SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the quarterly period ended ~~April 27,~~October 26, 2008

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

For the transition period from _____ to ______

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

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

~~NVIDIA CORPORATION~~

~~FORM 10-Q~~

~~FOR THE QUARTER ENDED APRIL 27, 2008~~

~~TABLE OF CONTENTS~~

		~~Page~~
	~~PART I : FINANCIAL INFORMATION~~
~~Item 1.~~	~~Financial Statements (Unaudited)~~	3
	~~a) Condensed Consolidated Statements of Income for the three months ended April 27, 2008 and April 29, 2007~~	3
	~~b) Condensed Consolidated Balance Sheets as of April 27, 2008 and January 27, 2008~~	4
	~~c) Condensed Consolidated Statements of Cash Flows for the three months ended April 27, 2008 and April 29, 2007~~	5
	d) ~~Notes to Condensed Consolidated Financial Statements~~	6
~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	24
~~Item 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	34
~~Item 4.~~	~~Controls and Procedures~~	35
	~~PART II : OTHER INFORMATION~~
~~Item 1~~.	~~Legal Proceedings~~	36
~~Item 1A.~~	~~Risk Factors~~	36
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	49
~~Item 3.~~	~~Defaults upon Senior Securities~~	50
~~Item 4.~~	~~Submission of Matters to a Vote of Security Holders~~	50
~~Item 5.~~	~~Other Information~~	50
~~Item 6.~~	~~Exhibits~~	51
~~Signatures~~		52

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share data)

							Three Months Ended					Nine Months Ended
	Three Months Ended						October 26, 2008			October 28, 2007		October 26, 2008			October 28, 2007
	April 27, 2008			April 29, 2007
Revenue	$	1,153,388		$	844,280		$	897,655		$	1,115,597	$	2,943,719		$	2,895,130
Cost of revenue		638,545			464,142			529,812			600,044		1,911,116			1,575,447
Gross profit		514,843			380,138			367,843			515,553		1,032,603			1,319,683
Operating expenses:
Operating expenses
Research and development		218,830			158,321			212,360			179,529		644,100			495,802
Sales, general and administrative		93,034			80,571			90,349			88,183		275,782			250,034
Restructuring charges								8,338			-		8,338			-
Total operating expenses		311,864			238,892			311,047			267,712		928,220			745,836
Income from operations		202,979			141,246			56,796			247,841		104,383			573,847
Interest income		14,323			13,208			9,447			17,416		35,851			46,250
Other expense, net		(4,284	)		(665	)
Other income (expense), net								(5,240	)		1,542		(12,813	)		1,342
Income before income tax expense		213,018			153,789			61,003			266,799		127,421			621,439
Income tax expense		36,213			21,530
Income tax expense (benefit)								(745	)		31,138		9,797			80,787
Net income	$	176,805		$	132,259		$	61,748		$	235,661	$	117,624		$	540,652

Basic income per share	$	0.32		$	0.24
Shares used in basic per share computation (1)		555,673			541,247
Basic net income per share							$	0.11		$	0.42	$	0.21		$	0.99
Weighted average shares used in basic per share computation								543,807			554,966		551,623			547,796

Diluted income per share	$	0.30		$	0.22
Shares used in diluted per share computation (1)		591,989			598,299
Diluted net income per share							$	0.11		$	0.38	$	0.20		$	0.89
Weighted average shares used in diluted per share computation								564,536			612,985		590,490			605,733

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands)

	April 27, 2008			January 27, 2008			October 26, 2008			January 27, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	803,308		$	726,969		$	461,253		$	726,969
Marketable securities		818,331			1,082,509			843,635			1,082,509
Accounts receivable, net		651,800			666,494			607,834			666,494
Inventories		420,126			358,521			523,988			358,521
Prepaid expenses and other		55,428			54,336			43,389			54,336
Total current assets		2,748,993			2,888,829			2,480,099			2,888,829
Property and equipment, net		522,056			359,808			609,674			359,808
Goodwill		371,019			354,057			366,286			354,057
Intangible assets, net		125,001			106,926			155,646			106,926
Deposits and other assets		40,389			38,051			37,193			38,051
Total assets	$	3,807,458		$	3,747,671		$	3,648,898		$	3,747,671

