·	~~continuing to develop our technology;~~

·	~~hiring additional personnel;~~

·	~~expanding our sales and marketing organization and activities;~~

·	~~acquiring complementary technologies, assets or businesses; and~~

·	~~capital expenditures.~~

~~3dfx Asset Purchase~~

The 3dfx asset purchase closed on April 18, 2001. 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. The Asset Purchase Agreement also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx two million shares of NVIDIA common stock. If 3dfx could not make such a certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under the agreement to pay any additional consideration for the assets. We are currently party to litigation relating to certain aspects of the asset purchase and 3dfx’s subsequent bankruptcy in October 2002. Please see Part I, Item 1, Note 11, “Litigation” for further information regarding this litigation.

Contractual Obligations

As of May 1, 2005, our outstanding inventory purchase obligations decreased to approximately $366 million from approximately $457 million as of January 30, 2005, primarily due to a decrease in purchase orders from the ramping of our GeForce 6 series of GPUs in the fourth quarter of fiscal 2005. There were no ~~other~~ material changes in our contractual obligations from those disclosed in our ~~Annual Report on~~ Form ~~10-K for the year ended January 30, 2005.~~10-K. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our ~~Annual Report on~~ Form 10-K ~~for the year ended January 30, 2005~~ for a description of our contractual obligations.

~~Recent Accounting Pronouncements~~

~~In December 2004, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R),~~~~Share-Based Payment~~, which requires the measurement and recognition of compensation expense for all stock-based compensation payments. In April 2005, the SEC delayed the effective date of SFAS No. 123(R), which is now effective for annual periods that begin after June 15, 2005. SFAS No. 123(R) allows for either prospective recognition of compensation expense or retrospective recognition. We are currently evaluating which expense recognition method we will apply upon adoption of SFAS No. 123(R). We will implement the provisions of SFAS No. 123(R) beginning in fiscal 2007. Once adopted, the standard will have an adverse impact on our operating results and financial condition.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We invest in a variety of financial instruments, consisting principally of investments in commercial paper, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. These investments are denominated in ~~U.S.~~United States dollars. As of April 30, 2006, we had $955.1 million in cash, cash equivalents and marketable securities.

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

Exchange Rate Risk

We consider our direct exposure to foreign exchange rate fluctuations to be minimal. Currently, sales and arrangements with third-party manufacturers provide for pricing and payment in United States dollars, and, therefore, are not subject to exchange rate fluctuations. Increases in the value of the ~~Unites~~United States’ dollar relative to other currencies would make our products more expensive, which ~~would~~could negatively impact our ability to compete. Conversely, decreases in the value of the United States’ dollar relative to other currencies could result in our suppliers raising their prices in order to continue doing business with us. 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.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Based on their evaluation as of April 30, 2006, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) were effective to ensure that the material information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.

Changes in Internal Control Over Financial Reporting

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

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within NVIDIA have been detected.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please see Part I, Item 1, Note 13, “Litigation” for discussion of our legal proceedings.

ITEM 1A. RISK FACTORS

An updated description of the risk factors associated with our business is set forth below. This description includes any material changes to and supersedes the description of risk factors associated with our business previously disclosed in Part I, Item 1A. “Risk Factors” of our Form 10-K.

Business Risks

In evaluating NVIDIA and our business, the following factors should be considered in addition to the other information in this Quarterly Report on Form 10-Q, or Form 10-Q. Any one of the following risks ~~discussed in “Management's Discussion and Analysis of Financial Condition and Results of Operations,”~~could seriously harm our business, ~~is subject~~financial condition and results of operations, which could cause our stock price to ~~the~~decline. Additional risks ~~set forth below.~~and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Operations

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

We continue to pursue measures in an effort to improve our gross margin. Our gross margin for any period depends on a number of factors, such as: the mix of our products sold; average selling prices; introduction of new products; sales discounts; unexpected pricing actions by our competitors; the cost of product components; and the yield of wafers produced by the foundries that manufacture our products. If we incorrectly forecast the impact of any of the aforementioned factors on our business, we may be unable to take action in time to counteract any negative impact on our gross margin. In addition, if we are unable to meet our gross margin target for any period or the target set by analysts, the trading price of our common stock may decline.

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

~~Inventory~~Our inventory purchases are based upon future demand forecasts, which may not accurately predict the quantity or type of our products that our customers will want in the future. In forecasting demand, we must make multiple assumptions any of which may prove to be incorrect. ~~If there were a sudden and significant decrease~~Situations that may result in ~~demand for our products,~~excess or ~~if there were a higher incidence of~~obsolete inventory, obsolescence because of rapidly changing technology and customer requirements, we could be required to write-down our inventory and our gross margin could be adversely affected. Additionally, if we fail to estimate customer demand properly before a new product is introduced, we may end up with excess inventory levels of older products, which could result in write-downs of the value of our inventory and/or a forced reduction in average selling prices, and where our gross margin could be adversely affected. If our competition were to take unexpected competitive pricing actions we could be forced to reduce average selling prices of our products or to write-down our inventory and our gross margin could be adversely affected. affected include:

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

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

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

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

Conversely, if we underestimate our customers’ demand for either our older or newer products, we may have inadequate manufacturing capability and may not be able to obtain sufficient inventory to fill our customers’ orders on a timely ~~basis.~~basis, which could adversely affect our revenue results. Even if we are able to increase production levels to meet customer demand, we may not be able to do so in a cost effective or timely manner. Inability to fill our customers' orders on a timely basis could damage our customer relationships, result in lost revenue, cause a loss in market share or damage our reputation.

WeBecause we order materials in advance of anticipated customer ~~demand. Therefore, we have limited~~demand our ability to reduce our inventory purchase commitments quickly in response to any revenue ~~shortfalls.~~shortfalls is limited.

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 gross margin and restrict our ability to fund operations. We may build inventories during periods of anticipated ~~growth and in connection with selling workstation boards directly to major original equipment manufacturers, or OEMs.~~growth. Additionally, because we ~~typically~~often sell a substantial portion of our products in the last month of each quarter and, therefore, we recognize a substantial portion of our revenue in the last month of each quarter, we may not be able to reduce our inventory purchase commitments in a timely manner in response to any revenue shortfalls. We could be subject to excess or obsolete inventories and be required to take corresponding inventory write-downs if growth slows or if we incorrectly forecast product ~~demand. A reduction in~~ demand, which could negatively impact our gross margin and financial results. For example, our WMP business has been heavily concentrated at one OEM. During the first quarter of fiscal 2006, the OEM reduced the demand for our products. As a result, we wrote-down the value of certain handheld products in our inventory that we believe exceeded the demand of that OEM, which negatively impacted our gross margin.

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

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

Failure to achieve expected manufacturing yields for existing and/or new products ~~would~~could reduce our gross ~~margin.~~margin and could adversely affect our ability to compete effectively.

Semiconductor manufacturing yields are a function both of product design, which is developed largely by us, and process technology, which typically is proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. As a result, yield problems may not be identified until well into the production process. Resolution of yield problems ~~would require~~requires cooperation by and communication between us and the manufacturer.

Because of our potentially limited access to wafer fabrication capacity from our manufacturers, any decrease in manufacturing yields could result in an increase in our per unit costs and force us to allocate our available product supply among our customers. This could potentially harm customer relationships, our reputation, our revenue and our gross profit. Our wafer manufacturers may be unable to achieve or maintain acceptable manufacturing yields in the future. Our inability to achieve planned yields from our wafer manufacturers could ~~harm~~reduce our ~~business.~~gross margin. We also face the risk of product recalls or product returns resulting from design or manufacturing defects that are not discovered during the manufacturing and testing process. A significant number of product returns due to a defect or recall could damage our reputation and result in our customers working with our competitors.

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

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 efforts, our operating expenses would increase. We have substantially increased our engineering and technical resources and have ~~1,288~~1,997 full-time employees engaged in research and development as of ~~May 1, 2005,~~April 30, 2006, compared to ~~1,231~~1,654 employees as of January ~~30, 2005. During~~29, 2006. Research and development expenditures were $122.4 million and $85.9 million for the first quarter of fiscal 2007 and fiscal 2006, ~~research~~respectively. Research and development ~~expenditures represented 15% as a percentage~~expenses for the first quarter of ~~revenue.~~fiscal 2007 included $13.6 million related to non-cash stock-based compensation, which we recorded for the first time in that quarter. If we are required to invest significantly greater resources than anticipated in research and development efforts without an increase in revenue, our operating results ~~would~~could decline. WeIn order to remain competitive, we anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in absolute dollars in the foreseeable future due to the increased complexity and the greater number of products under ~~development.~~development as well as hiring additional employees. 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.

Our operating expenses are relatively fixed and we may have limited ability to reduce operating expenses quickly in response to any revenue shortfalls.

