporate 2D and 3D
          graphics functionality as part of their existing solutions, such as
          Intel, Silicon Integrated Systems and Via Technologies, Inc.;

     .    suppliers of mobile graphics processors that incorporate 2D or 3D
          graphics functionality as part of their existing solutions, such as
          ATI, Trident Microsystems, Inc. and the joint venture of a division of
          SONICblue Incorporated (formerly S3 Incorporated) and Via
          Technologies, Inc.;

     .    companies that have traditionally focused on the professional market
          and vide high end 3D solutions for PCs and workstations, including
          3Dlabs, SGI and ATI; and

     .    companies that focus on the video game market, such as Imagination
          Technologies and ST Microelectronics.

     If and to the extent we offer products outside of the 3D graphics processor
market, 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.

     We may compete with Intel in the integrated low-cost chipset market.

     Historically, Intel developed 3D graphics chipsets that are targeted at the
low-cost PC market. Intel has significantly greater resources than we do, and
our products may not compete effectively against future products introduced by
Intel. In addition, we may be unable to compete effectively against Intel or
Intel may introduce additional products that are competitive with our products
in either performance or price or both. We expect Intel to continue to do the
following:

     .    invest heavily in research and development and new manufacturing
          facilities;

     .    maintain its position as the largest manufacturer of PC
          microprocessors;

     .    increasingly dominate the PC platform; and

     .    promote its product offerings through advertising campaigns designed
          to engender brand loyalty among PC users.

     Intel may in the future develop graphics add-in cards or graphics-enabled
motherboards that could directly compete with graphics add-in cards or
graphics-enabled motherboards that our customers may develop. In addition, due
to the widespread industry acceptance of Intel's microprocessor architecture and
interface architecture, including its accelerated graphics port, or AGP, and
Intel's intellectual property position with respect to such architecture, Intel
exercises significant influence over the PC industry generally. Any significant
modifications by Intel to the AGP, the microprocessor or core logic components
or other aspects of the PC microprocessor architecture could result in
incompatibility with our technology, which would harm our business. In addition,
any delay in the public release of information relating to modifications like
this could harm our business.

     We are dependent on third parties for assembly, testing and packaging of
our products.

     Our graphics processors are assembled and tested by Siliconware Precision
Industries Company Ltd., ChipPAC Incorporated and Advanced Semiconductor
Engineering. 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. Any product shortages or quality
assurance problems could increase the costs of manufacture, assembly or testing
of our products and could harm our business. Due to the amount of time typically
required to qualify assemblers and testers, we could experience significant
delays in the shipment of our

                                       24




products if we are required to find alternative third parties to assemble or
test our products or components. Any delays in delivery of our products could
harm our business.

     We are subject to risks associated with product defects and
incompatibilities.

     Products as complex as those offered by us may contain defects or failures
when introduced or when new versions or enhancements to existing products are
released. We have in the past discovered software defects and incompatibilities
with customers' hardware in certain of our products and may experience delays or
lost revenue to correct any new defects in the future. Errors in new products or
releases after commencement of commercial shipments could result in loss of
market share or failure to achieve market acceptance. 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. These costs could be significant and could
adversely affect our business and operating results. The production and
distribution of defective products could harm our business.

     We may not be successful in producing the processors in volumes required
for the Microsoft Xbox product and, even if we do successfully produce these
processors in the volumes required, we may not achieve profit margins consistent
with those of our other products.

     The Xbox Graphics Processing Unit and Xbox Media Communications Processor
are new, complicated processors that have not been produced in volume. Both
processors have increased in complexity and features from what was contemplated
at the time we entered into the agreement with Microsoft. There can be no
assurance that we will be able to produce these processors in the volume and
within the required time frames or that we will be able to produce these
processors consistent with profit margins achieved on our other products.
Finally, there can be no assurance that the Xbox program will be commercially
successful. If any of the aforementioned risks occur, our business may suffer
and our stock price may decline.

     We recently moved into new headquarters. If we are unable to sublease our
excess space, we will have increased operating expenses which may have a
negative impact on our net income.

