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Article by DailyStocks_admin    (07-14-08 09:15 AM)

The Daily Magic Formula Stock for 07/12/2008 is NVIDIA Corp. According to the Magic Formula Investing Web Site, the ebit yield is 18% and the EBIT ROIC is >100 %.

Dailystocks.com only deals with facts, not biased journalism. What is a better way than to go to the SEC Filings? It's not exciting reading, but it makes you money. We cut and paste the important information from SEC filings for you to get started on your research on a specific company.


Dailystocks.com makes NO RECOMMENDATIONS whatsoever, and provides this for informational purpose only.

BUSINESS OVERVIEW

Our Company

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or the GPU. Our products are designed to generate realistic, interactive graphics on consumer and professional computing devices. We serve the entertainment and consumer market with our GeForce products, the professional design and visualization market with our Quadro products, and the high-performance computing market with our Tesla products. We have four major product-line operating segments: the GPU B usiness, the professional solutions business, or PSB , the media and communications processor, or MCP, b usiness, and the consumer products business, or CPB . Our GPU business is comprised primarily of our GeForce products that support desktop and notebook personal computers, or PCs, plus memory products. Our PSB is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products. Our MCP business is comprised of NVIDIA nForce core logic and motherboard GPU, or mGPU products. Our CPB is comprised of our GoForce and APX mobile brands and products that support handheld personal media players, or PMPs, personal digital assistants, or PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices. Original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, add-in-card manufacturers, system builders and consumer electronics companies worldwide utilize NVIDIA processors as a core component of their entertainment , business and professional solutions. We were incorporated in California in April 1993 and reincorporated in Delaware in April 1998. Our headquarter facilities are in Santa Clara , California . Our Internet address is www.nvidia.com . The contents of our website are not a part of this Form 10-K.

Our Business

GPU Business

Our GPU Business is comprised primarily of our GeForce products that support desktop and notebook PCs, plus memory products. Our GPU Business is focused on Microsoft Windows and Apple PC platforms. GeForce GPUs power PCs made by or distributed by virtually every PC OEM worldwide in desktop PCs, notebook PCs, PCs loaded with Windows Media Center and media extenders such as the Apple TV. GPUs enhance the user experience for playing video games, editing photos, viewing and editing videos and high-definition, or HD, movies. GPUs also enable the rich visual user interfaces of the Windows Vista and Apple OS X operating systems. The combination of the programmable Unified Shader GPU with Microsoft Corporation’s, or Microsoft’s, DirectX 10 high-level shading language is known as DirectX 10 GPUs. Combined with the ability to directly access the GPU via the new Windows Vista applications from Microsoft Office to Web 2.0, applications can now incorporate improved quality through 3D effects.

We believe we are in an era where visual computing is becoming increasingly important to consumers and other end users of our products. Our strategy is to promote our GeForce brand as one of the most important processors through technology leadership, increasing programmability, and great content experience. In fiscal year 2008, our strategy was to extend our architectural and technology advantage with our second-generation DirectX 10 GPUs, the GeForce 8-series GPUs. During fiscal year 2008, we added the NVIDIA GeForce 8800 Ultra, GeForce 8800 GT, GeForce 8600, GeForce 8500, and GeForce 8300 to our GeForce 8-series of GPUs, which previously included the GeForce 8800 GTX and 8800 GTS products. Our standalone desktop GPU category share grew from 52% to 64% in fiscal year 2008, according to the Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports, respectively.

During fiscal year 2008, we launched a new family of GeForce 8M Series notebook GPUs. The GeForceM and NVIDIA Quadro FX mobile families represent our notebook GPUs and include the GeForce 8M, GeForce 7 Go, and NVIDIA Quadro FX M GPUs. These GPUs are designed to deliver desktop graphics performance and features for multiple notebook configurations such as desktop replacement notebooks, multimedia notebooks, thin-and-light notebooks and notebook workstations. The GeForce M and GeForce Go products are designed to serve the needs of both enterprise and consumer users. The NVIDIA Quadro FX M products are designed to serve the needs of workstation professionals in the area of product design and digital content creation. We experienced a high degree of design-win success for the Intel Santa Rosa platform cycle during fiscal year 2008, which helped our standalone notebook category share grow from 58% to 75%, according to the Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports, respectively.

Professional Solutions Business

Our PSB is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products. Our NVIDIA Quadro brand products are designed to deliver the highest possible level of performance and compatibility for the professional industry. The NVIDIA Quadro family consists of the NVIDIA Quadro Plex Visual Computing System, or VCS, NVIDIA Quadro FX, and the NVIDIA Quadro Night Vision Systems, or NVS, professional workstation processors. NVIDIA Quadro products are recognized by many as the standard for professional graphics solutions needed to solve many of the world’s complex visual computing challenges in the manufacturing, entertainment, medical, science, and aerospace industries. NVIDIA Quadro products are fully certified by several software developers for professional workstation applications and are designed to deliver the graphics performance and precision required by professional applications.

We believe that recent years have experienced an increasing level of global adoption for the computer-aided design approach of product creation. NVIDIA has the leading position in the professional graphics category with over 70% share by revenue according to the 2007 Fourth Quarter International Data Corporation, or IDC, Market Research Report. We achieved this market position by providing innovative GPU technology, software, and tools that integrate the capabilities of our GPU with a broad array of visualization products. During fiscal year 2008, we launched seven new Quadro solutions, including the Quadro FX 370 and 570. We also introduced a new line of notebook workstation GPUs - the NVIDIA Quadro FX 1600M, 570M and 360M – as well as a new line of desktop workstation GPUs – the NVIDIA Quadro FX 4600 and 5600 – all based on our GeForce 8-series unified shader architecture. We expanded our NVIDIA Quadro Plex family with the introduction of the NVIDIA Quadro Plex VCS IV, a new version of the NVIDIA Quadro Plex Visual Computing System, or VCS, which provides enhanced performance for a wide range of high-performance, graphics-intensive styling and design, oil and gas, and scientific applications.

In fiscal year 2008, we also introduced NVIDIA Tesla, our entry into the high-performance computing industry. Tesla is a new family of GPU computing products that delivers processing capabilities for high-performance computing applications. The Tesla family consists of the C870 GPU Computing processor, the D870 Deskside Supercomputer and the S870 1U Computing Server. During the third quarter of fiscal year 2008, we began shipments of our Tesla C870 GPU computing processor and D870 desk-side supercomputer products. Compute Unified Device Architecture, or CUDA, software has been acknowledged for its ability to transform a GPU into a supercomputer and to deliver the level of performance normally found in large and expensive clusters residing in datacenters to the desktop of scientists and engineers around the world. During fiscal year 2008, NVIDA made available the first public version of the NVIDIA CUDA Software Developer Kit and C-compiler for computing on NVIDIA GPUs.

In fiscal year 2008, we completed our acquisition of Mental Images, an industry leader in photorealistic rendering technology. Mental Images’ Mental Ray product is considered by many to be the most pervasive ray tracing renderer in the industry. Mental Images visualization technology is embedded in most major digital content creation, or DCC, and computer aided design, or CAD, applications, and their rendering technology is deployed by major manufacturers and film studios. We believe that this strategic combination will enable the development of tools and technologies that will advance the state of visualization, will be optimized for next generation computing architectures, and will create new product categories for both hardware and software.