During the first quarter of fiscal ~~2006,~~2007, our operating expenses, which are comprised of research and development expenses and sales, general and administrative expenses, represented ~~23%~~27.6% of our total ~~revenue.~~revenue as compared to 22.9% of our total revenue during the first quarter of fiscal 2006. Operating expenses for the first quarter of fiscal 2007 included $21.9 million related to non-cash stock-based compensation, which we recorded for the first time in that quarter. Since we ~~typically~~often recognize a substantial portion of our revenue in the last month of each quarter, we may not be able to adjust our operating expenses in a timely manner in response to any revenue shortfalls. If we are unable to reduce operating expenses quickly in response to any revenue shortfalls, ~~it would negatively impact~~ our financial ~~results.~~results would be negatively impacted.

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

Our strategy is to utilize the most advanced manufacturing process technology appropriate for our products and available from commercial third-party foundries. Use of advanced processes may have greater risk of initial yield problems and higher product cost. Manufacturing process technologies are subject to rapid change and require significant expenditures for research and development. We continuously evaluate the benefits of migrating to smaller geometry process technologies in order to improve performance and reduce costs. We currently use 0.15 micron, 0.14 micron, 0.13 micron, 0.11 micron, and 90 nanometer process technologies for our ~~family~~families of GPUs, MCPs and WMPs. The majority of our newest GPUs, the GeForce 6 series, GeForce FX and the GeForce FX Go products are manufactured in 0.13 micron and 0.11 micron process technology. In our family of MCPs, the nForce4 product is currently employing the 90 nanometer process technologies.Handheld GPUs.

We have experienced difficulty in migrating to new manufacturing processes in the past and, consequently, have suffered reduced yields, delays in product deliveries and increased expense levels. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller geometry processes. Moreover, we are dependent on our relationships with our third-party manufacturers to migrate to smaller geometry processes successfully. The inability by us or our third-party manufacturers to effectively and efficiently transition to new manufacturing process technologies may adversely affect our operating results and ~~negatively impact~~ our gross margin.

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

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

~~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 our next-generation products;~~

·	~~new product announcements or product introductions by our competitors;~~

·	~~our ability to introduce new products in accordance with OEMs’ design requirements and design cycles;~~

·	~~changes in the timing of product orders due to unexpected delays in the introduction of our customers’ products;~~

·	~~the level of growth or decline of the PC industry in general;~~

·	~~slower than expected growth of demand for new technologies;~~

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·	~~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 United States and international economies;~~

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

·	~~product rates of return in excess of that forecasted or expected due to quality issues;~~

·	~~the rescheduling or cancellation of customer orders;~~

·	~~the loss of a key customer or the termination of a strategic relationship;~~

·	~~seasonal fluctuations associated with the PC and consumer products market;~~

·	~~substantial disruption in our suppliers’ operations, as a result of a natural disaster, equipment failure, terrorism or other causes;~~

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

·	~~our inability to reduce the manufacturing costs of our products;~~

·	~~legal and other costs related to defending intellectual property and other types of litigation;~~

·	~~availability of licenses at commercially reasonable terms for the continued sale or development of new products;~~

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

Risks Related to Our Products

~~We need~~If we are unable to ~~develop new~~achieve design wins, our products may not be adopted by our target markets and ~~to manage product transitions in order to succeed.~~customers either of which could negatively impact our financial results.

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

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

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

·	price our products competitively; and

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

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

~~As a result, we believe that~~Our ability to achieve design wins also depends in part on our ability to identify and be compliant with evolving industry standards. Unanticipated changes in industry standards could render our products incompatible with products developed by major hardware manufacturers and software developers, including AMD, Intel and Microsoft. Such changes would require us to invest significant ~~expenditures for research~~time and ~~development will continue~~resources to redesign our products to be ~~required in the future. We make these expenditures independent of the level of purchase commitments from our customers.~~compliant with relevant standards. If our ~~new~~ products are not ~~adopted by~~in compliance with prevailing industry standards for a significant period of time, our ability to achieve design wins could suffer. If we are unable to achieve new design wins for existing or new customers, we may lose market share and our operating results would be negatively impacted.

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

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

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

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

·	proper new product definition;

·	timely completion and introduction of new product designs;

the ability of Taiwan Semiconductor Manufacturing Company, or TSMC, International Business Machines Corporation, or IBM,United Microelectronics Corporation, or UMC,Chartered Semiconductor Manufacturing, orChartered,and any additional third-party manufacturers to effectively manufacture our new products in a timely manner;

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

·	the quality of 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.

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

In addition, our strategy includes utilizing 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 OEMs, ODMs, add-in board and motherboard manufacturers and consumers of PCs and consumer electronics. Even if we are able to provide the demanded features and functionality, we may not be able to successfully develop or introduce new products in sufficient volumes within the appropriate time to meet both the 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 processors would harm our business. ~~Any such delay in the future or failure of our graphics processors or other processors to meet or exceed specifications of competitive products could materially harm our business.~~

~~If the adoption rate of PCI Express does not grow as anticipated, our business results could suffer.~~

PCI Express is expected to enable a new level of performance for high bandwidth applications like graphics and networking. Industry adoption of PCI Express was slower than we expected during fiscal 2005 and there is no assurance that the adoption rate will increase during fiscal 2006. If the adoption rate of PCI Express does not increase or our PCI Express compatible products do not meet consumer and/or customer demand or expectations, which could result in a decrease in revenue and/or excess inventory.

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

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

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

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

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

Risks Related to Our Partners and Customers

~~The expected loss of future revenue from Microsoft will result in a reduction of our historical revenue level and operating results if we do not increase revenue from other customers.~~

During our fiscal 2004, Microsoft Corporation announced that it had entered into an agreement with one of our competitors to develop technology for future Xbox products and services. Microsoft has indicated that it will not order any more Xbox-related products from us after our second fiscal quarter and, as such, we have stopped production of such products and do not expect to maintain any related inventory after our second quarter of fiscal 2006. Therefore, we expect that the second quarter of fiscal 2006 will be the last quarter during which we will recognize revenue from the sale of our Xbox-related products to Microsoft. However, as a result of our agreement with Microsoft relating to the successor product to their initial Xbox gaming console, which Microsoft has named the Xbox360, and related devices, we anticipate that we will recognize an incremental amount of related license revenue from Microsoft in future periods, beginning with the second quarter of fiscal 2006. Revenue from Microsoft during the first quarter of fiscal 2006 and fiscal 2005 accounted for 8% and 5% respectively, of our total revenue. Revenue from Microsoft for the second half of fiscal 2005 was $150.7 million, or 14% of our total revenue. As a result of this expected loss of future Xbox product revenue from Microsoft, we will need to increase revenue from other customers in order to be able to maintain our historical revenue level and operating results. If we do not replace the expected reduction in revenue from Microsoft with revenue from other customers, our operating results will be adversely affected.

~~We may not be successful in developing the graphics processor required for SCE’s PlayStation3 within the timeframe necessary to achieve commercial success and, even if successful, there~~There can be no assurance that the PlayStation3 will achieve long term commercial success.

In April 2005, we finalized our definitive agreement with SCE to jointly develop a custom GPU incorporating our next-generation GeForce GPU and SCE’s system solutions in SCE’s ~~next generation~~ PlayStation3. Our collaboration with SCE includes license fees and royalties for the ~~next generation PlayStation~~PlayStation3 and all derivatives, including ~~next generation~~next-generation digital consumer electronics devices. In addition, we are licensing software development tools for creating shaders and advanced graphics capabilities to SCE. InDuring the first quarter of fiscal ~~2006,~~2007, we ~~expect to recognize~~recognized $23.4 million of revenue ~~of approximately $40 million~~ from ~~development, software, and license fees associated~~our contractual arrangements with ~~this collaboration.~~SCE. Depending on the ultimate success of this ~~next generation~~next-generation platform, we expect to generate ~~starting in fiscal 2007, revenue ranging from $50 million~~up to $100 million in revenue annually from license fees and royalties over the next five years, with the possibility of additional royalties for several years thereafter. We may not be successful in developing the graphics processor required for SCE’s PlayStation3 within the timeframe necessary to achieve commercial success. In addition, even if the graphics processor is developed on a timely basis, thereThere can be no assurance that the PlayStation3 will achieve long term commercial success, given the ~~high level of~~intense competition in the game console market. Additionally, we do not have control over the launch date or pricing of the Playstation3. As such, we do not have control over when we will receive royalties. If we do not receive royalties as we anticipate, our revenue and gross margin may be adversely ~~affected if any~~affected.

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

In the past we have acquired and invested in other businesses that offered products, services and technologies that we believed would help expand or enhance our products and services or help expand our distribution channels. We may enter into future acquisitions of, or investments in, businesses, in order to complement or expand our current businesses or enter into a new business market. For example, in February 2006 we completed the acquisition of ULi for $53.1 million paid in cash, and in March 2006 we completed the acquisition of Hybrid Graphics for $36.7 million paid in cash. If we do consider other acquisitions, a strategic alliance or a joint venture, the negotiations could divert management’s attention as well as other resources. For any previous or future acquisition or investment, including ULi and Hybrid Graphics, 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, which could negatively impact our growth or our financial results:

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

·	disruption of our ongoing businesses:

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

·	diversion of management’s attention from our business;

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

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

·	diversion of capital and other resources;

·	assumption of liabilities;

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

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

·	impairment of relationships with employees and customers, or the loss of any of our key employees or of our target’s key employees, as a result of the 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, the issuance of convertible debt securities or a combination of cash, convertible debt and common stock. If we pay all or a portion of the purchase price in cash, our cash reserves would be reduced. If the consideration is paid with shares of our common stock, or convertible debentures, the holdings of our existing stockholders would be diluted. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operations or financial results.