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	427,855		$	492,099		$	387,252		$	492,099
Accrued liabilities		448,697			475,062			617,213			475,062
Total current liabilities		876,552			967,161			1,004,465			967,161
Other long-term liabilities		193,728			162,598			157,358			162,598
Commitments and contingencies - see Note 12
Commitments and contingencies - see Note 13
Stockholders’ equity:
Preferred stock		-			-			-			-
Common stock		623			619			629			619
Additional paid-in capital		1,727,519			1,654,681			1,841,850			1,654,681
Treasury stock, at cost		(1,163,528	)		(1,039,632	)		(1,463,268	)		(1,039,632	)
Accumulated other comprehensive income		1,549			8,034
Accumulated other comprehensive income (loss)								(3,970	)		8,034
Retained earnings		2,171,015			1,994,210			2,111,834			1,994,210
Total stockholders' equity		2,737,178			2,617,912			2,487,075			2,617,912
Total liabilities and stockholders' equity	$	3,807,458		$	3,747,671		$	3,648,898		$	3,747,671

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

	Three Months Ended						Nine Months Ended
		April 27, 2008		April 29, 2007				October 26, 2008		October 28, 2007
Cash flows from operating activities:
Net income	$	176,805		$	132,259		$	117,624		$	540,652
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization								136,968			96,256
Stock-based compensation expense related to employees		42,124			37,405			120,873			98,868
Depreciation and amortization		41,358			31,334
Payments under patent licensing arrangement								(21,502	)		(49,634	)
Impairment charge on investments								9,891			-
Deferred income taxes		31,186			899			1,568			67,279
Payments under patent licensing arrangement		(4,980	)		(11,291	)
Other		1,238			60			1,899			618
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		15,826			47,847			59,276			(32,943	)
Inventories		(61,149	)		22,840			(165,154	)		48,590
Prepaid expenses and other current assets		(831	)		(2,642	)		11,205			(4,327	)
Deposits and other assets		(2,258	)		1,376			(2,030	)		3,193
Accounts payable		(68,608	)		61,344			(114,292	)		175,096
Accrued liabilities and other long-term liabilities		(25,466	)		(26,233	)		112,879			74,077
Net cash provided by operating activities		145,245			295,198			269,205			1,017,725
Cash flows from investing activities:
Proceeds from sales and maturities of marketable securities								1,131,147			521,712
Purchases of marketable securities		(289,649	)		(268,211	)		(917,987	)		(739,706	)
Proceeds from sales and maturities of marketable securities		545,803			214,775
Purchases of property and equipment and intangible assets		(202,173	)		(26,336	)		(364,695	)		(117,406	)
Acquisition of businesses, net of cash and cash equivalents		(27,948	)		-			(27,948	)		-
Other		(1,500	)		-			1,468			-
Net cash used in investing activities		24,533			(79,772	)		(178,015	)		(335,400	)
Cash flows from financing activities:
Payments for stock repurchases		(123,896	)		(125,000	)		(423,636	)		(374,427	)
Proceeds from issuance of common stock under employee stock plans		30,457			44,111			66,730			204,390
Net cash used in financing activities		(93,439	)		(80,889	)		(356,906	)		(170,037	)
Change in cash and cash equivalents		76,339			134,537			(265,716	)		512,288
Cash and cash equivalents at beginning of period		726,969			544,414			726,969			544,414
Cash and cash equivalents at end of period	$	803,308		$	678,951		$	461,253		$	1,056,702

Supplemental disclosures of cash flow information:
Cash paid for income taxes, net	$	1,982		$	1,916		$	6,679		$	4,299
Other non-cash activities:
Unrealized losses from marketable securities	$	8,234		$	213
Assets acquired by assuming related liabilities							$	33,330		$	16,348
Change in unrealized gains (losses) from marketable securities							$	(14,886	)	$	2,571

See accompanying Notes to Condensed Consolidated Financial Statements.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Summary of Significant Accounting Policies

Basis of presentation

The accompanying unaudited ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Securities and Exchange Commission, or SEC, Regulation S-X. In the opinion of management, all adjustments, consisting only of normal recurring adjustments except as otherwise noted, considered necessary for a fair statement of results of operations and financial position have been included. The results for the interim periods presented are not necessarily indicative of the results expected for any future period. The following information should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 27, 2008.

Fiscal year

We operate on a 52 or 53-week year, ending on the last Sunday in January. ~~The first quarters~~Each quarter in fiscal years 2009 and 2008 ~~were both~~was a 13-week ~~quarters.~~quarter.

~~Stock Split~~

In August 2007, our Board of Directors, or the Board, approved a three-for-two stock split of our outstanding shares of common stock on Monday, August 20, 2007 to be effected in the form of a stock dividend. The stock split was effective on Monday, September 10, 2007 and entitled each stockholder of record on August 20, 2007 to receive one additional share for every two outstanding shares of common stock held and cash in lieu of fractional shares. All share and per-share numbers contained herein have been retroactively adjusted to reflect this stock split.

Reclassifications

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

Principles of Consolidation

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

Product Warranties

We generally offer limited warranty that ranges from one to three years for products in order to repair or replace products for any manufacturing defects or hardware component failures. Cost of revenue includes the estimated cost of product warranties that are calculated at the point of revenue recognition.