MCP Business

Our MCP Business is comprised of NVIDIA nForce core logic and NVIDIA GeForce mGPU products. Our NVIDIA nForce and GeForce mGPU families of products address the multi-billion dollar computer core logic market. Core logic is the computer’s “central nervous system,” controlling and directing high speed data between the central processing unit, or CPU, the GPU, storage, and networks. High quality, long-term reliability, and top performance are key customer demands of core logic suppliers. Our strategy for MCPs aligns with what we anticipate will drive growth in the MCP segment such as multi-core, ever-increasing-speed networking and storage technologies, and integration of complex features such as virtualization, security processing and network processing. During the third quarter of fiscal year 2008, we shipped our first single-chip mGPUs for Intel-processor-based desktop PCs. We believe that the GeForce 7000 mGPU family delivers the performance of an entry-level discrete GPU when compared against traditional integrated graphics solutions. We also shipped the GeForce 7050 mGPU, which targets the lower cost categories of the market. We are now the only chipset supplier to support processor platforms created by both Intel Corporation, or Intel, and Advanced Micro Devices Inc., or AMD, and the only branded integrated GPU supplier for the Intel processor platform. We believe that the integrated graphics opportunity represents approximately 60% of the world PC market. We also extended the reach of Scalable Link Interface, or SLI, technology into the performance category with the launch of our NVIDIA nForce 650i SLI, 680i LT SLI and 680i Ultra MCP products for Intel. We are now the second largest core logic supplier in the world with 15% segment share of the total core logic market, according to the Mercury Research 2007 Fourth Quarter PC Chipsets and Processors report.

In fiscal year 2008, we announced a new technology named Hybrid SLI. We named it hybrid because this technology combines a powerful as well as an energy-efficient engine and SLI because it is our multi-GPU technology. When GeForce add-in graphics cards are connected to GeForce mGPUs, Hybrid SLI kicks in, combining their processing power to deliver an improved experience. The technology is application aware so, depending on the processing demands of each application running on the host PC, the discrete GPU may be completely shut-down in order to save power. For example, a PC containing the combined power of dual GeForce 8800 GTX SLI add-in graphics cards can reach 400 watts. If such a PC contained Hybrid SLI technology, both GPUs could be powered down when the user is doing email, surfing the web, or watching a Blu-ray movie, keeping the system quiet and consuming lower levels of energy. But when a video game or any other demanding GPU application is launched, the dual GeForce 8800 GTX’s would be powered up to deliver the performance required to power the related application. Hybrid SLI was made available starting with our GeForce8-series mGPUs.

Our MCP strategy is to bring the benefits of GeForce GPUs to the most price sensitive categories while creating exciting platform architectures like SLI, Hybrid SLI, and Enthusiast System Architecture, or ESA. ESA is a standard for system information protocol that links a PC system’s various critical components – such as fan, power supply, smart chassis, GPUs, and motherboards. It enables a unified architecture for applications and users to control and optimize the performance of their system. SLI, Hybrid SLI, and ESA are examples of how NVIDIA creates architectures that advance the capabilities of the PC.

Consumer Products Business

Our CPB is comprised of our GoForce and APX mobile brands and products that support PMPs, PDAs, cellular phones and other handheld devices. This business also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

We believe that mobile devices like phones, music players, and portable navigation devices will increasingly become multi-function, multi-tasking, PCs. As such, we anticipate the architecture of these devices will increasingly become more consumer PC-like and be capable of delivering all the entertainment and web experiences that end users currently enjoy on a PC, but in a form-factor that fits nicely in their hands. Our mobile strategy is to create an application processor and a computer-on-a-chip that enables this experience. NVIDIA GoForce mobile products and application processors implement design techniques, both inside the chips and at the system level, which result in high performance and long battery life. These technologies enhance visual display capabilities, improve connectivity, and minimize chip and system-level power consumption. NVIDIA GoForce products can be found primarily in multimedia cellular phones and other handheld devices. In February 2008, we launched the NVIDIA APX 2500, our first such application processor. The APX 2500 is a computer-on-a-chip designed to meet the growing multimedia demands of today's mobile phone user. The APX 2500 is the culmination of several hundred man years of research and development. We believe that the mobile application processor is an area where we can add a significant amount of value and we also believe that it represents growth opportunity that could ultimately reach the level of several hundred million units a year. During the first quarter of fiscal year 2008, we shipped the GoForce 6100, which was the first product resulting from our acquisition of PortalPlayer, Inc., or PortalPlayer, in fiscal year 2007. The GoForce 6100 can be found in primarily in PMPs.

Our Strategy

We design our products to enable our PC OEMs, ODMs, system builders, motherboard and add-in board manufacturers, and cellular phone and consumer electronics OEMs, to build products that deliver state-of-the-art features, performance, compatibility and power efficiency while maintaining competitive pricing and profitability. We believe that by developing 3D graphics, HD, video and media communications solutions that provide superior performance and address the key requirements of each of the product categories we serve, we will accelerate the adoption of HD digital media platforms and devices throughout these segments. We combine scalable architectural technology with mass market economies-of-scale to deliver a complete family of products that span from professional workstations, to consumer PCs, to multimedia-rich cellular phones.

Our objective is to be the leading supplier of performance GPUs, MCPs and application processors that support PDAs, PMPs, cellular phones and other handheld devices. Our current focus is on the desktop PC, professional workstation, notebook PC, high-performance computing, application processor, server, multimedia-rich cellular phone and video game console product lines, and we plan to expand into other product lines. Our strategy to achieve this objective includes the following key elements:

Build Award-Winning, Architecturally-Compatibl e 3D Graphics, HD Video, Media Communications and Ultra-Low Power Product Families for the PC, Handheld and Digital Entertainment Platforms . Our strategy is to achieve market segment leadership in these platforms by providing award-winning performance at every price point. By developing 3D graphics, HD video and media communications solutions that provide superior performance and address the key requirements of these platforms, we believe that we will accelerate the adoption of 3D graphics and rich digital media.

Target Leading OEMs, ODMs and System Builders . Our strategy is to enable our leading PC, handheld and consumer electronics OEMs, ODMs and major system builder customers to differentiate their products in a highly competitive marketplace by using our products. We believe that design wins with these industry leaders provide market validation of our products, increase brand awareness and enhance our ability to penetrate additional leading customer accounts. In addition, we believe that close relationships with OEMs, ODMs and major system builders will allow us to better anticipate and address customer needs with future generations of our products.

Sustain Technology and Product Leadership in 3D Graphics and HD Video, and Media Communications and Ultra-Low Power . We are focused on using our advanced engineering capabilities to accelerate the quality and performance of 3D graphics, HD video, media communications and ultra-low power processing in PCs and handheld devices. A fundamental aspect of our strategy is to actively recruit the best 3D graphics and HD video, networking and communications engineers in the industry, and we believe that we have assembled an exceptionally experienced and talented engineering team. Our research and development strategy is to focus on concurrently developing multiple generations of GPUs, including GPUs for high-performance computing, MCPs and mobile and consumer products that support PMPs, PDAs, cellular phones and other handheld devices using independent design teams. As we have in the past, we intend to use this strategy to achieve new levels of graphics, networking and communications features and performance and ultra-low power designs, enabling our customers to achieve superior performance in their products.

Increase Market Share . We believe that substantial market share will be important to achieving success. We intend to achieve a leading share of the market in areas in which we don't have a leading market share, and maintain a leading share of the market in areas in which we do have the lead, by devoting substantial resources to building families of products for a wide range of applications that offer significant improvement in performance over existing products.


Use Our Expertise in Digital Multimedia . We believe the synergy created by the combination of 3D graphics, HD video and the Internet will fundamentally change the way people work, learn, communicate and play. We believe that our expertise in HD graphics and system architecture positions us to help drive this transformation. We are using our expertise in the processing and transmission of high-bandwidth digital media to develop products designed to address the requirements of high-bandwidth concurrent multimedia.