     We moved into new headquarters in June 2001, but we are still obligated to
pay rent for our previous office space. Since we relocated, we have been trying
to locate a subtenant for our previous office space and a subtenant for one of
the buildings that will comprise part of our new office complex. We may be
unable to secure subtenants for both spaces due to the decrease in demand for
commercial rental space in Santa Clara, California, as a result of the declining
economy. If we are unable to secure subtenants or if the rental values in Santa
Clara, California, decrease such that even if we found subtenants we would still
be obligated to pay a portion of the rent at both locations, our operating
expenses will increase, perhaps substantially, which will have a negative impact
on our net income. In addition, if we do not enter into a sublease for our
former office space, we will have to write-off unutilized leasehold improvements
and furniture and fixtures associated with that space, which will adversely
affect our net income.

     We are subject to risks associated with international operations.

     Our reliance on foreign third-party manufacturing, assembly, testing and
packaging operations subjects us to a number of risks associated with conducting
business outside of the United States, including the following:

     .    unexpected changes in, or impositions of, legislative or regulatory
          requirements;

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

     .    longer payment cycles;

                                       25





     .   imposition of additional taxes and penalties;

     .   the burdens of complying with a variety of foreign laws; and

     .   other factors beyond our control.

     We also are subject to general political risks in connection with our
international trade relationships. In addition, the laws of certain foreign
countries in which our products are or may be manufactured or sold, including
various countries in Asia, may not protect our products or intellectual property
rights to the same extent as do the laws of the United States. This makes the
possibility of piracy of our technology and products more likely. Currently, all
of our arrangements with third-party manufacturers provide for pricing and
payment in U.S. dollars, and 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.

     The semiconductor industry is cyclical in nature.

     The semiconductor industry historically has been characterized by the
following factors:

     .    rapid technological change;

     .    cyclical market patterns;

     .    significant average selling price erosion;

     .    fluctuating inventory levels;

     .    alternating periods of overcapacity and capacity constraints; and

     .    variations in manufacturing costs and yields and significant
          expenditures for capital equipment and product development.

     In addition, the industry has experienced significant economic downturns at
various times, characterized by diminished product demand and accelerated
erosion of average selling prices. We may experience substantial
period-to-period fluctuations in results of operations due to general
semiconductor industry conditions.

     Failure in implementation of our enterprise resource planning system could
adversely affect our operations.

     In December 1999, we began the implementation of an SAP A.G. system as our
enterprise resource planning or ERP system to replace our information systems in
business, finance, operations and service. The first phase of the implementation
was successfully completed in June 2000 and our operations are fully functioning
under the new ERP system. Future phases of the implementation are expected to
occur throughout fiscal 2002. We are heavily dependent upon the proper
functioning of our internal systems to conduct our business. System failure or
malfunctioning may result in disruptions of operations and inability to process
transactions. Our results of operations and financial position could be
adversely affected if we encounter unforeseen problems with respect to system
operations or future implementation.

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

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

     .    the ability of the board of directors to create and issue preferred
          stock without prior shareholder approval;

     .    the prohibition of shareholder action by written consent;

     .    a classified board of directors; and



                                       26




     .    advance notice requirements for director nominations and shareholder
          proposals.

     On March 5, 2000, we entered into a licensing and development agreement
with Microsoft that included a grant to Microsoft of first and last rights of
refusal over any offer we receive to purchase 30% or more of the outstanding
shares of our common stock. The provision could also delay or prevent a change
in control of our company.

     Rising energy costs and power system shortages in California may result in
increased operating expenses and reduced net income.

     California has been experiencing an energy crisis and has experienced
significant power shortages during the last year. As a result, energy costs in
California, including natural gas and electricity, have increased significantly
over the year and may still be rising. Because our principal operating
facilities are located in California, our operating expenses may increase
significantly if this trend continues. In addition, California has on some
occasions implemented, and may in the future continue to implement, rolling
blackouts throughout the state, including the county where we have our principal
offices. If blackouts interrupt our power supply, we may be temporarily unable
to operate and any such interruption could harm our business.

     Our stock price may continue to experience large short-term fluctuations.

     The price of our common stock has fluctuated greatly. These price
fluctuations have been rapid and severe. The price of our common stock may
continue to fluctuate greatly in the future due to factors, such as the recent
decline in some economic indicators in the U.S., related to the general
volatility that currently exists in the market or due to a variety of company
specific factors, including quarter to quarter variations in our operating
results, shortfalls in revenue or earnings from levels expected by securities
analysts and the other factors discussed above in these risk factors. In the
past, following periods of volatility in the market price of a company's stock,
securities class action litigation has been initiated against the issuing
company. This type of litigation could result in substantial cost and a
diversion of management's attention and resources, which could have an adverse
effect on our revenues and earnings. Any adverse determination in this type of
litigation could also subject us to significant liabilities. See "Certain
Business Risks--Our operating results are unpredictable and may fluctuate."