We sell our products to a small number of customers and our business could suffer by the loss of any of these customers.

We have only a limited number of customers and our sales are highly concentrated. Sales to our ~~three~~ largest ~~customers~~customer accounted for approximately ~~42% and approximately 56%~~14% of our revenue ~~for~~during the first quarter of fiscal ~~2006 and 2005, respectively.~~2007. Although a small number of our other customers ~~represent~~represents the majority of our revenue, their end customers include a large number of OEMs and system integrators throughout the ~~world.~~world who, in many cases, specify the graphics supplier. Our sales process involves achieving key design wins with leading PC OEMs and major system builders and supporting the product design into high volume production with key CEMs, ODMs, motherboard and add-in board manufacturers. These design wins in turn influence the retail and system builder channel that is serviced by CEMs, ODMs, motherboard and add-in board manufacturers. Our distribution strategy is to work with a small number of leading independent CEMs, ODMs, motherboard manufacturers, add-in board manufacturers and distributors, each of which has relationships with a broad range of system builders and leading PC OEMs. Currently, we sell a significant majority of our graphics processors or other processors directly to distributors, CEMs, ODMs, motherboard and add-in board manufacturers, which then sell boards with our graphics processor to leading PC OEMs, retail outlets and to a large number of system builders. If we were to lose sales to our PC OEMs, CEMs, ODMs, motherboard and add-in board manufacturers and were unable to replace the lost sales with sales to different customers, or if they were to significantly reduce the number of products they order from us, our revenue may not reach or exceed the expected level in any period, which could harm our financial condition and our results of operations.

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

We 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 industry-leading suppliers, such as Chartered Semiconductor Manufacturing, or Chartered, Semiconductor Manufacturing International Corporation, or SMIC, Taiwan Semiconductor Manufacturing Corporation, or TSMC, ~~IBM,~~and United Microelectronics Corporation, or UMC, ~~and Chartered~~ to produce our semiconductor wafers and utilize independent subcontractors

to perform assembly, testing 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 at acceptable prices. These manufacturers may be unable to meet our near-term or long-term manufacturing or pricing requirements. We obtain manufacturing services on a purchase order basis. The foundries we use have no obligation to provide us with any specified minimum quantities of product. Suppliers, such as Chartered, SMIC, TSMC, ~~IBM,~~and UMC, ~~and Chartered~~ fabricate wafers for other companies, including some of our competitors, and could choose to prioritize capacity for other users, reduce or eliminate deliveries to us, or increase the prices that they charge us on short notice. If we are unable to meet customer demand due to reduced or eliminated deliveries, we could lose sales to customers, which would negatively impact our revenue and our reputation. Because the lead-time needed to establish a strategic relationship with a new manufacturing partner could be several quarters, there is no readily available alternative source of supply for any specific product. In addition, the time and ~~expense~~effort to qualify a new foundry could result in additional expense, diversion of resources or lost sales any of which would negatively impact our financial results. We believe that long-term market acceptance for our products will depend on reliable relationships with ~~TSMC, IBM, UMC, Chartered and any other~~third-party manufacturers we may use to ensure adequate product supply and competitive pricing so that we are able to respond to customer demand. ~~Any difficulties like these would harm our business.~~

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

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

~~We rely on third-party vendors~~As we continue to ~~supply tools to us 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~~work directly with more foreign customers, 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 processors in the future may exceed the capabilities of the software development tools that are available to us. If the software development tools we use become unavailable or fail to produce designs that meet consumer demands, our business could suffer.

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

In the past we have acquired and invested in other businesses that offered products, services and technologies that we believed would help expand or enhance our products and services or help expand our distribution channels. We may enter into future acquisitions of, or investments in, businesses, in order to complement or expand our current businesses or enter into a new business market. If we do consider an acquisition, strategic alliance or joint venture, the negotiations could divert management’s attention as well as other resources. For any previous or future 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 and may not lead to any improvements in our financial results:

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

·	~~disruption of our ongoing businesses;~~

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

·	~~diversion of management’s attention from our business;~~

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

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

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

·	~~assumption of liabilities;~~

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

·	~~impairment of relationships with employees and customers, or the loss of key employees 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, the issuance of convertible debt securities or a combination of cash, convertible debt and common stock. If we pay a portion of the purchase price in cash, our cash reserves would be reduced. If the consideration is paid with shares of our common stock, or convertible debentures, the holdings of existing stockholders would be diluted. We cannot forecast the number, timing or size of future acquisitions, or the effect that any such acquisitions might have on our operations or financial results.

~~Difficulties~~ in collecting accounts receivable ~~could result in significant charges against income and the deferral of revenue recognition from sales to affected customers, which~~ could harm our operating results and financial condition.

Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our customers' businesses and to downturns in the economy and the industry. In addition, difficulties in collecting accounts receivable or the loss of any significant customer could materially and adversely affect our financial condition and results of operations. ~~Accounts receivable owed by~~We continue to work directly with more foreign customers and it may be difficult to ~~collect.~~collect accounts receivable from them. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure. In addition, we purchase credit insurance on selected customers’ accounts receivable balances in an effort to further mitigate our exposure for such losses. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required, ~~and~~ we may be required to defer revenue recognition on sales to affected customers and we may be required to pay higher credit insurance premiums, which could adversely affect our operating results. We may have to record additional reserves or write-offs and/or defer revenue on certain sales transactions in the future, which could negatively impact our financial results.

~~Provisions in~~We rely on third-party vendors to supply software development tools to us for the development of our ~~certificate of incorporation, our bylaws~~new products and ~~our agreement with Microsoft could delay~~we may be unable to obtain the tools necessary to develop or ~~prevent a change in control.~~enhance new or existing products.

~~Our certificate~~When we design and develop new products or product enhancements, we rely on third-party software development tools to assist us in the design, simulation and verification of ~~incorporation~~new products or enhancements to existing products. Although we currently are not dependent on any one vendor for the supply of these tools, some or all of these tools may not be readily available in the future. Additionally, the software development tools available at the time that we are designing, simulating or verifying a product may not be sophisticated enough or technologically advanced enough for our purposes. For example, we have experienced delays in the introduction of products in the past as a result of the inability of then available software development tools to fully simulate the complex features and ~~bylaws contain provisions that could make it more difficult for a third party to acquire a majority~~functionalities of our ~~outstanding voting stock. These provisions include~~products. Therefore, the ~~following:~~

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

·	~~the prohibition of stockholder action by written consent;~~

·	~~a classified board of directors; and~~

·	~~advance notice requirements for director nominations and stockholder proposals.~~

~~On March 5, 2000, we entered into an agreement with Microsoft in which we agreed~~design requirements necessary to ~~develop~~meet consumer demands for more features and ~~sell graphics chips and to license certain technology to Microsoft and its licensees for use~~greater functionality from our processors in the ~~Xbox. In~~future may exceed the ~~event that an individual or corporation makes an offer to purchase shares equal to or greater than 30%~~capabilities of the ~~outstanding shares~~software development tools that are available to us. If the software development tools we use become unavailable or fail to produce designs that meet consumer demands, we may miss design cycles or lose design wins either of which could result in a loss of market share, a decrease in revenue or negatively impact our common stock, Microsoft has first and last rights of refusal to purchase the stock. The Microsoft provision and the other factors listed above could also delay or prevent a change in control of NVIDIA.operating results.

Risks Related to Our Competition

The ~~3D graphics, platform processor~~market for GPU, MCP, and ~~handheld industries are~~Handheld GPUs is highly competitive and we may be unable to compete.

The market for GPUs, MCPs and ~~WMPs for PCs and handhelds~~Handheld GPUs 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 ~~Application Programming Interfaces, or APIs,~~application programming interfaces, manufacturing capabilities, price of processors and total system costs of add-in boards and motherboards. We believe that our ability to remain competitive will depend on how well we are able to anticipate the features and functions that customers will demand and whether we are able to deliver consistent volumes of our products at acceptable levels of quality. We expect competition to increase both from existing competitors and new market entrants with products that may be less costly than ours, or may provide better performance or additional features not provided by our products, which could harm our business. ~~Further, we expect substantial competition from Intel’s publicized focus on moving to selling platform solutions dominated by Intel products, such as the Centrino platform.~~

An additional significant source of competition is from companies that provide or intend to provide GPU, MCP, and ~~MCP solutions for the PC market.~~Handheld GPU solutions. Some of our competitors may have or be able to obtain greater marketing, financial, distribution and manufacturing resources than we do and may be more able to adapt to customer or technological changes. Our current competitors include the following:

suppliers of GPUs, including MCPs that incorporate 3D graphics functionality as part of their existing solutions, such as ATI, Intel, Silicon Integrated Systems, Inc., or SIS, VIA Technologies, Inc., or VIA, and XGI Technology Inc.;

suppliers of discrete MCPs that incorporate a combination of ~~3D graphics,~~ networking, audio, communications and ~~Input/Output,~~input/output, or I/O, functionality as part of their existing solutions, such as ATI Technologies, Inc., or ATI, Broadcom Corporation, or Broadcom, Intel, ~~Silicon Integrated Systems, Inc.~~SIS, and ~~VIA Technologies, Inc., or~~ VIA; and

suppliers of ~~standalone desktop~~ GPUs ~~that incorporate 3D graphics functionality as part of their existing solutions, such as ATI, Creative Technology, Matrox Electronics Systems Ltd. and XGI Technology, Inc.;~~

suppliers of standalone notebook GPUs that incorporate 3D graphics functionality as part of their existing solutions, such as ATI, Silicon Motion Corporation, and the joint venture formed by SONICblue Incorporated (formerly S3 Incorporated) and VIA; and

~~suppliers of WMPs for handheld devices~~or GPU intellectual property that incorporate advanced graphics functionality as part of their existing solutions, such as ATI, Bitboys, Broadcom, Fujitsu Limited, Imagination Technologies Ltd., NEC Corporation, Qualcomm Incorporated, Renesas Technology ~~Broadcom~~Corp., Seiko-Epson, Texas Instruments Incorporated, and ~~Seiko-Epson.~~Toshiba America, Inc.