Use our Intellectual Property and Resources to Enter into License and Development Contracts. From time to time, we expect to enter into license arrangements that will require significant customization of our intellectual property components. For license arrangements that require significant customization of our intellectual property components, we generally recognize this license revenue using the percentage-of-completion method of accounting over the period that services are performed. For example, in fiscal year 2006, we entered into an agreement with Sony Computer Entertainment, Inc., or SCE, to jointly develop a custom GPU for SCE’s PlayStation3. Our collaboration with SCE includes license fees and royalties for the PlayStation3 and all derivatives, including next-generation digital consumer electronics devices. In addition, we are licensing software development tools for creating shaders and advanced graphics capabilities to SCE.

Sales and Marketing

Our worldwide sales and marketing strategy is a key part of our objective to become the leading supplier of performance GPUs, MCPs, and applications processors that support PMPs, PDAs, cellular phones and other handheld devices. Our sales and marketing teams work closely with each industry’s respective OEMs, ODMs, system builders, motherboard manufacturers, add-in board manufacturers and industry trendsetters, collectively referred to as our Channel, to define product features, performance, price and timing of new products. Members of our sales team have a high level of technical expertise and product and industry knowledge to support the competitive and complex design win process. We also employ a highly skilled team of application engineers to assist the Channel in designing, testing and qualifying system designs that incorporate our products. We believe that the depth and quality of our design support are keys to improving the Channel’s time-to-market, maintaining a high level of customer satisfaction within the Channel and fostering relationships that encourage customers to use the next generation of our products.

In the GPU and MCP segments we serve, the sales process involves achieving key design wins with leading OEMs and major system builders and supporting the product design into high volume production with key ODMs, motherboard manufacturers and add-in board manufacturers. These design wins in turn influence the retail and system builder channel that is serviced by add-in board and motherboard manufacturers. Our distribution strategy is to work with a number of leading independent contract equipment manufacturers, or CEMs, ODMs, motherboard manufacturers, add-in board manufacturers and distributors each of which have relationships with a broad range of major OEMs and/or strong brand name recognition in the retail channel. In the CPB segment we serve, the sales process primarily involves achieving key design wins directly with the leading handheld OEMs and supporting the product design into high-volume production. Currently, we sell a significant portion of our processors directly to distributors, CEMs, ODMs, motherboard manufacturers and add-in board manufacturers, which then sell boards and systems with our products to leading OEMs, retail outlets and to a large number of system builders.

Although a small number of our customers represent the majority of our revenue, their end customers include a large number of OEMs and system builders throughout the world. As a result of our Channel strategy, our sales are focused on a small number of customers. Sales to our largest customer, Asustek Computer, Inc. accounted for 10% of our total revenue for fiscal year 2008.

To encourage software title developers and publishers to develop games optimized for platforms utilizing our products, we seek to establish and maintain strong relationships in the software development community. Engineering and marketing personnel interact with and visit key software developers to promote and discuss our products, as well as to ascertain product requirements and solve technical problems. Our developer program makes certain of our products available to developers prior to volume availability in order to encourage the development of software titles that are optimized for our products.

Backlog

Our sales are primarily made pursuant to standard purchase orders. The quantity of products purchased by our customers as well as our shipment schedules are subject to revisions that reflect changes in both the customers’ requirements and in manufacturing availability. The semiconductor industry is characterized by short lead time orders and quick delivery schedules. In light of industry practice and experience, we believe that only a small portion of our backlog is non-cancelable and that the dollar amount associated with the non-cancelable portion is not significant. We do not believe that a backlog as of any particular date is indicative of future results.

Seasonality

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

Manufacturing

We do not directly manufacture semiconductor wafers used for our products. Instead, we utilize what is known as a fabless manufacturing strategy for all of our product-line operating segments whereby we employ world-class suppliers for all phases of the manufacturing process, including wafer fabrication, assembly, testing and packaging. This strategy uses the expertise of industry-leading suppliers that are certified by the International Organization for Standardization, or ISO, in such areas as fabrication, assembly, quality control and assurance, reliability and testing. In addition, this strategy allows us to avoid many of the significant costs and risks associated with owning and operating manufacturing operations. Our suppliers are also responsible for procurement of most of the raw materials used in the production of our products. As a result, we can focus our resources on product design, additional quality assurance, marketing and customer support.

We utilize industry-leading suppliers, such as Taiwan Semiconductor Manufacturing Corporation, or TSMC, United Microelectronics Corporation, or UMC, Chartered Semiconductor Manufacturing, or Chartered, Semiconductor Manufacturing International Corporation, or SMIC, and Austria Micro Systems, or AMS to produce our semiconductor wafers. We then utilize independent subcontractors, such as Advanced Semiconductor Engineering, or ASE, Amkor Technology, or Amkor, JSI Logistics Ltd., or JSI, King Yuan Electronics Co., Ltd, or KYEC, Siliconware Precision Industries Company Ltd., or SPIL, and STATS ChipPAC Incorporated, or ChipPAC, to perform assembly, testing and packaging of most of our products.

We typically receive semiconductor products from our subcontractors, perform incoming quality assurance and then ship the semiconductors to CEMs, distributors, motherboard and add-in board manufacturer customers from our third-party warehouse in Hong Kong. Generally, these manufacturers assemble and test the boards based on our design kit and test specifications, and then ship the products to retailers, system builders or OEMs as motherboard and add-in board solutions.

Inventory and Working Capital

Our management focuses considerable attention on managing our inventories and other working-capital-related items. We manage inventories by communicating with our customers and then using our industry experience to forecast demand on a product-by-product basis. We then place manufacturing orders for our products that are based on forecasted demand. The quantity of products actually purchased by our customers as well as shipment schedules are subject to revisions that reflect changes in both the customers’ requirements and in manufacturing availability. We generally maintain substantial inventories of our products because the semiconductor industry is characterized by short lead time orders and quick delivery schedules.

Research and Development

We believe that the continued introduction of new and enhanced products designed to deliver leading 3D graphics, HD video, audio, ultra-low power communications, storage, and secure networking performance and features is essential to our future success. Our research and development strategy is to focus on concurrently developing multiple generations of GPUs, MCPs and our consumer products that support PMPs, PDAs, cellular phones or other handheld devices using independent design teams. Our research and development efforts are performed within specialized groups consisting of software engineering, hardware engineering, very large scale integration design engineering, process engineering, architecture and algorithms. These groups act as a pipeline designed to allow the efficient simultaneous development of multiple generations of products.

A critical component of our product development effort is our partnerships with leaders in the computer aided design, or CAD, industry. We invest significant resources in the development of relationships with industry leaders, including Cadence Design Systems, Inc., and Synopsys, Inc., often assisting these companies in the product definition of their new products. We believe that forming these relationships and utilizing next-generation development tools to design, simulate and verify our products will help us remain at the forefront of the 3D graphics market and develop products that utilize leading-edge technology on a rapid basis. We believe this approach assists us in meeting the new design schedules of PC OEM and other manufacturers.

We substantially increased our engineering and technical resources in fiscal year 2008, and have 3,255 full-time employees engaged in research and development as of January 27, 2008, compared to 2,668 employees as of January 28, 2007. The majority of the research and development employees added during fiscal year 2008 are located in international locations, including India, China, Taiwan and various locations in Europe. During fiscal years 2008, 2007 and 2006, we incurred research and development expenditures of $691.6 million, $553.5 million and $357.1 million, respectively. Research and development expenses included $76.6 million, $70.1 million and $5.9 million related to non-cash stock-based compensation for fiscal years 2008, 2007 and 2006.