     We may not be able to realize the potential financial or strategic benefits
of future business acquisitions that could hurt our ability to grow our business
and sell our products.

     In the future we may acquire or invest in other businesses that offer
products, services and technologies that we believe would help expand or enhance
our products and services or help expand our distribution channels. If we were
to make such an acquisition or investment, the following risks could impair our
ability to grow our business and develop new products and, ultimately, could
impair our ability to sell our products:

     .    difficulty in combining the technology, operations or work force of
          the acquired business;

     .    disruption of our on-going businesses;

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

     .    difficulty in maintaining uniform standards, controls, procedures and
          policies; and

     .    possible impairment of relationships with employees and customers as a
          result of any integration of new businesses and management personnel.

     In addition, the consideration for any future acquisition could be paid in
cash, shares of our common stock, or a combination of cash and common stock. If
the consideration is paid with our common stock,

                                       27



existing stockholders would be further diluted. Goodwill and all identifiable
intangible assets that have an indeterminable life associated with future
acquisitions will be recognized as assets but not amortized as in accordance
with the recent Financial Accounting Statement 142. These assets will be
assessed for impairment on an annual basis. Identifiable intangible assets that
have a determinable life will continue to be segregated from goodwill and
amortized over their useful lives.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     On February 22, 2000, Graphiques Matrox, Inc. and Systemes Electroniques
Matrox Ltd. (collectively "Matrox") filed suit against us in the Superior Court,
Judicial District of Montreal, Province of Quebec, Canada. The suit alleged that
we improperly solicited and recruited Matrox employees and encouraged Matrox
employees to breach their Matrox confidentiality and/or non-competition
agreements. The suit by Matrox sought, among other things, certain injunctive
relief. The trial of this matter occurred during April, 2001. On July 12, 2001,
the court issued its ruling in favor of us and dismissed all of Matrox's claims.
Matrox has not appealed this ruling and the time for appeal passed August 13,
2001.

     Sunonwealth Electric Machine Industry Co., Ltd. filed a complaint against
us in the United States District Court for the Central District of California
for infringement of US Patent Nos. 6,109,892 and 6,114,785. The underlying case
is Sunonwealth v. Adda Corporation, et al, filed in the United States District
Court for the Central District on October 19, 2000. Both cases have been
consolidated. The patents are for a positioning device for a sensor element of a
miniature fan. We purchased these fans from Adda. Adda has agreed to defend us
and to pay any judgment rendered against us as well as the cost of any
settlement to the extent that our liability in such settlement arises from
patent infringement resulting from its purchase of products from Adda.

     On August 3, 2001 the Court of Appeals for the Federal Circuit issued its
decision in a patent infringement action originally brought in 1998 by S3
Incorporated (now SONICblue Incorporated). The decision vacated the district's
court summary judgment in favor of us and dismissal of the action relative to
certain disputed claims and remanded the matter back to the district court.
Under a previous settlement agreement with S3, we agreed to pay up to $2.0
million if S3's appeal of the district court judgment was decided in favor of
S3. We made a payment of $1.9 million in August 2001 to fully satisfy our
obligation under the settlement.

     In addition, we may be subject to litigation in the future. See "Certain
Business Risks - Litigation by or against us or our customers concerning
infringement would likely result in significant expense to us and divert the
efforts of our technical and management personnel, whether or not the litigation
results in a favorable determination for us." From time to time, we are also
subject to claims in the ordinary course of business, none of which in our view
would have a material adverse impact on our business or financial position if
resolved unfavorably.

ITEM 6. EXHIBITS

     The following exhibits are filed herewith:

     Exhibit
     Number        Description of Document
     -------       -----------------------
        3.1        Bylaws of Nvidia Corporation, amended as of July 12, 2001

        3.2        Certificate of Amendment of Amended and Restated Certificate
                   of Incorporation of Nvidia Corporation.

                                       28



                                    SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, on September 10, 2001.

                                            NVIDIA Corporation

                                            By: /s/ Christine B. Hoberg
                                            -----------------------------------
                                                        Christine B. Hoberg
                                                        Chief Financial Officer
                                            (Principal Financial and Accounting
                                            Officer)

                                       29