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

~~Our failure~~As Intel continues to ~~achieve one or more design wins would harm our business.~~pursue platform solutions, we may not be able to successfully compete.

~~Our future~~We expect substantial competition from Intel’s strategy of selling platform solutions, such as when Intel achieved success with its Centrino platform solution. In addition to the Centrino notebook platform solution, it has announced a desktop initiative branded as VIIV, and we expect that Intel will ~~depend in large part on achieving design wins, which entails having our existing~~extend this strategy to other segments including professional workstations and future products chosen for hardware components or subassemblies designed by PC OEMs, ODMs, and add-in board and motherboard manufacturers. Our add-in board and motherboard manufacturers and major OEM and ODM customers typically introduce new system configurations as often as twice per year, generally based on spring and fall design cycles. Accordingly, atservers. To the ~~time our OEM and ODM customers are making their decisions, our existing products must have competitive performance levels or we must timely introduce new products~~extent Intel is successful with such performance characteristics, consistent quality, correct price and an adequate feature-set 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 an 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. Even if we achieve a significant number of design wins, there can be no assurance that our OEM and ODM customers will actually take the design to production or that the design will be commercially successful.

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. Such changes 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. If we are unable to achieve new design wins for existing or new customers,this strategy, we may ~~lose market share and our operating results would~~not be ~~negatively impacted.~~able to successfully compete in these segments.

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Risks Related to Market Conditions

We are subject to risks associated with international operations which may harm our business.
A significant portion of our semiconductor wafers are manufactured, assembled, tested and packaged by third-parties located outside of the United States. Additionally, we generated 85% and 83% of revenue for the first quarter of fiscal 2007 and 2006, respectively, from sales to customers outside the United States and other Americas. The manufacture, assembly, test and packaging of our products outside of the United States and sales to customers outside of the United States and other Americas subjects us to a number of risks associated with conducting business outside of the United States and other Americas, including, but not limited to:

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·   international economic and political conditions;
·   unexpected changes in, or impositions of, legislative or regulatory requirements;
·   labor issues in foreign countries;
·   cultural differences in the conduct of business;
·   inadequate local infrastructure;
·   delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;
·   transportation delays;
·   longer payment cycles;
·   difficulty in collecting accounts receivable;
·   fluctuations in currency exchange rates;
·   imposition of additional taxes and penalties;
·   different legal standards with respect to protection of intellectual property;
·   the burdens of complying with a variety of foreign laws; and
·   other factors beyond our control, including terrorism, civil unrest, war and diseases such as severe acute respiratory syndrome and the Avian flu.
If sales to any of our customers outside of the United States and other Americas are delayed or cancelled because of any of the above factors, our revenue may be negatively impacted.

We have offices outside of the United States, including offices in Taiwan, Japan, Korea, China, Hong Kong, India, France, Russia, Germany, and England. We also have a subsidiary in Finland. During the first quarter of fiscal 2007, we added 333 international employees to our international operations. Our operations in our international locations are subject to many of the risks contained in the above list. We intend to continue to expand our international operations and expect to open other international offices. Difficulties with our international operations, including finding appropriate staffing and office space, may divert management’s attention and other resources any of which could negatively impact our operating results.
Currently, all of our arrangements with third-party manufacturers and subcontractors provide for pricing and payment in United States dollars as are sales to our customers located outside of the United States and other Americas. Increases in the value of the United States’ dollar relative to other currencies would make our products more expensive, which would negatively impact our ability to compete. Conversely, decreases in the value of the United States’ dollar relative to other currencies could result in our suppliers raising their prices in order to continue doing business with us. To date, we have not engaged in any currency hedging activities, although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.

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

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

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If our products do not continue to be ~~accepted~~adopted by the consumer and enterprise PC, notebook, workstation, PDA, cellular phone, and ~~consumer electronics~~video game console markets or if the demand ~~by the PC and consumer electronics~~in these markets for new and innovative products decreases, our business and operating results would suffer.

Our success depends in part upon continued broad adoption of our processors for 3D graphics in consumer and enterprise PC, notebook, workstation, PDA, cellular phone, and ~~consumer electronics~~video game console applications. The market for processors has been characterized by unpredictable and sometimes rapid shifts in the popularity of products, often caused by the publication of competitive industry benchmark results, changes in pricing of dynamic random-access memory devices and other changes in the total system cost of add-in boards, as well as by severe price competition and by frequent new technology and product introductions. Only a small number of products have achieved broad market acceptance and such market acceptance, if achieved, is difficult to sustain due to intense competition and frequent new technology and product introductions. Since the GPU ~~segment~~Business is our core business, our ~~business~~financial results would suffer if for any reason our current or future ~~graphics processors~~GPUs do not continue to achieve widespread ~~acceptance in~~adoption by the PC market. If we are unable to complete the timely development of products or if we were unable to successfully and cost-effectively manufacture and deliver products that meet the requirements of the consumer and enterprise PC, ~~market,~~notebook, workstation, PDA, cellular phone, and video game console markets, we may experience a decrease in revenue which could negatively impact our operating results. Additionally, there can be no assurance that the industry will continue to demand new products with improved standards, features or performance. If our customers, such as OEMs, ODMs, add-in-card manufacturers, system builders and consumer electronics companies, do not continue to design products that require more advanced or efficient processors and/or the market dodoes not continue to demand new products with increased performance, features, functionality or standards, sales of our products could ~~decline and our business and operating results could suffer.~~decline.

~~We are subject to risks associated with international operations which may harm our business.~~
A significant portion of our semiconductor wafers are manufactured, assembled, tested and packaged by third-parties located outside of the United States. Additionally, we generated 83% of our total revenue from sales to customers outside of the United States and other Americas for the first quarter of fiscal 2006. The manufacture, assembly, test and packaging of our products outside of the United States and sales to these customers outside of the United States and other Americas subjects us to a number of risks associated with conducting business outside of the United States and other Americas, including, but not limited to:
·   ~~international economic and political conditions;~~
·   ~~unexpected changes in, or impositions of, legislative or regulatory requirements;~~
·   ~~labor issues in foreign countries;~~
·   ~~cultural differences in the conduct of business;~~
·   ~~inadequate local infrastructure;~~
·   ~~delays resulting from difficulty in obtaining export licenses for certain technology, tariffs, quotas and other trade barriers and restrictions;~~
·   ~~transportation delays;~~
·   ~~longer payment cycles;~~
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·   ~~difficulty in collecting accounts receivable;~~
·   ~~fluctuations in currency exchange rates;~~
·   ~~imposition of additional taxes and penalties;~~
·   ~~different legal standards with respect to protection of intellectual property;~~
·   ~~the burdens of complying with a variety of foreign laws; and~~
·   ~~other factors beyond our control, including terrorism, civil unrest, war and diseases such as severe acute respiratory syndrome, or SARS and Bird flu.~~
~~If sales to any of our customers outside of the United States and other Americas are delayed or cancelled because of any of the above factors, our revenue may be negatively impacted.~~
We have sales offices in several international locations including Taiwan, Russia, Japan, China, Hong Kong, Korea, Germany, France and the United Kingdom. We also have a design center in Germany and one in India. Our international operations are subject to the many of the risks contained in the above list. Difficulties with our international operations, including finding appropriate staffing, may divert management’s attention and other resources any of which could negatively impact our operating results.
Currently, all of our arrangements with third-party manufacturers and subcontractors provide for pricing and payment in United States dollars as are sales to our customers located outside of the United States and other Americas. Increases in the value of the Unites States’ dollar relative to other currencies would make our products more expensive, which would negatively impact our ability to compete. Conversely, decreases in the value of the United States’ dollar relative to other currencies could result in our suppliers raising their prices in order to continue doing business with us. 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.
Our failure to comply with any applicable environmental regulations could result in a range of consequences, including fines, suspension of production, excess inventory, sales limitations, and criminal and civil liabilities.