CEO BACKGROUND

r. Steven Chu became the Director of the Lawrence Berkeley National Laboratory, a research laboratory of the Department of Energy managed by the University of California, in August 2004. From 1987 to August 2004, Dr. Chu served as a Professor of Physics and Applied Physics at Stanford University. At Stanford, Dr. Chu served as Chair of the Physics Department from 1990 through 1993 and from 1999 through 2001. From 1983 to 1987, Dr. Chu served as the head of the Quantum Electronics Research Department at AT&T Bell Laboratories, the research division of AT&T Corp., a telecommunications company. In 1997, Dr. Chu, with two colleagues at National Institute of Standards and Technology and College de France, was awarded the Nobel Prize in physics for the development of methods to cool and trap atoms with laser light. Dr. Chu serves on the Board of Trustees of the University of Rochester and on the board of directors of The William and Flora Hewlett Foundation. Dr. Chu holds an A.B. degree in Mathematics and a B.S. degree in Physics from the University of Rochester and a Ph.D. in Physics from the University of California at Berkeley.

Harvey C. Jones is the Chairman of the board of directors of Tensilica Inc., a privately-held company he co-founded in 1997. Tensilica designs and licenses application-specific microprocessors for use in high-volume embedded systems. From December 1987 through February 1998, Mr. Jones held various positions at Synopsys, Inc., an electronic design automation software company, where he served as Chief Executive Officer through January 1994 and as Executive Chairman of the board of directors until February 1998. Prior to Synopsys, Mr. Jones served as President and Chief Executive Officer of Daisy Systems Corporation, a computer-aided engineering company that he co-founded in 1981. Mr. Jones currently serves on the board of directors of Wind River Systems, Inc., an embedded software and services provider, and several privately-held companies. Mr. Jones holds a B.S. degree in Mathematics and Computer Sciences from Georgetown University and an M.S. degree in Management from the Massachusetts Institute of Technology.

William J. Miller has served as an independent board member for several companies and has been an occasional consultant to several technology companies since October 1999. From April 1996 through October 1999, Mr. Miller was Chief Executive Officer and Chairman of the board of directors of Avid Technology, Inc., a provider of digital tools for multimedia. Mr. Miller also served as President of Avid Technology from September 1996 through October 1999. From March 1992 to October 1995, Mr. Miller served as Chief Executive Officer of Quantum Corporation, a mass storage company. He was a member of the board of directors of Quantum, and Chairman thereof, from May 1992 and September 1993, respectively, to August 1995. From 1981 to March 1992, he served in various positions at Control Data Corporation, a supplier of computer hardware, software and services, most recently as Executive Vice President and President, Information Services. Mr. Miller serves on the board of directors of Waters Corporation, a scientific instrument manufacturing company, Digimarc Corporation, a developer and supplier of secure identification products and digital watermarking technology, Overland Storage, Inc., a supplier of data storage products, and Glu Mobile, Inc., a publisher of mobile games. Mr. Miller holds B.A. and J.D. degrees from the University of Minnesota.

Tench Coxe is a managing director of the general partner of Sutter Hill Ventures, a venture capital investment firm. Prior to joining Sutter Hill Ventures in 1987, Mr. Coxe was Director of Marketing and MIS at Digital Communication Associates. Mr. Coxe also serves on the board of directors of eLoyalty Corporation, a customer loyalty software firm, and several privately-held companies. Mr. Coxe holds a B.A. degree in Economics from Dartmouth College and an M.B.A. degree from Harvard Business School.

Mark L. Perry currently serves as the President and Chief Executive Officer of Aerovance, Inc., a biopharmaceutical company. Prior to joining Aerovance in February 2007, Mr. Perry served as the senior business advisor for Gilead Sciences, Inc., a biopharmaceutical company. Mr. Perry was an executive officer of Gilead from July 1994 to April 2004, serving in a variety of capacities, including General Counsel, Chief Financial Officer and most recently, Executive Vice President of Operations, responsible for worldwide sales and marketing, legal, manufacturing and facilities. From September 1981 to June 1994, Mr. Perry was with the law firm Cooley Godward Kronish LLP in San Francisco and Palo Alto, California, serving as a partner of the firm from 1987 until 1994. Mr. Perry also serves as a member of the board of directors of Nuvelo, Inc., a biopharmaceutical company, and Aerovance. Mr. Perry holds a B.A. degree in History from the University of California, Berkeley and a J.D. degree from the University of California, Davis.

James C. Gaither is a managing director of Sutter Hill Ventures, a venture capital investment firm. He is a retired partner of the law firm of Cooley Godward Kronish LLP and was a partner of the firm from 1971 until July 2000 and senior counsel to the firm from July 2000 to 2003. Prior to beginning his law practice with the firm in 1969, Mr. Gaither served as a law clerk to The Honorable Earl Warren, Chief Justice of the United States Supreme Court, Special Assistant to the Assistant Attorney General in the United States Department of Justice and Staff Assistant to the President of the United States, Lyndon Johnson. Mr. Gaither is a former president of the Board of Trustees at Stanford University and is Vice Chairman of the Board of Directors of The William and Flora Hewlett Foundation and Chairman of the Board of Trustees of The Carnegie Endowment for International Peace. Mr. Gaither holds a B.A. in Economics from Princeton University and a J.D. degree from Stanford University Law School.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

Our Company

NVIDIA Corporation is the worldwide leader in visual computing technologies and the inventor of the graphics processing unit, or the GPU. Our products are designed to generate realistic, interactive graphics on consumer and professional computing devices. We serve the entertainment and consumer market with our GeForce products, the professional design and visualization market with our Quadro products, and the high-performance computing market with our NVIDIA Tesla products. We have four major product-line operating segments: the GPU business, the professional solutions business, or PSB, the media and communications processor, or MCP, business, and the consumer products business, or CPB.

Our GPU business is comprised primarily of our GeForce products that support desktop and notebook personal computers, or PCs, plus memory products. Our PSB is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products. Our MCP business is comprised of NVIDIA nForce core logic and motherboard GPU products. Our CPB is comprised of our GoForce and APX mobile brands and products that support handheld personal media players, or PMPs, personal digital assistants, or PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices. Original equipment manufacturers, or OEMs, original design manufacturers, or ODMs, add-in-card manufacturers, system builders and consumer electronics companies worldwide utilize NVIDIA processors as a core component of their entertainment, business and professional solutions.

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

Seasonality

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

Recent Developments, Future Objectives and Challenges

GPU Business

During fiscal year 2008, our GeForce product was the share leader in the Standalone Desktop GPU and Standalone Notebook GPU categories for calendar year 2007 as reported in the 2007 Fourth Quarter PC Graphics Report from Mercury Research. Additionally, we maintained our leadership position in both the DirectX9 and DirectX10 generation of standalone desktop GPUs.

During fiscal year 2008, we launched several new GPUs, adding the NVIDIA GeForce 8800 Ultra, 8800 GT, 8600, 8500, and 8300 to our GeForce 8-series of GPUs, which previously included the 8800 GTX and 8800 GTS. The success of these products helped us grow our share in the Standalone Desktop GPU category from 52% in the fourth quarter of calendar 2006 to 64% in the fourth quarter of calendar 2007, according to the Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports, respectively.

During fiscal year 2008, we also launched our PureVideo HD technology, which is a video decode and post processing technology for Blu-ray and HD DVD.

During the second quarter of fiscal year 2008, we launched a new family of GeForce 8M Series notebook GPUs. We also supported the production ramp of top notebook PC OEMs, including Acer, Apple, ASUS, Dell, HP, Lenovo, Samsung, Sony and Toshiba. We experienced a high degree of design-win success for the Intel Santa Rosa platform cycle during fiscal year 2008, which helped our standalone notebook category share grow from 58% in the fourth quarter of calendar 2006 to 75% in the fourth quarter of calendar 2007, according to the Mercury Research 2006 and 2007 Fourth Quarter PC Graphics Reports.