Use of Estimates

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

NVIDIA CORPORATION AND SUBSIDIARIES

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

(Unaudited)

Revenue Recognition

Product Revenue

We recognize revenue from product sales when persuasive evidence of an arrangement exists, the product has been delivered, the price is fixed and determinable, and collection is reasonably assured. For most sales, we use a binding purchase order and in certain cases we use a contractual agreement as evidence of an arrangement. We consider delivery to occur upon shipment provided title and risk of loss have passed to the customer based on the shipping terms. At the point of sale, we assess whether the arrangement fee is fixed and determinable and whether collection is reasonably assured. If we determine that collection of a fee is not reasonably assured, we defer the fee and recognize revenue at the time collection becomes reasonably assured, which is generally upon receipt of payment.

Our policy on sales to certain distributors, with rights of return, is to defer recognition of revenue and related cost of revenue until the distributors resell the product.

We record estimated reductions to revenue for customer programs at the time revenue is recognized. Our customer programs primarily involve rebates, which are designed to serve as sales incentives to ~~resellers~~purchasers of our ~~products in various target markets.~~products. We account for rebates in accordance with Emerging Issues Task Force Issue 01-9, or EITF 01-09, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products) and, as such, we accrue for 100% of the potential rebates and do not apply a breakage factor. Rebates typically expire six months from the date of the original sale, unless we reasonably believe that the customer intends to claim the rebate. Unclaimed rebates are reversed to revenue upon expiration of the rebate.

Our customer programs also include marketing development funds, or MDFs. We account for MDFs as either a reduction of revenue or an operating expense in accordance with EITF 01-09. MDFs represent monies paid to retailers, system builders, original equipment manufacturers, ~~or OEMs,~~ distributors and add-in card partners that are earmarked for market segment development and expansion and typically are designed to support our partners’ activities while also promoting ~~NVIDIA~~our products. Depending on market conditions, we may take actions to increase amounts offered under customer programs, possibly resulting in an incremental reduction of revenue at the time such programs are offered.

We also record a reduction to revenue by establishing a sales return allowance for estimated product returns at the time revenue is recognized, based primarily on historical return rates. However, if product returns for a particular fiscal period exceed historical return rates we may determine that additional sales return allowances are required to properly reflect our estimated exposure for product returns.

License and Development Revenue

For license arrangements that require significant customization of our intellectual property components, we generally recognize this license revenue using the percentage-of-completion method of accounting over the period that services are performed. For all license and service arrangements accounted for under the percentage-of-completion method, we determine progress to completion based on actual direct labor hours incurred to date as a percentage of the estimated total direct labor hours required to complete the project. We periodically evaluate the actual status of each project to ensure that the estimates to complete each contract remain accurate. A provision for estimated losses on contracts is made in the period in which the loss becomes probable and can be reasonably estimated. Costs incurred in advance of revenue recognized are recorded as deferred costs on uncompleted contracts. If the amount billed exceeds the amount of revenue recognized, the excess amount is recorded as deferred revenue. Revenue recognized in any period is dependent on our progress toward completion of projects in progress. Significant management judgment and discretion are used to estimate total direct labor hours. Any changes in or deviations from these estimates could have a material effect on the amount of revenue we recognize in any period.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Adoption of New Accounting Pronouncements

On January 28, 2008, we adopted Statement of Financial Accounting Standards No. 157, or SFAS No. 157, Fair Value Measurements. for all financial assets and liabilities. SFAS No. 157 ~~for~~applies to all financial assets and financial liabilities recognized or disclosed at fair value in the financial statements. SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. The changes to current practice resulting from the application of SFAS No. 157 relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. The adoption of SFAS No. 157 for financial assets and liabilities did not have a significant impact on our consolidated financial statements, and the resulting fair values calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under previous guidance. Please refer to Note 1617 of these Notes to ~~the~~these Condensed Consolidated Financial Statements for further details on our fair value measurements.

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

In October 2008, the FASB issued Staff Position No. FAS 157-3, or FSP No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP No. 157-3 clarifies the application of SFAS No. 157 in a market that is not active, and addresses application issues such as the use of internal assumptions when relevant observable data does not exist, the use of observable market information when the market is not active, and the use of market quotes when assessing the relevance of observable and unobservable data. FSP No. 157-3 is effective for all periods presented in accordance with SFAS No. 157. The adoption of FSP No. 157-3 did not have a significant impact on our consolidated financial statements, and the resulting fair values calculated under SFAS No. 157 after adoption were not significantly different than the fair values that would have been calculated under previous guidance.