~~Due~~We may be subject to ~~environmental concerns,~~various state, federal and international laws and regulations governing the ~~need for lead-free solutions~~environment, including restricting the presence of certain substances in electronic ~~components~~products and ~~systems is receiving increasing attention within~~making producers of those products financially responsible for the collection, treatment, recycling and disposal of those products. For example, the semiconductor industry ~~as companies are~~is moving towards becoming compliant with the Restriction of Hazardous Substances Directive, or RoHS ~~Directive.~~Directive, which will become effective in July 2006. The RoHS Directive is European legislation that restricts the use of a number of substances, including ~~lead, effective July 2006. We believe~~lead. Similarly, the State of California has adopted certain restrictions, which go into effect in 2007, that ~~our~~restrict the use of certain materials in electronic products, ~~will be compliant~~that are intended to harmonize with the RoHS directive and other states are contemplating similar legislation. China has promulgated use restrictions on the same substances as the RoHS directive, but has not yet defined either the scope of the affected products or an effective date of any such restrictions.

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

It is possible that unanticipated supply shortages, or delays or excess non-compliant inventory may occur as a result of ~~these new~~such regulations. Failure to comply with any applicable environmental regulations could result in a range of consequences including fines, suspension of production, excess inventory, sales limitations, and criminal and civil liabilities.

~~Hostilities involving the United States and/or terrorist attacks could harm our business.~~

39
The financial, political, economic and other uncertainties following the terrorist attacks upon the United States in 2001 led to a weakening of the global economy. Subsequent terrorist acts and/or the threat of future outbreak or continued escalation of hostilities involving the United States and Iraq or other countries could adversely affect the growth rate of our revenue and have an adverse effect on our business, financial condition or results of operations. In addition, any escalation in these events or similar future events may disrupt our operations or those of our customers, distributors and suppliers, which could also adversely affect our business, financial condition or results of operations.
Our business is cyclical in nature and an industry downturn could harm our financial results.

Our business is directly affected by market conditions in the highly cyclical semiconductor industry, including alternating periods of overcapacity and capacity constraints, variations in manufacturing costs and yields, significant expenditures for capital equipment and product development and rapid technological change. If we are unable to respond to changes in our industry, which can be unpredictable and rapid, in an efficient and timely manner, our operating results could suffer. In particular, from time to time, the semiconductor industry has experienced significant and sometimes prolonged downturns characterized by diminished product demand and accelerated erosion of average selling prices. If we cannot take appropriate actions such as reducing our manufacturing or operating costs to sufficiently offset declines in demand during a downturn, our revenue and earnings will ~~suffer during downturns.~~
33
~~Political instability in Taiwan and in The People’s Republic of China or elsewhere could harm our business.~~
Because of our reliance on foundries and independent contractors located in Taiwan, 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 United States and The People’s Republic of China are strained due to foreign relations events. If any of our suppliers experienced a substantial disruption in their operations, as a result of a natural disaster, political unrest, economic instability, acts of terrorism or war, equipment failure or other cause, it could harm our business.
~~We are exposed to fluctuations in the market values of our portfolio investments and in interest rates.~~
We invest in a variety of financial instruments, consisting principally of investments in commercial paper, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. These investments are denominated in United States dollars.
We account for our investment instruments in accordance with SFAS No. 115. All of the cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate debt securities may have their market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Part of our portfolio includes equity investments in publicly traded companies, the value of which are subject to market price volatility. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or if the decline in fair value of our publicly traded equity investments is judged to be other-than-temporary. We may suffer losses in principal if forced to sell securities that decline in market value due to changes in interest rates. However, because our debt securities are classified as “available-for-sale,” no gains or losses are recognized due to changes in interest rates unless such securities are sold prior to maturity.
~~Our stock price may continue to experience significant short-term fluctuations.~~
The price of our common stock has fluctuated greatly. These price fluctuations have been rapid and severe. We believe that our quarterly and annual results of operations may continue to be affected by a variety of factors that could harm our revenue, gross profit and results of operations, any of which could impact our stock price. Additionally, the price of our common stock may continue to fluctuate greatly in the future due to factors that are non-company specific, such as the decline in the United States economy, acts of terror against the United States, war 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 in these risk factors.suffer.

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

Expensing employee stock options ~~in future periods will~~ materially and aversely ~~affect~~affects our reported operating ~~results.~~results and could adversely affect our competitive position as well.

Since inception, we have used stock options and our employee stock purchase program as fundamental components of our compensation packages. ~~To date~~Prior to January 30, 2006, we ~~generally have~~had not recognized compensation cost for employee stock options or shares sold pursuant to our employee stock purchase program. We believe that these incentives directly motivate our employees and, through the use of vesting, encourage our employees to remain with us. In December 2004, the ~~FASB~~Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment,which requires the measurement and recognition of compensation expense for all stock-based compensation payments. ~~In April 2005,~~Although the SEC delayed the effective date of SFAS No. 123(R), ~~which~~it is now ~~effective for annual periods that begin after June 15, 2005.~~effective. SFAS No. 123(R) requires that we record compensation expense for stock options and our employee stock purchase plan using the fair value of those awards. ~~Expensing these incentives in future periods will materially and adversely affect our reported operating results as~~During the first quarter of fiscal 2007, we recorded $23.0 million related to stock-based compensation ~~expense would be charged directly against~~which negatively impacted our ~~reported earnings.~~ operating results. We believe that SFAS No. 123(R) will continue to negatively impact our operating results.

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

34
We are currently involved in patent litigation, which, if not resolved favorably, could require us to pay damages.

We are currently involved in patent litigation. On October 19, 2004, Opti Incorporated, or Opti, filed a complaint for patent infringement against usNVIDIA in the United States District Court for the Eastern District of Texas. In its complaint, Opti ~~asserts~~asserted that unspecified NVIDIA chipsets infringe five United States patents held by Opti. Opti seeks unspecified damages for our alleged conduct, ~~attorneys~~attorneys’ fees and triple damages ~~because of our~~for alleged willful infringement ~~of these patents. NVIDIA~~by NVIDIA. We filed a response to this complaint in December 2004. ~~Discovery has not begun and no~~A case management conference was held in July 2005 where a trial date ~~has been set.~~was set for July 2006. A court mandated mediation was held in January 2006 and did not resolve the matter. The discovery period formally ended on May 6, 2006. On April 13, 2006, a Markman hearing took place and on April 24, 2006, the District Court issued a ruling adopting Opti's proposed construction on 13 of the 15 terms at issue. In May 2006, Opti dropped two of the five United States patents that it alleged that NVIDIA infringes. We continue to prepare for trial. We believe the claims asserted against us are without merit and we will continue to defend ourselves vigorously.

In August 2004, a Texas limited partnership named American Video Graphics, LP, or AVG, filed three separate complaints for patent infringement against various corporate defendants, not including NVIDIA, in the United States District Court for the Eastern District of Texas. AVG initially asserted that each of the approximately thirty defendants sells products that infringe one or more of seven separate patents that AVG claims relate generally to graphics processing functionality. Each of the three lawsuits target a different group of defendants; one case involves approximately twenty of the leading personal computer manufacturers, the PC Makers Case, one case involves the three leading video game console makers, the Game Console Case, and one case involves approximately ten of the leading video game publishers, the Game Publishers Case. In November 2004, NVIDIA sought and was granted permission to intervene in two of the three pending AVG lawsuits, the PC Makers Case and the Game Console Case. Our complaint in intervention alleges both that the patents in suit are invalid and that, to the extent AVG’s claims target NVIDIA products, the asserted patents are not infringed. Two other leading suppliers of graphics processing products, Intel and ATI, have also intervened in the cases, ATI in both the PC Makers and Game Console Case, and Intel in the PC Makers Case.

After some consensual reconfigurations proposed by the various parties, in January 2005, the district court judge entered Docket Control and Discovery Orders in the three lawsuits. The PC Makers case now involves four separate patents and is currently scheduled for trial beginning on September 11, 2006. The Game Console Case involves a single patent and is currently scheduled for trial beginning on December 4, 2006. We believe that, to the extent AVG’s infringement allegations target functionality that may be performed by NVIDIA products, those claims are without merit, and we will continue to defend ourselves and our products vigorously.