Subsequent to the end of fiscal year 2008, on February 11, 2008, we completed our acquisition of Aegia Technologies, Inc., or Aegia, an industry leader in gaming physics technology. Ageia's PhysX software is widely adopted in several PhysX-based games that are shipping or in development on Sony Playstation 3, Microsoft XBOX 360, Nintendo Wii, and gaming PCs. We believe that the combination of the GPU and physics engine brands will result in an enhanced visual experience of the gaming world.

Professional Solutions Business

During fiscal year 2008, we launched seven new Quadro solutions, including the Quadro FX 370 and 570. In the first quarter of fiscal year 2008, we expanded our NVIDIA Quadro Plex family with the introduction of the NVIDIA Quadro Plex VCS IV, a new version of the NVIDIA Quadro Plex visual computing system, or VCS, which provides enhanced performance for a wide range of high-performance, graphics-intensive styling and design, oil and gas, and scientific applications. Additionally, in the first quarter of fiscal year 2008, we launched the NVIDIA Quadro FX 4600 and NVIDIA Quadro FX 5600 products, which are professional solutions based on our GeForce 8-series unified architecture. During the second quarter of fiscal year 2008, we also introduced a new line of notebook workstation GPUs, the NVIDIA Quadro FX 1600M, 570M and 360M.

In fiscal year 2008, we also introduced NVIDIA Tesla, our entry into the high-performance computing industry. Tesla is a new family of GPU computing products that delivers processing capabilities for high-performance computing applications. The Tesla family consists of the C870 GPU computing processor, the D870 Deskside Supercomputer and the S870 1U Computing Server.

In fiscal year 2008, we completed our acquisition of Mental Images, an industry leader in photorealistic rendering technology. Mental Images’ Mental Ray product is considered by many to be the most pervasive ray tracing renderer in the industry. Mental Images visualization technology is embedded in most major digital content creation, or DCC, and computer aided design, or CAD, applications, and its rendering technology is deployed by major manufacturers and film studios. We believe that this strategic combination will enable the development of tools and technologies that will advance the state of visualization, will be optimized for next generation computing architectures, and will create new product categories for both hardware and software.

MCP Business

In fiscal year 2008, we announced a new technology named Hybrid SLI. We named it hybrid because this technology combines a powerful as well as an energy-efficient engine, and of Scalable Link Interface, or SLI, because it is our multi-GPU technology. The technology is application aware so, depending on the processing demands of each application running on the host PC, the discrete GPU may be completely shut-down in order to save power.

During fiscal year 2008, our NVIDIA nForce products held the leadership position for the AMD segment, as reported in the 2007 Fourth Quarter PC Processor and Chipsets Report from Mercury Research.

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

During the first quarter of fiscal year 2008, we shipped the GeForce 7050 mGPU, which targets the lower cost categories of the market.

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

Consumer Products Business

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

Subsequent to fiscal year 2008, in February 2008, we launched the NVIDIA APX 2500. The APX 2500 is a computer-on-a-chip designed to meet the growing multimedia demands of today's mobile phone user. The APX 2500 is the culmination of several hundred man years of research and development. We believe that the mobile application processor is an area where we can add a significant amount of value and we also believe it represents a revenue growth opportunity.

Gross Margin Improvement

We continued to focus on improving our gross margin in fiscal year 2008. Our gross margin was 45.6% for fiscal year 2008, an increase of 320 basis points from our gross margin of 42.4% for fiscal year 2007.

Our gross margin is significantly impacted by the mix of products that we earn revenue from during each of our fiscal periods. Product mix is often difficult to estimate with accuracy. Therefore, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted. We expect gross margin will be relatively flat to slightly up during the first quarter of fiscal year 2009 as compared to the fourth quarter of fiscal year 2008.

Subsequent Event

Property Purchase

On February 14, 2008, we closed escrow on a purchase of property that includes approximately 25 acres of land and ten commercial buildings in Santa Clara, California for approximately $150.0 million.

Fiscal Year 2008 vs. Fiscal Year 2007

Revenue was $ 4.10 b illion for fiscal year 2008, compared to $ 3.07 billion for fiscal year 2007, which represents an increase of 34 %. For the first quarter of fiscal 2009, we expect a slight seasonal decline associated with the PC business, although overall, we believe our market and competitive position continues to be strong. A discussion of our revenue results for each of our operating segments is as follows:

GPU Business . GPU Business revenue increased by 47% to $2.52 billion in fiscal year 2008, compared to $1.71 billion in fiscal year 2007. This improvement was primarily due to increased sales of our desktop GPU products and notebook GPU products. Sales of our desktop GPU products increased by approximately 38% compared to fiscal year 2007, primarily due to growth of the Standalone Desktop market as reported in the 2007 Fourth Quarter PC Graphics Report from Mercury Research. Our leadership position in the Standalone Desktop market was driven by our GeForce 8-based products. Sales of our notebook GPU products increased by approximately 114% compared to fiscal year 2007. Notebook GPU revenue growth was primarily due to share gains in the Standalone Notebook category as reported in the 2007 Fourth Quarter PC Graphics Report from Mercury Research. Our share gains in the Standalone Notebook category were primarily a result of shipments of products used in notebook PC design wins related to Intel’s Santa Rosa platform used in notebooks.

PSB . PSB revenue increased by 29% to $588.4 million in fiscal year 2008, compared to $454.7 million in fiscal year 2007. Our professional workstation product sales increased due to an overall increase in shipments of boards and chips. This increase in shipments was primarily driven by our transition from previous generations of NVIDIA Quadro professional workstation products to GeForce 8-based products.

MCP Business . MCP Business revenue increased by 7% to $710.4 million in fiscal year 2008, compared to $661.5 million in fiscal year 2007. The increase resulted from an approximate 225% increase in sales of our Intel-based platform products as compared to fiscal year 2007. We began ramping up shipments of our Intel-based platform products after the third quarter of fiscal year 2007. This increase was offset by a decline in sales of our AMD-based platform products and sales of products related to our acquisition of ULi Electronics, Inc. in February 2006.

CPB. CPB revenue increased by 8% to $251.1 million in fiscal year 2008, compared to $233.2 million in fiscal year 2007. The overall increase in CPB revenue is primarily due to increased royalties from Sony Computer Entertainment, or SCE, but was offset by decreases in revenue from our cell phone products and our contractual development arrangements with SCE.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

First Quarter of Fiscal Years 2009 and 2008

Revenue

Revenue was $1.15 billion for the first quarter of fiscal year 2009, compared to $844.3 million for the first quarter of fiscal year 2008, which represents an increase of 37%. For the second quarter of fiscal 2009, we expect a seasonal decline associated with the PC business, although overall, we believe our market and competitive positions continue to be strong. A discussion of our revenue results for each of our operating segments is as follows:

GPU Business . GPU Business revenue increased by 45% to $701.5 million in the first quarter of fiscal year 2009, compared to $483.5 million for the first quarter of fiscal year 2008. This improvement was primarily due to increased sales of our desktop GPU products and notebook GPU products. Sales of our desktop GPU products increased by approximately 44% compared to the first quarter of fiscal year 2008, primarily due to growth of the Standalone Desktop market as reported in the 2008 PC Graphics Report from Mercury Research. Our leadership position in the Standalone Desktop market was driven by our GeForce 8-based products and our new generation of GeForce 9-based products. Sales of our notebook GPU products increased by approximately 99% compared to the first quarter of fiscal year 2008. Notebook GPU revenue growth was primarily due to share gains in the Standalone Notebook category as reported in the 2008 PC Graphics Report from Mercury Research. Our share gains in the Standalone Notebook category were primarily a result of shipments of products used in notebook PC design wins related to Intel’s Santa Rosa platform.