On January 28, 2008, we adopted ~~the Financial Accounting Standards Board, or FASB issued~~ Statement of Financial Accounting Standards No. 159, or SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS No. 159 permits companies to choose to measure certain financial instruments and certain other items at fair value using an instrument-by-instrument election. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. Under SFAS No. 159, we did not elect the fair value option for any of our assets and liabilities. The adoption of SFAS No. 159 did not have an impact on our consolidated financial statements.

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

Recently Issued Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), or SFAS No. 141(R), Business Combinations. Under SFAS No. 141(R), an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. It further requires that acquisition-related costs be recognized separately from the acquisition and expensed as incurred, restructuring costs generally be expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense. In addition, acquired in-process research and development, or IPR&D, is capitalized as an intangible asset and amortized over its estimated useful life. We are required to adopt the provisions of SFAS No. 141(R) beginning with our fiscal quarter ending April 26, 2009. The adoption of SFAS No. 141(R) is expected to change our accounting treatment for business combinations on a prospective basis beginning in the period it is adopted.

In April 2008, the FASB issued FASB Staff Position No. FAS No.142-3, or FSP No. 142-3, Determination of Useful Life of Intangible Assets. FSP No. 142-3 amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, or SFAS No. 142, Goodwill and Other Intangible Assets. FSP No. 142-3 also requires expanded disclosure regarding the determination of intangible asset useful lives. FSP No. 142-3 is effective for fiscal years beginning after December 15, 2008. Earlier adoption is not permitted. We are currently evaluating the potential impact the adoption of FSP No. 142-3 will have on our consolidated financial position, results of operations and cash flows.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 2 - Stock-Based Compensation

Effective January 30, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123(R), or SFAS No. 123(R), Share-based Payment, which establishes accounting for stock-based awards exchanged for employee services. Accordingly, stock-based compensation expense is measured at grant date, based on the fair value of the awards, and is recognized as expense over the requisite employee service period. We elected to adopt the modified prospective application method beginning January 30, 2006 as provided by SFAS No. 123(R). We recognize stock-based compensation expense using the straight-line attribution method. We estimate the value of employee stock options on the date of grant using a binomial model.

Our ~~condensed consolidated income statements~~Condensed Consolidated Statements of Income include stock-based compensation expense, net of amounts capitalized as inventory, as follows:

	Three Months Ended					Three Months Ended				Nine Months Ended
		April 27, 2008		April 29, 2007		October 26, 2008		October 28, 2007		October 26, 2008		October 28, 2007
		(In thousands)					(In thousands)
Cost of revenue		$	3,136	$	2,809	$	3,558	$	2,566	$	10,027	$	8,077
Research and development			24,534		22,400	$	22,740	$	18,650	$	71,500	$	57,471
Sales, general and administrative			14,454		12,196	$	12,086	$	10,787	$	39,346	$	33,320
Total		$	42,124	$	37,405

During the three and nine months ended ~~April 27,~~October 26, 2008, ~~and April 29, 2007,~~ we granted approximately ~~8.7~~7.7 million and ~~7.2~~17.4 million stock options, respectively, with an estimated total grant-date fair value of ~~$87.0~~$45.7 million and ~~$56.1~~$141.1 million, respectively, and a per option weighted average grant-date fair value of ~~$9.97~~$5.93 and ~~$7.75,~~$8.13, respectively. Of the estimated total grant-date fair value, we estimated that the stock-based compensation expense related to the awards that are not expected to vest was ~~$17.0~~$7.5 million and ~~$10.5~~$23.3 million for the three and nine months ended ~~April 27,~~October 26, 2008, respectively.

During the three and ~~April 29,~~nine months ended October 28, 2007, we granted approximately 7.3 million and 15.9 million stock options, respectively, with an estimated total grant-date fair value of $117.8 million and $187.6 million, respectively, and a per option weighted average grant-date fair value of $16.03 and $11.79, respectively. Of the estimated total grant-date fair value, we estimated that the stock-based compensation expense related to the awards that are not expected to vest was $22.7 million and $36.2 million for the three and nine months ended October 28, 2007, respectively.

As of ~~April 27,~~October 26, 2008 and ~~April 29,~~October 28, 2007, the aggregate amount of unearned stock-based compensation expense related to our stock options was ~~$272.9~~$226.8 million and ~~$185.3~~$244.7 million, respectively, adjusted for estimated forfeitures. We will recognize the unearned stock-based compensation expense related to stock options over an estimated weighted average amortization period of ~~2.2~~1.9 years and ~~2.1~~2.2 years, respectively.

Valuation Assumptions

We 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 our expected volatility than historical volatility. We also segregated options into groups for employees with relatively homogeneous exercise behavior in order to calculate the best estimate of fair value using the binomial valuation model. As such, the expected term assumption used in calculating the estimated fair value of our stock-based compensation awards using the binomial model is based on detailed historical data about employees' 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.