Our defenses against ~~these suits~~Opti may be unsuccessful. AtIf this ~~time, we cannot reasonably estimate the range of any loss~~case continues to move forward, or ~~damages resulting from these suits due to uncertainty regarding the ultimate outcome. If these cases go forward,~~if other patent litigation matters involving us arise, we expect that they will result in additional legal and other costs, regardless of the outcome, which could be substantial.
40

Our industry is characterized by vigorous protection and pursuit of intellectual property rights orand positions ~~that~~which could result in ~~litigation and substantial costs to us.~~significant expense.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which have resulted in protracted and expensive litigation. The graphics processor industry, in particular, has been recently characterized ~~recently~~ by the aggressive pursuit of intellectual property positions, and we expect our competitors toand others will continue to aggressively pursue ~~aggressive~~ intellectual property positions. The technology that we use to design and develop our products and that is incorporated into our products may be subject to claims that it infringes the patents or intellectual property rights of others. Our success is dependent on our ability to develop new products without infringing or misappropriating the intellectual property rights of ~~others. From time to time we receive notices~~others or ~~are included in legal actions alleging that we have infringed patents or other~~by licensing the intellectual property ~~rights owned by~~of third parties. We expect that, as the number of issued hardware and software patents increases, and as competition in our product lines 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 to us at all or on terms acceptable to us, particularly by competitors. 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 and sale of one or more products, which could reduce our revenue and harm our business. 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, which could be costly.
35
~~If we have to initiate a claim, our operating expenses may increase which could negatively impact our operating results. In order to develop products,~~As such, we have licensed technology from third parties for incorporation ininto our ~~processors,~~products, and expect to continue to enter into license agreements with third parties 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, or at all, our competitive position and our business could suffer.
We have agreed to indemnify certain customers for certain claims of infringement arising out of sale of our products. We may be involved in future lawsuits or other legal proceedings alleging patent infringement or other intellectual property rights violations by us or customers that we have agreed to indemnify for certain claims of infringement arising out of the sale of our products to these customers. In addition, litigation or other legal proceedings may be necessary to:
·   ~~assert claims of infringement;~~
·   ~~enforce our patents;~~
·   ~~protect our trade secrets or know-how; or~~
·   ~~determine the enforceability, scope and validity of the propriety rights of others.~~
Regardless of the outcome, litigation can be very costly and can divert management’s attention from other matters. We may be unsuccessful in defending or pursuing these lawsuits or claims. An unfavorable ruling could include significant damages, invalidation of a patent or group of patents, indemnification of customers, payment of lost profits, or, when it has been sought, injunctive relief. If one of our patents in invalidated or found to be unenforceable, we would be unable to license the patent which could result in a loss of revenue. We or our customers may be required to obtain a license to the other parties’ patents or intellectual property. If we fail to obtain a license from a third party for technology we use or that is used by an indemnified customer, we could be subject to substantial liabilities or have to suspend or discontinue the manufacture of and sale of one or more of our products either of which could reduce our revenue and harm our business. Initiation of claims or indemnification of a customer may increase our operating expenses which could negatively impact our operating results.

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

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

Our pending patent applications and any future applications may not be approved. In addition, any issued patents may not provide us with competitive advantages or may be challenged by third parties. The enforcement of patents by others may harm our ability to conduct our business. Others may independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property. Our failure to effectively protect our intellectual property could harm our business.
Litigation to defend against alleged infringement of intellectual property rights or to enforce our intellectual property rights and the outcome of such litigation could result in substantial costs to us.
From time to time we receive notices or are included in legal actions alleging that we have infringed patents or other intellectual property rights owned by third parties. We ~~have licensed technology from third parties for incorporation~~expect that as the number of issued hardware and software patents increases and as competition in our ~~processors, and expect to continue to enter into license agreements for~~product lines intensifies, the volume of intellectual property infringement claims may increase. We may become involved in future ~~products. These licenses may result in royalty payments to third parties, the cross licensing of technology by us~~lawsuits or ~~payment of~~ other ~~consideration. If these arrangements are not concluded on commercially reasonable terms, our business could suffer.~~legal proceedings alleging

3641
patent infringement or other intellectual property rights violations by us or by our customers that we have agreed to indemnify them for certain claims of infringement arising out of the sale of our products to these customers. In addition, litigation or other legal proceedings may be necessary to:

·   assert claims of infringement;
·   enforce our patents
·   protect our trade secrets or know-how; or
·   determine the enforceability, scope and validity of the propriety rights of others.
If infringement claims are made against us, we may seek licenses under the claimants’ patents or other intellectual property rights. In addition, we or an indemnified customer may be required to obtain a license to a third parties’ patents or intellectual property. However, licenses may not be offered to us at all or on terms acceptable to us, particularly by competitors. If we fail to obtain a license from a third party for technology that we use or that is used in one of our products used by an indemnified customer, we could be subject to substantial liabilities or have to suspend or discontinue the manufacture and sale of one or more of our products either of which could reduce our revenue and harm our business. Furthermore, the indemnification of a customer may increase our operating expenses which could negatively impact our operating results.
Alternatively, we may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights, which could be costly. If we have to initiate a claim, our operating expenses may increase which could negatively impact our operating results. Additionally, if one of our patents is invalidated or found to be unenforceable, we would be unable to license the patent which could result in a loss of revenue.
Regardless of the outcome, litigation or negotiations involving intellectual property rights can be very costly and can divert management’s attention from other matters. We may be unsuccessful in defending or pursuing these lawsuits or claims. An unfavorable ruling could include significant damages, invalidation of a patent or family of patents, indemnification of customers, payment of lost profits, or, when it has been sought, injunctive relief.

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

·   the jurisdictions in which profits are determined to be earned and taxed;
·   adjustments to estimated taxes upon finalization of various tax returns;
·   changes in available tax credits;
·   changes in share-based compensation expense;
·   changes in tax laws, the interpretation of tax laws either in the United States or abroad or the issuance of new interpretative accounting guidance related to uncertain transactions and calculations where the tax treatment was previously uncertain; and
·   the resolution of issues arising from tax audits with various tax authorities.

Should additional taxes be assessed as a result of any of the above, our operating results could be adversely affected.

While we believe that we currently have adequate internal control over financial reporting, we are exposed to risks from ~~recent~~ legislation requiring companies to evaluate those internal controls.

Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control structure and procedures for financial reporting. We have an ongoing program to perform the system and process evaluation and testing necessary to comply with these requirements. This legislation is relatively new and neither companies nor accounting firms
42
have significant experience in complying with its requirements. As a result, we have incurred, and expect to continue to incur increased expense and to devote additional management resources to Section 404 compliance. In the event that our chief executive officer, chief financial officer or our independent registered public accounting firm determine that our internal control over financial reporting is not effective as defined under Section 404, investor perceptions of us may be adversely affected and could cause a decline in the market price of our stock.

~~ITEM 4. CONTROLS AND PROCEDURES~~Risks Related to our Common Stock

~~Disclosure Controls and Procedures~~
Based on their evaluation as of May 1, 2005, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or the Exchange Act) were effective to ensure that the material information required to be disclosed by us in this Quarterly Report on Form 10-Q was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions for Form 10-Q.
~~Changes in Internal Control Over Financial Reporting~~
~~There were no changes~~Provisions in our ~~internal control over financial reporting during~~certificate of incorporation, our ~~last fiscal quarter that have materially affected,~~bylaws and our agreement with Microsoft could delay or ~~are reasonably likely to materially affect, our internal control over financial reporting.~~
~~Inherent Limitations on Effectiveness of Controls~~prevent a change in control.

Our ~~management, including~~certificate of incorporation and bylaws contain provisions that could make it more difficult for a third party to acquire a majority of our ~~Chief Executive Officer~~outstanding voting stock. These provisions include the following:
·   the ability of the board of directors to create and issue preferred stock without prior stockholder approval;
·   the prohibition of stockholder action by written consent;
·   a classified board of directors; and
·   advance notice requirements for director nominations and stockholder proposals.
On March 5, 2000, we entered into an agreement with Microsoft in which we agreed to develop and ~~Chief Financial Officer, does not expect that our disclosure controls~~sell graphics chips and ~~procedures~~to license certain technology to Microsoft and its licensees for use in the Xbox. Under the agreement, if an individual or ~~our internal controls, will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives~~corporation makes an offer to purchase shares equal to or greater than 30% of the ~~control system are met. Further,~~outstanding shares of our common stock, Microsoft may have first and last rights of refusal to purchase the ~~design of a control system must reflect the fact that there are resource constraints,~~stock. The Microsoft provision and the ~~benefits~~other factors listed above could also delay or prevent a change in control of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within NVIDIA have been detected.
NVIDIA.
3743

~~PART II: OTHER INFORMATION~~

~~ITEM 1. LEGAL PROCEEDINGS~~

~~Please see Part I, Item 1, Note 11, “Litigation” for discussion of our legal proceedings.~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs

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

January 31, 2005 through February 27, 2005 - $ - - $ 275,356,213

February 27, 2005 through March 27, 2005 1,351,398 $ 25.27 1,351,398 $ 241,210,474

March 27, 2005 through May 1, 2005 590,000 $ 24.27 590,000 $ 226,888,622

Total 1,941,398 $ 24.97 (2 ) 1,941,398
Period

Total Number of Shares Purchased

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs

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

January 30, 2006 through February 26, 2006 - $ - - $ 86,846,554

February 27, 2006 through March 26, 2006 - $ - - $ 486,846,554

March 27, 2006 through April 30, 2006 2,079,440 (3) $ 24.04 2,079,440 (3) $ 436,846,554

Total 2,079,440 $ 24.04 (2) 2,079,440

(1) WeOn August 9, 2004, we announced that our Board had authorized a stock repurchase program to repurchase shares of our common stock, subject to certain specifications, up to an aggregate maximum amount of $300.0 million. On March 6, 2006, we announced that the Board had approved a $400.0 million increase to the original stock repurchase program we had announced in August 2004. As a result of this increase, we have an ongoing authorization from the Board, ~~of Directors,~~ subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of ~~$300.0~~$700.0 million on the open market, or in negotiated transactions or through structured stock repurchase agreements through August 2007.