PSB . PSB revenue increased by 44% to $203.4 million in the first quarter of fiscal year 2009, compared to $140.9 million for the first quarter of fiscal year 2008. Our professional workstation product sales increased due to an overall increase in shipments of boards and chips. This increase in shipments was primarily driven by strong shipments of NVIDIA Quadro professional workstation GeForce 8-based products.

MCP Business . MCP Business revenue increased by 31% to $195.1 million in the first quarter of fiscal year 2009, compared to $148.8 million for the first quarter of fiscal year 2008. The increase resulted from an increase in sales of both our Intel-based and AMD-based platform products as compared to the first quarter of fiscal year 2008.

CPB. CPB revenue decreased by 37% to $42.5 million in the first quarter of fiscal year 2009, compared to $67.2 million for the first quarter of fiscal year 2008. The overall decrease in CPB revenue is primarily driven by a combination of decreases in revenue from our cell phone products, our contractual development arrangements with Sony Computer Entertainment, or SCE, and a drop in royalties from SCE as they transition the PlayStation3 to a new process node.

Concentration of Revenue

Revenue from sales to customers outside of the United States and other Americas accounted for 92% and 83% of total revenue for the first quarter of fiscal years 2009 and 2008, respectively. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the foreign contract equipment manufacturers, or CEMs’, add-in board and motherboard manufacturers’ revenue is attributable to end customers in a different location.

Sales to our significant customers accounted for approximately 11% of our total revenue from one customer during the first quarter of fiscal year 2009. In the first quarter of fiscal year 2008, there were no sales to any customer in excess of 10% of our total revenue.

Gross Profit

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

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Our gross margin was 44.6% and 45.0% for the first quarter of fiscal year 2009 and 2008, respectively. The decline primarily reflects product transition challenges in our GPU business.

Our gross margin is significantly impacted by the mix of products we sell. Product mix is often difficult to estimate with accuracy. Therefore, if we experience product transition challenges, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted. We expect gross margin to increase during the second quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2009. A discussion of our gross margin results for each of our operating segments is as follows:

GPU Business . The gross margin of our GPU Business decreased for the first quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2008. This decrease was primarily due to product transition challenges associated with the transition from our previous generation of GeForce 8-series GPUs to ramp-up shipments of our new generation of GeForce 9-series GPUs.

PSB . The gross margin of our PSB increased for the first quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2008. This increase was primarily due to increased sales of our GeForce 8-based NVIDIA Quadro products, which began selling in the fourth quarter of fiscal year 2007 and generally have higher gross margins than our previous generations of NVIDIA Quadro products.

MCP Business . The gross margin of our MCP Business decreased for the first quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2008. This decrease was primarily due to a shift in product mix toward increased shipments of lower margin Intel-based and AMD-based platform products.

CPB . The gross margin of our CPB decreased for the first quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2008. This decrease was due to a combination of declines including a decrease in gross profit realized from sales of our products for high-end feature cellular phones and other handheld devices as well as a drop in royalties from SCE as they transition the PlayStation3 to a new process node.

Operating Expenses

Research and Development

Research and development expenses were $218.8 million and $158.3 million during the first quarters of fiscal years 2009 and 2008, respectively, an increase of $60.5 million, or 38%. The increase is primarily related to an increase in salaries and benefits, and stock-based compensation by approximately $29.1 million as a result of personnel growth in departments related to research and development functions by approximately 1,000 additional personnel due to new hires and our acquisitions of Mental Images and Ageia, as compared to the first quarter of fiscal year 2008. Development expenses increased by $8.1 million primarily as a result of increased in prototype materials and engineering consumption due to higher volume of activity related to the product ramps in the current year. Other increases in research and development expenses are related to increased expenses related to facilities, depreciation and amortization and computer software and equipment as a result of the personnel growth.

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

Sales, General and Administrative

Sales, general and administrative expenses were $93.1 million and $80.6 million during the first quarters of fiscal years 2009 and 2008, respectively, an increase of $12.5 million, or 16%. Labor related and employee expenses and stock-based compensation increased by approximately $7.1 million as a result of personnel growth. Outside professional fees increased by $4.4 million primarily due to an increase in legal expenses incurred pertaining to the Department of Justice investigation and other litigation. Marketing expenses increased by $3.1 million, primarily due to expenses related to a worldwide sales conference and other marketing related activities.

We expect operating expenses to remain flat or increase slightly in the second quarter of fiscal year 2009 compared to the first quarter of fiscal year 2009.

Interest Income

Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income increased to $14.3 million in first quarter of fiscal year 2009, from $13.2 million in first quarter of fiscal year 2008, primarily due to the result of higher average balances of cash, cash equivalents and marketable securities even though the interest rates in the first quarter of fiscal year 2009 were significantly lower when compared to the first quarter of fiscal year 2008.

Other Expense, net

Other expense, net increased by $3.6 million from $0.7 million in first quarter of fiscal year 2008 to $4.3 million in first quarter of fiscal year 2009. The increased expense is primarily due to the impact of the continuing weakness of the U.S. Dollar on our foreign currency denominated liabilities, which resulted in foreign exchange losses in the quarter.

Income Taxes

We recognized income tax expense of $36.2 million and $21.5 million in the first quarters of fiscal years 2009 and 2008, respectively. Income tax expense as a percentage of income before taxes, or our annual effective tax rate, was 17% and 14% in the first quarters of fiscal years 2009 and 2008, respectively.

Our effective tax rate is lower than the U.S. federal statutory tax rate of 35% primarily on account of foreign earnings being taxed in foreign jurisdictions at rates below the U.S. statutory tax rate. The increase in our effective tax rate to 17% as of April 27, 2008 from 14% at April 29, 2007 was primarily due to the expiration of the federal research tax credit.

Please refer to Note 3 of the Notes to Condensed Consolidated Financial Statements for further information regarding the components of our income tax expense.

As of April 27, 2008, we had $1.62 billion in cash, cash equivalents and marketable securities, a decrease of $187.8 million from $1.81 billion at the end of fiscal year 2008. Our portfolio of cash equivalents and marketable securities is managed by several financial institutions. Our investment policy requires the purchase of top-tier investment grade securities, the diversification of asset type and includes certain limits on our portfolio duration.

Operating activities

Operating activities generated cash of $145.2 million and $295.2 million during the first quarters of fiscal years 2009 and 2008, respectively. While our net income plus the impact of non-cash charges to earnings and deferred income taxes increased during the comparable periods, the changes in operating assets and liabilities resulted in a net decrease in cash flow from operations. The changes in operating assets and liabilities, resulted from the timing of payments to vendors and an increase in inventories. Additionally, we made payments of $5.0 million and $11.3 million during the first quarters of fiscal years 2009 and 2008, respectively, towards a confidential patent licensing arrangement that we entered into during fiscal year 2007.

Investing activities

Investing activities have consisted primarily of purchases and sales of marketable securities, acquisitions of businesses and purchases of property and equipment, which include the purchase of property, leasehold improvements for our facilities and intangible assets. Investing activities provided cash of $24.5 million and used cash of $79.8 million during the first quarters of fiscal years 2009 and 2008, respectively. Investing activities for the first quarter of fiscal year 2009 used cash of approximately $150.0 million for a property that includes approximately 25 acres of land and ten commercial buildings in Santa Clara, California, to facilitate the growth of our business. Capital expenditures also included new research and development equipment, testing equipment to support our increased production requirements, technology licenses, software, intangible assets and leasehold improvements at our headquarters and international offices. Additionally, we acquired Ageia during the first quarter of fiscal year 2009. The cash inflow from maturities of marketable securities provided cash of $545.8 million which offset the expenditures described above to provide a positive cash flow from investing activity.