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

The fair value of stock options granted during the first ~~quarters~~nine months of fiscal years 2009 and 2008, respectively, under our stock option plans and shares issued under our employee stock purchase plan have been estimated at the date of grant with the following assumptions:

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Stock Options

	Three Months Ended						Nine Months Ended
	~~April 27,~~October 26, 2008			~~April 29,~~October 28, 2007			October 26, 2008			October 28, 2007
~~Stock Options~~		~~(Using~~(Using a binomial model)
~~Weighted average expected~~Expected life ~~of stock options~~ (in years)		3.6 ~~- 5.7~~-5.8			~~3.9~~3.8 - 5.8			3.6 - 5.8			3.8 - 5.8
Risk free interest rate		~~2.6%~~2.7% - ~~2.9~~3.4	%		~~4.6~~4.1% - 4.7	%		2.6% - 3.7	%		4.1% - 5.0	%
Volatility		~~60%~~61% - 68105	%		~~39%~~45% - 4554	%		52% - 105	%		37% - 54	%
Dividend ~~yield~~Yield		—-			—-			-			-

Employee Stock Purchase Plan

	Three Months Ended						Nine Months Ended
	October 26, 2008			October 28, 2007			October 26, 2008			October 28, 2007
		(Using a Black-Scholes model)
Expected life (in years)		0.5 - 2.0			0.5 - 2.0			0.5 - 2.0			0.5 - 2.0
Risk free interest rate		2.0% - 2.4	%		4.1% - 4.5	%		1.6% - 2.4	%		4.1% - 5.0	%
Volatility		62%			54	%		62% - 68	%		47% - 54	%
Dividend Yield		-			-			-			-

Three Months Ended

April 27,
2008

April 29,
2007

Employee Stock Purchase Plan (Using a Black-Scholes model)
Weighted average expected life of stock options (in years)

0.5 - 2.0

0.5 – 2.0

Risk free interest rate

1.6% - 1.8
%

4.6% - 5.0
%
Volatility

68
%

47
%
Dividend yield

—

—

Equity Incentive Plans

We consider equity compensation to be long-term compensation and an integral component of our efforts to attract and retain exceptional executives, senior management and world-class employees. We believe that properly structured equity compensation aligns the long-term interests of stockholders and employees by creating a strong, direct link between employee compensation and stock appreciation, as stock options are only valuable to our employees if the value of our common stock increases after the date of grant.

The description of the key features of the ~~Nvidia~~NVIDIA Corporation 2007 Equity Incentive Plan, ~~or the 2007 Plan,~~ PortalPlayer, Inc. 1999 Stock Option ~~Plan, or 1999~~ Plan, and 1998 Employee Stock Purchase Plan, may be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 27, 2008.

The following summarizes the transactions under our equity incentive plans:

	Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share		Options Available for Grant			Options Outstanding			Weighted Average Exercise Price Per Share
Balances, January 27, 2008		44,044,004			90,581,073		$	13.18		44,044,004			90,581,073		$	13.18
Granted		(8,729,705	)		8,729,705		$	18.21		(17,358,152	)		17,358,152		$	14.64
Exercised		-			(2,531,463	)	$	4.77		-			(6,019,139	)	$	4.68
Cancelled		502,017			(502,017	)	$	22.80		2,413,243			(2,413,243	)	$	22.00
Balances, April 27, 2008		35,816,316			96,277,298		$	13.81
Balances, October 26, 2008										29,099,095			99,506,843		$	13.73

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 3 – Restructuring Charges

The following table provides a summary of the restructuring activities and related liabilities recorded in accrued liabilities in our Condensed Consolidated Balance Sheet:

	October 26, 2008
Accrued Restructuring Charges :	(In thousands)
Balance at January 27, 2008	$	-
Charges		8,338
Cash payments		(7,241	)
Non-cash charges		(330	)
Balance at October 26, 2008	$	767

The remaining accrual of $0.8 million as of October 26, 2008 relates to severance and benefits payments, which are expected to be paid during the fourth quarter of fiscal year 2009.