(2) Represents weighted average price paid per share during the first quarter of fiscal ~~2006.~~2007.

(3) As part of our share repurchase program, we have entered into and we may continue to enter into structured share repurchase transactions with financial institutions. During the first quarter of fiscal 2007, we repurchased 2.1 million shares of our common stock for $50.0 million under a structured share repurchase transaction. This transaction required that we make an up-front payment. Subsequent to April 30, 2006, we entered into a structured share repurchase transaction to repurchase shares of our common stock for $75.0 million that we expect to settle prior to the end of our second quarter of fiscal 2007.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

None.

ITEM 5. OTHER INFORMATION

None.

3844

ITEM 6. EXHIBITS

~~Exhibit No.~~
~~Description~~
~~31.1~~ ~~Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.~~
~~31.2~~ ~~Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.~~
32.1* ~~Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.~~
32.2* ~~Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.~~
EXHIBIT INDEX
Exhibit No.
Exhibit Description
Form
File Number
Exhibit
Filing Date
Filed
Herewith
3.3 Bylaws of NVIDIA Corporation, Amended and Restated as of March 7, 2006 10-K 0-23985 3.3 3/16/06
10.1 Form of Indemnity Agreement 8-k between NVIDIA Corporation and each of its directors and officers 8-K 0-23985 10.1 3/07/06
10.2 1998 Equity Incentive Plan, as amended 8-K 0-23985 10.2 3/13/06
10.3+ NVIDIA Corporation Fiscal Year 2007 Variable Compensation Plan 8-K 0-23985 10.1 4/03/06
10.4+ 1998 Non-Employee Directors’ Stock Option Plan, as amended 8-K 0-23985 10.2 4/03/06
31.1 Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended *
31.2 Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended *
32.1# Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended *
32.2# Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended *

*+ Management contract, compensatory plan or arrangement.

# The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of NVIDIA Corporation under the Securities Act of 1933, or the Securities Exchange Act of 1934, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

3945

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized,on ~~June 2, 2005.~~May 31, 2006.

NVIDIA Corporation

By: /s/ MARVIN D. BURKETT
Marvin D. Burkett
Chief Financial Officer
~~(Duly~~                                    (Duly Authorized Officer and
Principal Financial and Accounting Officer)

4046

~~EXHIBIT INDEX~~
EXHIBIT INDEX
Exhibit No.
Exhibit Description
Form
File Number
Exhibit
Filing Date
Filed
Herewith
3.3 Bylaws of NVIDIA Corporation, Amended and Restated as of March 7, 2006 10-K 0-23985 3.3 3/16/06
10.1 Form of Indemnity Agreement 8-k between NVIDIA Corporation and each of its directors and officers 8-K 0-23985 10.1 3/07/06
10.2 1998 Equity Incentive Plan, as amended 8-K 0-23985 10.2 3/13/06
10.3+ NVIDIA Corporation Fiscal Year 2007 Variable Compensation Plan 8-K 0-23985 10.1 4/03/06
10.4+ 1998 Non-Employee Directors’ Stock Option Plan, as amended 8-K 0-23985 10.2 4/03/06
31.1 Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended *
31.2 Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended *
32.1# Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended *
32.2# Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended *

~~Exhibit No.~~
~~Description~~
~~31.1~~ ~~Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.~~
~~31.2~~ ~~Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.~~
32.1* ~~Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.~~
32.2* ~~Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.~~
+ Management contract, compensatory plan or arrangement.

*# The certifications attached as Exhibit 32.1 and Exhibit 32.2 accompany this Quarterly Report on Form 10-Q, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of NVIDIA Corporation under the Securities Act of 1933, or the Securities Exchange Act of 1934, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.

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

		Page
	PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of ~~May 1, 2005~~April 30, 2006 and January ~~30, 2005~~29, 2006	1
	Condensed Consolidated Statements of Income for the three months ended April 30, 2006 and May 1, 2005 ~~and April 25, 2004~~	2
	Condensed Consolidated Statements of Cash Flows for the three months ended April 30, 2006 and May 1, 2005 ~~and April 25, 2004~~	3
	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13 19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22 29

Item 4.	Controls and Procedures	37 29

	PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	30

38Item 1A.	Risk Factors	30

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38 44

Item 3.	Defaults Upon Senior Securities	38 44

Item 4.	Submission of Matters to a Vote of Security Holders	38 44

Item 5.	Other Information	38 44

Item 6.	Exhibits	39 45

Signature		40 46

	May 1,			January 30,			April 30,			January 29,
	2005			2005			2006			2006
ASSETS
Current assets:
Cash and cash equivalents	$	281,004		$	208,512		$	487,763		$	551,756
Marketable securities		450,508			461,533			467,290			398,418
Accounts receivable, net		255,252			296,279			391,270			318,186
Inventories		307,759			315,518			346,366			254,792
Prepaid expenses and other current assets		21,869			19,819			28,545			24,387
Deferred income taxes		3,265			3,265			1,393			1,393
Total current assets		1,319,657			1,304,926			1,722,627			1,548,932

Property and equipment, net		169,236			178,955			180,206			178,152
Deposits and other assets		10,678			9,034			31,028			27,477
Goodwill		108,107			108,107			204,603			145,317
Intangible assets, net		27,416			27,514			22,989			15,421
	$	1,635,094		$	1,628,536		$	2,161,453		$	1,915,299

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	182,146		$	238,223		$	298,147		$	179,395
Accrued liabilities		193,029			182,077			236,239			259,264
Current portion of capital lease obligations		345			856
Total current liabilities		375,520			421,156			534,386			438,659

Deferred income tax liabilities		20,754			20,754			8,260			8,260
Long-term liabilities		8,233			8,358
Other long-term liabilities								10,156			10,624
Commitments and contingencies - see Note 11 and Note 13

Stockholders’ equity:
Preferred stock								--			--
Common stock		173			169			371			360
Additional paid-in capital		672,102			636,618			907,097			798,071
Deferred compensation		(2,638	)		(2,926	)		--			(1,676	)
Treasury stock		(72,100	)		(24,644	)		(262,142	)		(212,142	)
Accumulated other comprehensive loss, net		(3,908	)		(3,463	)		(2,451	)		(1,957	)
Retained earnings		636,958			572,514			965,776			875,100
Total stockholders' equity		1,230,587			1,178,268			1,608,651			1,457,756
	$	1,635,094		$	1,628,536		$	2,161,453		$	1,915,299

	Three Months Ended						Three Months Ended
	May 1,			April 25,			April 30,			May 1,
	2005			2004			2006			2005

Revenue	$	583,846		$	471,905		$	681,807		$	583,846
Cost of revenue(A)		373,693			323,069			393,050			373,693
Gross profit		210,153			148,836			288,757			210,153
Operating expenses:
Research and development(A)		85,913			77,750			122,404			85,913
Sales, general and administrative(A)		48,058			47,206			65,668			48,058
Total operating expenses		133,971			124,956			188,072			133,971
Operating income		76,182			23,880			100,685			76,182
Interest income		3,895			2,851			8,808			3,895
Interest expense		(10	)		(76	)		(1	)		(10	)
Other income, net		488			32
Other income (expense), net								(244	)		488
Income before income tax expense		80,555			26,687			109,248			80,555
Income tax expense		16,111			5,338			18,572			16,111
Net income	$	64,444		$	21,349		$	90,676		$	64,444
Basic net income per share	$	0.38		$	0.13		$	0.26		$	0.19
Diluted net income per share	$	0.36		$	0.12		$	0.23		$	0.18
Shares used in basic per share computation		168,647			165,171			347,937			337,294
Shares used in diluted per share computation		180,492			178,479			390,370			360,984

(A) Results for the three months ended April 30, 2006 include stock-based compensation expense as follows:
Cost of revenue	$ 1,143
Research and development	13,628
Sales, general and administrative	8,278
Total stock-based compensation expense	$23,049

	Three Months Ended
	May 1, 2005
	(In thousands, except per share data)
Net income, as reported	$	64,444
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		228
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(16,846	)
Pro forma net income	$	47,826
Basic net income per share - as reported	$	0.19
Basic net income per share - pro forma	$	0.14
Diluted net income per share - as reported	$	0.18
Diluted net income per share - pro forma	$	0.13

	Three Months Ended
	April 30, 2006
	(In thousands, except per share data)
Stock-based compensation expense by type of award:
Employee stock options	$	22,457
Employee stock purchase plan		1,601
Amount capitalized as inventory		(1,009	)
Total stock-based compensation		23,049
Tax effect of stock-based compensation		(2,596	)
Net effect on net income	$	20,453

Effect on net income per share:
Basic	$	0.06
Diluted	$	0.05

	Three Months Ended
	April 30, 2006
	(In thousands)
Cash flows from operations	$	(6,470	)
Cash flows from financing activities	$	6,470