We expect to spend approximately $150 million to $200 million for capital expenditures during the remainder of fiscal year 2009, primarily for property development, leasehold improvements, software licenses, emulation equipment, computers and engineering workstations. In addition, we may continue to use cash in connection with the acquisition of new businesses or assets.

Financing activities

Financing activities used cash of $93.4 million and $80.9 million during the first quarters of fiscal years 2009 and 2008, respectively. Net cash used by financing activities in the first quarter of fiscal year 2009 was primarily due to $123.9 million paid towards our stock repurchase program, offset by cash proceeds of $30.5 million from common stock issued under our employee stock plans.

CONF CALL

Michael Hara

Thank you, Operator. Good afternoon and welcome to NVIDIA's conference call for the first fiscal quarter ended April 27, 2008. On the call today for NVIDIA are Jen-Hsun Huang, NVIDIA's President and Chief Executive Officer; and Marv Burkett, NVIDIA's Chief Financial Officer.

Before we begin today’s call, I would like to take care of some general administrative items. Your lines have been placed on a listen-only mode until the question-and-answer segment of today’s call.

During this call, we will discuss some non-GAAP financial measures about net income, diluted net income per share, and gross margin when talking about our results. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our financial release, which is posted on the investor relations page of our website at www.nvidia.com.

Unless otherwise noted, all references to market research and market share numbers throughout the call come from Mercury Research or John Petty Research.

This call is being recorded. If you have any objections, you may disconnect at this time.

Please be aware that if you decide to ask a question, it will be included in both our live transmission as well as any future use of the recording. Also, shareholders can listen to a live webcast of today’s call via the investor relations page of our website. The webcast will be available for replay until the company’s conference call to discuss its financial results for its second quarter fiscal 2009.

During the course of this conference call, we may make forward-looking statements based on current expectations. These forward-looking statements are subject to a number of significant risks and uncertainties, including statements as to the importance of and uses for the GPU and CUDA, our financial outlook and projections, the impact, performance and availability of and demand for our products and technologies, the impact of PTL, our growth and strategies, and the future of computing. The company’s actual results may differ materially from results discussed in any forward-looking statements.

For a complete discussion of factors that could affect the company’s future financial results and business, please refer to the company’s Form 10-K for the period ended January 27, 2008, and the reports on Form 8-K filed with the Securities and Exchange Commission.

All forward-looking statements are made as of the date hereof based on information available to us today and, except as required by law, the company assumes no obligation to update any such statements. The content of the webcast contains time-sensitive information that is accurate only as of May 8, 2008.

Consistent with the requirements under Regulation FD, we will be providing public guidance directly in the conference call and will be unable to provide significantly more information in offline conversations or during the quarter. Therefore, questions around our financial expectations should be asked during this call.

At the end of our remarks, there will be time for your questions. In order to allow more people to ask questions, please limit yourself to one question. After our response, we will allow one follow-up question.

I will now hand the call over to Jen-Hsun.

Jen-Hsun Huang

Thanks, Mike. Good afternoon and thank you for joining us. Today we reported revenue of $1.15 billion for our first quarter. Compared to last year, revenue grew 37% and GAAP net income increased 34%. Year over year, our GPU revenue grew 55%, MCP revenue grew 31%, PSB revenue grew 44%.

Our overall GPU units grew 42% while ASPs grew 10% year over year, a trend reflecting the growing importance of the GPU.

We gained share in virtually every graphics category year over year -- desktop GPU, notebook GPU, and notebook integrated graphics. For the performance segment, which is a reflection of technology leadership, we estimated our segment share is 90%.

Overall our graphics market share grew from 30% to 33% year over year. However, if we accounted for double attach, which happens when a PC has both integrated graphics and GPU, our market share is approximately 42%. Double attach happens because integrated graphics chipsets are often the same price as discrete chipsets. The market buys an integrated graphics motherboard but then turns it off when a GPU is added.

Our first quarter reflects the growing importance of GPUs as our computing experience becomes increasingly visually rich. Let me turn the call over to Marv to discuss our financial results. I will return in a moment to talk about how we will continue to lead the visual computing revolution and shape the computer industry.

Marvin D. Burkett

Thanks, Jen-Hsun. Today we’ll be discussing both GAAP and non-GAAP results for the first quarter of fiscal year 2009. The difference between GAAP and non-GAAP is stock-based compensation and its tax effect.

As Jen-Hsun stated, revenue for the first quarter was $1.15 billion, which is up 37% year to year and down 4% quarter to quarter. Our revenue was in line with our expectations.

For the first quarter, GPU revenue, which includes desktop, notebook, and memory, grew 45% year to year but declined by 8% from the fourth quarter. The components of GPU had significant growth year to year. Desktop GPUs grew 44% year to year. Notebook grew 99% and memory declined 36%.

Quarter to quarter, both desktop and notebook declined by about 8% and memory was down 22%.

MCP grew 31% year to year and declined 4% quarter to quarter. The star for the first quarter was the professional solutions business, which includes workstation products. It grew 44% year to year and 21% quarter to quarter. The consumer business declined by 24% quarter to quarter and 37% year to year.

All in all, most of the revenue was in line with our expectations at the beginning of the quarter. ASPs held relatively flat quarter to quarter.

Gross margin was disappointing. We didn’t manage our product transitions as well as we would have liked and this resulted in a decline in gross margin to 44.6%. We can do better. The issues in gross margin were focused primarily on product transition issues in the GPU business. Therefore, margin for the GPU business segment declined by almost two full percentage points quarter to quarter. Again, it was not an ASP issues, as ASPs held relatively flat. We had hoped and expected to make progress in improving the yields for the new products. This did not happen.

Margin in the professional solutions business remained very good. Margin in MCP were down because of the movement to the integrated chipsets, but that was expected.

GAAP operating expenses were $312 million, which is up 8.6% quarter to quarter and in line with our expectations. Most of the increase was in R&D as we absorbed several acquisitions that we made recently. Headcount grew by 373 during the quarter and our ending headcount was 5,358. Year to year the headcount is up by 1,284.

Depreciation in the quarter was $41.4 million, up by around $4.5 million from the previous quarter. Capital expenditures were $202.2 million, which included a purchase of property in Santa Clara for approximately $150 million. Cash flow from operations was $143 million for the quarter.

Stock-based compensation was $42 million for the quarter, up from $34 million in Q4, as we had stock options issued for the new hires and the semi-annual grants, and the volatility portion of the binomial calculation has increased based on what is happening in the stock market.

Other income dropped by $7 million quarter to quarter. This was a combination of several factors. The impact of the continuing weakness of the dollar on our foreign currency denominated liabilities resulted in foreign exchange losses of approximately $4 million in the quarter. Also, the lower cash balance and the lower interest rates drove down the interest income.

As we expected, the tax rate was 17% for the quarter. The lack of a renewal of the R&D tax credit will cause our tax rate to remain at this level until the renewal is passed. When it is passed, we would expect the tax rate to drop to the 13% to 14% level.

The end result was that GAAP EPS was $0.30 per share and non-GAAP was $0.36 per share.

On the balance sheet, ending cash was $1.62 billion. We completed three acquisitions for cash during the quarter, as well as paying the $150 million for the property and $124 million for stock repurchases. None of our marketable securities required any valuation adjustments.

Our accounts receivable ended at $652 million, down $15 million from the prior quarter and DSO was 51 days, up from 50 days in the fourth quarter. There are no issues of delinquent receivables.