Note 4 – Income Taxes

We recognized income tax expense (benefit) of ($0.7) million and $31.1 million for the three months ended October 26, 2008 and October 28, 2007, respectively, and $9.8 million and $80.8 million for the nine months ended October 26, 2008 and October 28, 2007, respectively. Income tax expense (benefit) as a percentage of income before taxes, or our effective tax rate, was ~~17%~~(1.2%) and 11.7% for the three months ended ~~April 27,~~October 26, 2008 and ~~14%~~October 28, 2007, respectively, and 7.7% and 13.0% for the ~~three~~nine months ended ~~April 29, 2007.~~October 26, 2008 and October 28, 2007, respectively. Our effective tax rate is lower than the ~~U.S.~~United States federal statutory tax rate of ~~35%~~35.0% due primarily ~~on account of foreign earnings being taxed~~to income earned in ~~foreign~~lower tax jurisdictions ~~at rates below~~and the U.S. ~~statutory~~ tax ~~rate. The increase in our effective tax rate to 17% as of April 27, 2008 from 14% at April 29, 2007 was primarily due to the expiration~~benefit of the federal research tax ~~credit.~~credits available in the respective periods.

~~In accordance with FASB Interpretation No. 48, “Accounting~~Our effective tax rate of 7.7% for ~~Uncertainty~~the first nine months of fiscal year 2009 was lower than our effective tax rate of 13.0% for the first nine months of fiscal year 2008 due primarily to a favorable impact from the expiration of statutes of limitations in ~~Income Taxes-An Interpretation~~certain non-U.S. jurisdictions and due to the reinstatement of ~~SFAS No. 109,” or FIN 48, we classify unrecognized~~the U.S. federal research tax ~~benefits~~credit under the ~~current liabilities section~~Emergency Economic Stabilization Act of ~~the Condensed Consolidated Balance Sheet, or as a reduction of the amount of a net operation loss carryforward or amount refundable,~~2008, which was signed into law on October 3, 2008 and was retroactive to the extent that we anticipate payment or receipt of cash for income taxes within one year. Likewise, the amount is classified under the long-term liability section of the Condensed Consolidated Balance Sheet if we anticipate payment or receipt of cash for income taxes during a period beyond a year.January 1, 2008.

During the second quarter of fiscal year 2009, the Internal Revenue Service closed its review of our U.S. federal income tax returns for fiscal year 2004 through 2006 with no material changes to our income tax returns as filed. However, due to net operating losses generated in those and other tax years, we remain subject to future examination of our U.S. federal income tax returns beginning in fiscal year 2002 through fiscal year 2008. For the ~~three~~nine months ended ~~April 27,~~October 26, 2008, there have been no other material changes to our tax years that remain subject to examination by major tax jurisdictions. Additionally, there have been no material changes to our unrecognized tax benefits ~~increased by $5.2 million. If recognized, $4.5 million of the $5.2 million would impact~~and any related interest or penalties from our effective tax rate, and $0.7 million of the $5.2 million would increase our gross deferred tax assets, which would likely require a full valuation allowance. As a result, at April 27, 2008, we had $83.0 million of unrecognized tax benefits. If recognized, $63.0 million of the $83.0 million would impact our effective tax rate, $6.9 million of the $83.0 million would be an adjustment to goodwill as it relates to pre-acquisition unrecognized tax benefits, and $13.1 million of the $83.0 million would increase our gross deferred tax assets, which would likely require a full valuation allowance.

~~We recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of April 27, 2008 and~~fiscal year ended January 27, 2008, we had accrued $12.1 million and $11.2 million, respectively, for the payment of interest and penalties related to unrecognized tax benefits, which is not included as a component of our unrecognized tax benefits.2008.

While we believe that we have adequately provided for all uncertain tax positions, amounts asserted by tax authorities could be greater or less than our accrued position. Accordingly, our provisions on federal, state and foreign tax-related matters to be recorded in the future may change as revised estimates are made or the underlying matters are settled or otherwise ~~resolved.~~resolved with the respective tax authorities. As of ~~April 27,~~October 26, 2008, we do not believe that our estimates, as otherwise provided for, on such tax positions will significantly increase or decrease within the next twelve months.

We are subject to taxation by a number of taxing authorities both in the United States and throughout the world. As of April 27, 2008, the material tax jurisdictions that are subject to examination include the United States, Hong Kong, Taiwan, China, India and Germany and include our fiscal years 2002 through 2008. As of April 27, 2008, the material tax jurisdictions for which we are currently under examination include the U.S. for federal tax purposes for fiscal years 2004 through 2006, Taiwan for fiscal year 2003 and 2004, India for fiscal years equivalent 2005 and 2006, and Germany for fiscal year equivalent 2006.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 45 – Net Income Per Share

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period, using the treasury stock method. Under the treasury stock method, the effect of stock options outstanding is not included in the computation of diluted net income per share for periods when their effect is anti-dilutive. The following is a reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the periods presented:

	Three Months Ended				Three Months Ended				Nine Months Ended
	April 27, 2008		April 29, 2007		October 26, 2008		October 28, 2007		October 26, 2008		October 28, 2007
	(In thousands, except per share data)				(In thousands, except per share data)
Numerator:
Net income	$	176,805	$	132,259	$	61,748	$	235,661	$	117,624	$	540,652
Denominator:
Denominator for basic net income per share, weighted average shares		555,673		541,247		543,807		554,966		551,623		547,796
Effect of dilutive securities:
Stock options outstanding		36,316		57,052		20,729		58,019		38,867		57,937
Denominator for diluted net income per share, weighted average shares		591,989		598,299		564,536		612,985		590,490		605,733

Net income per share:
Basic net income per share	$	0.32	$	0.24	$	0.11	$	0.42	$	0.21	$	0.99
Diluted net income per share	$	0.30	$	0.22	$	0.11	$	0.38	$	0.20	$	0.89

Diluted net income per share for the three and nine months ended October 26, 2008 does not include the effect of anti-dilutive common equivalent shares from stock options outstanding of ~~32.3~~58.8 million and ~~19.2~~45.2 million, respectively. Diluted net income per share for the three and nine months ended October 28, 2007 does not include the effect of anti-dilutive common equivalent shares from stock options outstanding of 8.5 million and 11.5 million, respectively.

During fiscal year 2002, we completed the purchase of certain assets from 3dfx Interactive, Inc., or 3dfx, for an aggregate purchase price of approximately $74.2 million. On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or the APA, to purchase certain graphics chip assets from 3dfx. Under the terms of the APA, the cash consideration due at the closing was $70.0 million, less $15.0 million that was loaned to 3dfx pursuant to a Credit Agreement dated December 15, 2000. The APA also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx one million shares, which due to subsequent stock splits now totals six million shares, of NVIDIA common stock. If 3dfx could not make such a certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under the APA to pay any additional consideration for the assets. On April 18, 2001, NVIDIA paid the cash consideration, and 3dfx effected the conveyance of the assets NVIDIA had purchased.

In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. In March 2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate served his complaint on NVIDIA. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and seeks additional payments from us. On October 13, 2005, the Bankruptcy Court heard the Trustee’s motion for summary adjudication, and on December 23, 2005, denied that motion in all material respects and held that NVIDIA may not dispute that the value of the 3dfx transaction was less than $108 million. The Bankruptcy Court denied the Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA was at least $108 million. In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. The conditional settlement never progressed substantially through the confirmation process.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

On December 21, 2006, the Bankruptcy Court scheduled a trial for one portion of the Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA terminated the settlement agreement on grounds that the Bankruptcy Court had failed to proceed toward confirmation of the Creditors’ Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues in the Trustee's constructive fraudulent transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as "property" subject to the Bankruptcy Court's avoidance powers under the Uniform Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is the fair market value of the "property" identified in answer to question (2)?; and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to the fair market value of that property? The parties completed post-trial briefing on May 25, 2007. On April ~~27,~~30, 2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties' contentions and evidence and concluded that "the creditors of 3dfx were not injured by the Transaction." This decision did not entirely dispose of the Trustee's action, however, as the Trustee's claims for successor liability and intentional fraudulent conveyance were still pending. On June 19, 2008, NVIDIA filed a motion for summary judgment to convert the Memorandum Decision After Trial to a final judgment. That motion was granted in its entirety and judgment was entered in NVIDIA’s favor on September 11, 2008. The Trustee filed a Notice of Appeal from that judgment on September 22, 2008, and ~~April 29, 2007, respectively.~~on September 25, 2008, NVIDIA exercised its election to have the appeal heard by the United States District Court.

The 3dfx asset purchase price of $95.0 million and $4.2 million of direct transaction costs were allocated based on fair values presented below. The final allocation of the purchase price of the 3dfx assets is contingent upon the outcome of all of the 3dfx litigation. Please refer to Note 13 of these Notes to Condensed Consolidated Financial Statements for further information regarding this litigation.

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

~~Note 5 - 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 our cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Cash equivalents consist of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition. Marketable securities consist primarily of highly liquid investments with a maturity of greater than three months when purchased and some equity investments. We classify our marketable securities at the date of acquisition in the available-for-sale category as our intention is to convert them into cash for operations. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. Any unrealized losses which are considered to be other-than-temporary impairment, would be recorded in the other expense section of our consolidated statements of income. As of April 27, 2008, we did not recognize any such other-than-temporary impairment on our securities. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method. Net realized gains for the three months ended April 27, 2008 and April 29, 2007 were $1.3 million and $0.1 million, respectively. The unrealized gains for the three months ended April 27, 2008 and April 29, 2007 were $2.5 million and $1.5 million, respectively. Refer to Note 16 of these Notes to the Condensed Consolidated Financial Statements for further details on our fair value measurements.