	Stock Options		Employee Stock Purchase Plan

	Three Months Ended		Three Months Ended
	May 1,	April 25,	May 1,	April 25,
	2005	2004	2005	2004
	(Using a binomial model)	(Using the Black-Scholes model)	(Using the Black-Scholes model)	(Using the Black-Scholes model)
Expected life (in years)	3.6 - 5.1	4.0	0.5 - 2.0	1.5
Risk free interest rate	4.0%	2.4%	1.6% - 1.8%	1.9%
Volatility	37% - 48%	80%	41%	80%
Dividend yield	--	--	--	--

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balances, January 29, 2006		31,310,976			87,958,480		$	9.50
Authorized		-			-			-
Granted		(5,884,805	)		5,884,805			27.28
Exercised		-			(9,445,011	)		7.93
Cancelled		605,184			(605,184	)		11.43
Balances, April 30, 2006		26,031,355			83,793,090		$	10.91		4.3	$	1,534,251,478
Vested and expected to vest at April 30, 2006					80,625,294		$	10.79		4.3	$	1,485,924,168
Options exercisable at April 30, 2006					45,769,764		$	8.06		4.0	$	968,488,206

During the three months ended April 30, 2006:
Weighted average grant date fair value of options granted	$	10.86 per share
Total fair value of shares vested	$	18.0 million
Total intrinsic value of options exercised	$	161.8 million
Total cash received from employees as a result of employee stock option exercises	$	74.9 million
Tax benefits realized as a result of employee stock option exercises	$	9.0 million

	Fair Market Value			Straight-Line Depreciation/Amortization Period
	(In thousands)
Cash	$	21,551
Accounts receivable		8,148			--
Inventories		2,607			--
Other assets		888			--
Property and equipment		1,097			4 - 55 months
Goodwill		32,287			--
Intangible assets:
Existing technology		2,490			3 years
Customer relationships		653			3 years
Total assets acquired		69,721
Current liabilities		(15,765	)		--
Acquisition related expenses		(881	)		--
Total liabilities assumed		(16,646	)
Net assets acquired	$	53,075

Description	Balance at Beginning of Period		Additions (1)		Deductions (2)			Balance at End of Period		Balance at Beginning of Period		Additions (1)		Deductions (2)			Balance at End of Period
	(In thousands)									(In thousands)
Three months ended April 30, 2006
Allowance for sales returns										$	10,239	$	11,775	$	(10,448	)	$	11,566
Three months ended May 1, 2005
Allowance for sales returns	$	11,687	$	5,931	$	(6,813	)	$	10,805	$	11,687	$	5,931	$	(6,813	)	$	10,805
Three months ended April 25, 2004
Allowance for sales returns	$	9,421	$	4,077	$	(5,432	)	$	8,066

	Fair Market Value		Straight-Line Amortization Period
	(In thousands)		(Years)		Fair Market Value		Straight-Line Amortization Period
					(In thousands)		(Years)
Property and equipment	$	2,433		1-2	$	2,433		1-2
Trademarks		11,310		5		11,310		5
Goodwill		60,418		--		85,418		--
Total	$	74,161			$	99,161

	May 1, 2005							January 30, 2005
	Gross CarryingAmount		AccumulatedAmortization			Net CarryingAmount		Gross CarryingAmount		Accumulated Amortization			Net CarryingAmount
	(In thousands)

Technology licenses	$	21,436	$	(10,606	)	$	10,830	$	17,236	$	(9,841	)	$	7,395
Patents		23,260		(16,545	)		6,715		23,260		(15,400	)		7,860
Acquired intellectual property		27,086		(20,281	)		6,805		27,086		(18,578	)		8,508
Trademarks		11,310		(9,110	)		2,200		11,310		(8,544	)		2,766
Other		1,494		(628	)		866		1,494		(509	)		985
Total intangible assets	$	84,586	$	(57,170	)	$	27,416	$	80,386	$	(52,872	)	$	27,514

	April 30, 2006							January 29, 2006
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Technology licenses	$	21,586	$	(14,573	)	$	7,013	$	21,586	$	(13,595	)	$	7,991
Patents		23,750		(20,939	)		2,811		23,750		(19,911	)		3,839
Acquisition-related		38,612		(25,861	)		12,751		27,086		(24,516	)		2,570
Trademarks		11,310		(11,310	)		-		11,310		(10,807	)		503
Other		1,494		(1,080	)		414		1,494		(976	)		518
Total intangible assets	$	96,752	$	(73,763	)	$	22,989	$	85,226	$	(69,805	)	$	15,421

	May 1,			January 30,
Property and Equipment:	2005			2005
	(In thousands)

Software	$	125,837		$	125,310
Test equipment		87,918			86,883
Computer equipment		89,326			82,428
Leasehold improvements		80,381			79,160
Construction in process		1,139			3,264
Office furniture and equipment		20,083			18,777
		404,684			395,822
Accumulated depreciation and amortization		(235,448	)		(216,867	)
Property and equipment, net	$	169,236		$	178,955

	GPU		MCP			WMP			Consumer Electronics		All Other			Consolidated		GPU		MCP		Handheld GPU			Consumer Electronics		All Other			Consolidated
																(In thousands)
Three Months Ended April 30, 2006:
Revenue																$	452,431	$	118,384	$	30,721		$	26,162	$	54,109		$	681,807
Depreciation and amortization expense																$	8,455	$	4,153	$	3,589		$	84	$	7,619		$	23,900
Operating income (loss)																$	128,858	$	2,983	$	(1,424	)	$	19,372	$	(49,104	)	$	100,685
Three Months Ended May 1, 2005:
Revenue	$	409,926	$	71,805		$	7,762		$	58,078	$	36,275		$	583,846	$	409,926	$	71,805	$	7,762		$	58,078	$	36,275		$	583,846
Depreciation and amortization expense																$	8,895	$	3,246	$	3,175		$	360	$	7,641		$	23,317
Operating income (loss)	$	77,865	$	6,923		$	(15,593	)	$	28,941	$	(21,954	)	$	76,182	$	78,132	$	6,923	$	(15,860	)	$	28,941	$	(21,954	)	$	76,182
Three Months Ended April 25, 2004:
Revenue	$	375,270	$	34,913		$	5,658		$	23,789	$	32,275		$	471,905
Operating income (loss)	$	61,975	$	(13,836	)	$	(6,792	)	$	8,024	$	(25,491	)	$	23,880

	Three Months Ended
	May 1,			April 25,			$			%
	2005			2004			Change			Change			Three Months Ended
													April 30,			May 1,			$			%
	(in millions)												2006			2005			Change			Change
Research and Development:													(in millions)
Salaries and benefits	$	48.9		$	40.9		$	8.0			20	%	$	68.0		$	48.9		$	19.1			39	%
Computer software and lab equipment		10.9			10.2			0.7			7	%		12.9			10.9			2.0			18	%
New product development		6.8			4.6			2.2			48	%		7.5			6.8			0.7			10	%
Facility expense		7.8			7.5			0.3			4	%		8.1			7.8			0.3			4	%
Depreciation and amortization		14.3			13.5			0.8			6	%		15.0			14.3			0.7			5	%
Stock-based compensation														13.6			-			13.6			-
License and development project costs														(5.8	)		(4.7	)		(1.1	)		23	%
Other		(2.8	)		1.1			(3.9	)		-355	%		3.1			1.9			1.2			63	%
Total	$	85.9		$	77.8		$	8.1			10	%	$	122.4		$	85.9		$	36.5			42	%
Research and development as a percentage of net revenue		15	%		17	%								18	%		15	%

	May 1,		January 30,
Accrued Liabilities:	2005		2005
	(In thousands)

Accrued customer programs	$	81,000	$	83,013
Deferred revenue		10,153		11,500
Customer advances		9,226		1,457
Taxes payable		43,430		28,826
Accrued payroll and related expenses		27,829		37,016
Deferred rent		11,182		10,844
Other		10,209		9,421
Total accrued liabilities	$	193,029	$	182,077

Period	Total Number of Shares Purchased		Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)

January 31, 2005 through February 27, 2005		-	$	-			-	$	275,356,213

February 27, 2005 through March 27, 2005		1,351,398	$	25.27			1,351,398	$	241,210,474

March 27, 2005 through May 1, 2005		590,000	$	24.27			590,000	$	226,888,622

Total		1,941,398	$	24.97 (2	)		1,941,398

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

EXHIBIT INDEX
Exhibit No.	Exhibit Description	Form	File Number	Exhibit	Filing Date	Filed Herewith
3.3	Bylaws of NVIDIA Corporation, Amended and Restated as of March 7, 2006	10-K	0-23985	3.3	3/16/06
10.1	Form of Indemnity Agreement 8-k between NVIDIA Corporation and each of its directors and officers	8-K	0-23985	10.1	3/07/06
10.2	1998 Equity Incentive Plan, as amended	8-K	0-23985	10.2	3/13/06
10.3+	NVIDIA Corporation Fiscal Year 2007 Variable Compensation Plan	8-K	0-23985	10.1	4/03/06
10.4+	1998 Non-Employee Directors’ Stock Option Plan, as amended	8-K	0-23985	10.2	4/03/06
31.1	Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended					*
31.2	Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended					*
32.1#	Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended					*
32.2#	Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended					*