Inventories were $420 million, up $62 million from Q4, as we built inventory of new products, both announced and unannounced. The older inventory declined as we had expected. The result is that day sales in inventory ended the quarter at 60 days, which is more than the last two quarters DSI of less than 50 days. These inventory levels are in line with our DSI targets.

Net property plant and equipment increased by $162 million, which included $150 million for the purchase, for the property purchase that I mentioned earlier.

Both accounts payable and accrued liabilities decreased for the quarter and the total decrease was $91 million.

On the outlook, Q2’s revenue was historically the most difficult to forecast. In the past, we’ve been surprised both favorably, as in last year, and unfavorably, as in five years ago. Having said that, we have no reason to believe that Q2 will be anything other than seasonal. Seasonal to us means a decline of 5% plus or minus.

As I stated previously, we were disappointed in our gross margin for Q1 and we intend to correct some of the issues. Therefore, I would expect the gross margin will increase and while the exact magnitude may be difficult to predict, something in the 100 basis point range is not unreasonable.

Operating expenses stepped up in Q1 as a consequence of the acquisitions, new hires, and other reasons. As I’ve said before, we intend to moderate any increases going forward. Therefore, operating expenses for Q2 should be flat to very slightly up. We will still be hiring but the rate will moderate and other expenses will decrease. The results should be flat to slightly up.

Other income should recover in Q2 unless the dollar continues to weaken. If it is stable, other income will be up in Q2. The tax rate should stay at 17% until the R&D tax credit is renewed. I don’t expect that to happen in Q2.

With that, I will turn it back over to Jen-Hsun.

Jen-Hsun Huang

Thanks, Marv. The transition from G80 to G92 was challenging and dragged our margins. Every few generations, because of how our new products are aligned with process nodes, a new GPU is both faster and cheaper. As a result, it is difficult to move the stack down to layer the new GPU on top of the stack. This was the case in the G80 to G92 transition. G92 was both lower cost and higher performance than G80, so therefore repositioning G80 while ramping G92 aggressively forced us to sell out G80s at lower margins.

Going forward, although we still have some G80 inventory to work through, we believe we are in an excellent competitive position. We are also launching new exciting products in Q2 and the move across the board to 55-nanometer is expected to help margins.

At our analyst day in April, I outlined NVIDIA's basic strategies -- one, focus on visual computing and be the unambiguous world leader; two, continue to create GPU software or system architecture innovations that deliver the wonderful user experiences that we are famous for; and three, make the GPU evermore programmable and more useful for general purpose computing.

Our strategy is driving growth in several ways. Our innovations are growing TAM and driving share in the visual computing centric markets like gaming PCs and workstations. We are also seeing increasing ASPs as more of the total system spend is shifting to the GPU. We are seeing this trend all over the world. We call this the optimized PC design movement, where OEMs are rebalancing the system spend to optimize performance for applications that are increasingly visual.

As GPUs become more programmable and general purpose and are now used to enhance photo and video processing, we are starting to see growth from broad adoption of GPUs in mainstream consumer PCs. Consumers now use their PCs to create and enjoy their home movies and photos. They use their PCs to watch high-definition movies, gather with friends and hang out in an online virtual world, or enjoy some crazy videos on YouTube.

And as the home base of your iPod, many are using the PC to convert movies into a format that can be played on their iPods. This is called transcoding.

We call this new generation of consumer PCs lifestyle PCs. This segment of the PC market is one of the fastest growing, as we can see by the success of Apple and Adobe. This new PC segment is a growth segment for GPUs. The GPU’s ability to manipulate images, video, and graphics dramatically enhances the computing experience and as we recently demonstrated at our analyst day, the GPU can speed up transcoding, one of the most processor intensive applications, by nearly 20 times.

The marketplace is clearly bifurcating into generic PCs and those that are built for specific needs of the users. PC manufacturers worldwide are no longer designing PCs based simply on the speeds and feeds, but with the total user experience in mind.

As for large segments of the marketplace like CAD workstations, gaming PCs, video editing, video/photo editing workstations for creative professionals, media centers, and now lifestyle PCs, the visual experience is front and center and cannot be compromised.

Globally we see the movement towards usage optimized PC design taking hold and increasing momentum. Here are some quotes from the press around the world: here in the United States, Popular Science: “but in some cases the GPU makes a big difference. 3D video games are a given but intensive graphics are creeping into many other applications.”

Computer Resellers News in India: “Are graphics chips the better CPUs? More and more experts support this thesis. Many system builders supposedly recognize the trend already and would assembly PCs with better GPUs because the CPU is losing its importance while the meaning of the GPU is increasing continuously.”

[Vlasadenta], Poland: “When creating optimal PC set, it is totally pointless to equip your computer with an expensive CPU and add integrated or slow graphics solutions. You should do the other way around -- install expensive dual-core CPU -- inexpensive dual-core CPU and support it with more expensive GPU.”

[Lorjenitor Individual] -- my daughter should be happy about me speaking French -- France: “It is true that since the PC has existed, only the processors seemed to be important, to the point of often giving its name to the computer. But we are now in the era of the visual PC. All applications starting with Windows Vista and the Arrow interface exploit an intensive widening of graphics capabilities to the machines no longer using the CPU but the GPU.”

The growth of GPUs reflect these market dynamics as the new conventional wisdom. As I mentioned earlier, our desktop and notebook GPU units grew 42% year over year and our GPU ASPs increased 10% from a year ago.

In additional to visual computing driving our GPU growth, we have a new growth driver with the invention of CUDA. It is important to understand that CUDA is not in just any GPU. CUDA is a C programmable general purpose computing mode available only in our GPUs, from GeForce 8 and beyond.

In the CUDA mode, our GPUs transform and reconfigure its shader processors into a many core parallel computing processor. For example the GeForce 9800GT has 128 processor cores. CUDA enables a new parallel computing model that the industry calls heterogeneous multi-core computing, where the vastly different architectures of the CPU and GPU are used in a collaborative way to achieve huge speed-ups in computing. CUDA has raised the attention of programmers and researchers all over the world. Since its launch, over 60,000 downloads of the compiler, over 10,000 per month, have been downloaded by software developers, scientists, students, game developers and researchers around the world that have started programming with CUDA.

We recently released a beta version of CUDA 2.0 and for the Mac. We are constantly seeing reports of astounding application speed-ups. We are routinely seeing 20 to 200 times speed-up over multi-core CPU alone. Chevron has shown excellent performance using GPUs for computing in oil and gas exploration. Jack Collins, from the National Cancer Instituted, recently reported excellent results on AutoDock, a key application in cancer drug discovery.

[Gouda] and [Navcentric] announced EDA tools using GPU for computing optical proximity correction, or OPC, and [inaudible] for design.

CEA, the French Atomic Energy Authority, and Bull released news of a design win in super computing using NVIDIA GPUs.

Last week, we announced our sponsorship of Stanford University's new Pervasive Parallelism Lab, PPL. The PPL will develop new techniques, tools, and training materials to allow software engineers to harness the parallelism of the heterogeneous multi-core computing. Stanford now joins the growing list of prestigious research programs, including the universal parallel computing research center, UPCRC, both at Berkeley and the University of Illinois Urbana-Champaign, each designed to accelerate developments in mainstream parallel computing.

We see computer scientists all over the world jumping into heterogeneous multi-core computing research.

As the world’s leading supplier of GPUs, we are in truly exciting times. The new sensibility of OEMs optimizing PCs for visually rich applications is driving GPU adoption and spend. And with CUDA, we have transformed our GPU into a general purpose parallel processor at precisely the time when the CPU performance improvement is slowing and the industry is moving full-force to parallel computing.

We believe the GPU will be the most important process of this new era and will be a major driving force of visual computing and parallel computing revolution.

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