~~Note 6 - 3dfx~~

During fiscal year 2002, we completed the purchase of certain assets from 3dfx Interactive, Inc., or 3dfx, for an aggregate purchase price of approximately $74.2 million. On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or the APA, which closed on April 18, 2001, to purchase certain graphics chip assets from 3dfx. Under the terms of the APA, the cash consideration due at the closing was $70.0 million, less $15.0 million that was loaned to 3dfx pursuant to a Credit Agreement dated December 15, 2000. The APA also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx one million shares, which due to subsequent stock splits now totals six million shares, of NVIDIA common stock. If 3dfx could not make such a certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under the APA to pay any additional consideration for the assets.

In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. In March 2003, we were served with a complaint filed by the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and seeks additional payments from us. On October 13, 2005, the Bankruptcy Court held a hearing on the Trustee’s motion for summary adjudication. On December 23, 2005, the Bankruptcy Court denied the Trustee’s Motion for Summary Adjudication in all material respects and held that NVIDIA may not dispute that the value of the 3dfx transaction was less than $108.0 million. The Bankruptcy Court denied the Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA was at least $108.0 million. In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against NVIDIA. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court after notice and hearing. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. However, the conditional settlement never progressed substantially through the confirmation process.

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

The 3dfx asset purchase price of $95.0 million and $4.2 million of direct transaction costs were allocated based on fair values presented below. The final allocation of the purchase price of the 3dfx assets is contingent upon the outcome of all of the 3dfx litigation. Please refer to Note 12 of these Notes to Condensed Consolidated Financial Statements for further information regarding this litigation.

Fair Market Value Straight-Line Amortization Period
(In thousands) (Years)
Property and equipment

$
2,433

1-2

Trademarks

11,310

5

Goodwill

85,418

--

Total

$
99,161

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Note 7 – Business Combinations

On February 10, 2008, we acquired Ageia Technologies, Inc., or Ageia, an industry leader in gaming physics technology. The combination of the graphics processing unit, or GPU, and physics engine brands is expected to enhance the visual experience of the gaming world. The aggregate purchase price consisted of total consideration of approximately $29.7 million.

On November 30, 2007, we completed our acquisition of Mental Images, Inc., or Mental Images, an industry leader in photorealistic rendering technology. ~~Mental Images’ Mental Ray product is considered by many to be the most pervasive ray tracing renderer in the industry.~~ The aggregate purchase price consisted of total consideration of approximately $88.3 million. The total consideration also includes approximately $7.8 million which reflects an initial investment we made in Mental Images in prior ~~periods.~~periods and $5.6 million primarily towards guaranteed payments subsequent to completion of our acquisition.

We allocated the purchase price of each of these acquisitions to tangible assets, liabilities and identifiable intangible assets acquired, as well as IPR&D, if identified, based on their estimated fair values. The excess of purchase price over the aggregate fair values was recorded as goodwill. The fair value assigned to identifiable intangible assets acquired was based on estimates and assumptions made by management. Purchased intangibles are amortized on a straight-line basis over their respective useful lives. The allocation of the purchase price for the Mental Images and Ageia acquisitions have been prepared on a preliminary basis and reasonable changes are expected as additional information becomes available.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

As of ~~April 27,~~October 26, 2008, the estimated fair values of the purchase price allocated to assets we acquired and liabilities we assumed on the respective acquisition dates were as follows:

	Mental Images			Ageia
Fair Market Values	(In thousands)
Cash and cash equivalents	$	988		$	1,744
Marketable securities		-			28
Accounts receivable		1,462			911
Prepaid and other current assets		214			3,825
Property and equipment		1,212			169
In-process research and development		4,000			-
Goodwill		58,768			16,547
Intangible assets:
Existing technology		14,400			13,450
Customer relationships		6,500			170
Patents		5,000			-
Trademark		1,200			900
Total assets acquired		93,744			37,744
Current liabilities		(1,579	)		(6,994	)
Acquisition related costs		(1,303	)		(1,030	)
Long-term liabilities		(2,542	)		-
Total liabilities assumed		(5,424	)		(8,024	)
Purchase price allocation	$	88,320		$	29,720

Mental
Images
Ageia
Fair Market Values    (In thousands)
Cash and cash equivalents

$
988

$
1,744

Marketable Securities

-

28

Accounts receivable

1,462

911

Prepaid and other current assets

249

3,825

Property and equipment

1,376

166

In-process research and development

4,000

-

Goodwill

63,290

16,758

Intangible assets:

    Existing technology

14,400

13,450

    Customer relationships

6,500

170

    Patents

5,000

-

    Trademark

1,200

900

Total assets acquired

98,465

37,952

Current liabilities

(6,395
)

(7,232
)
Acquisition related costs

(1,208
)

(1,000
)
Long-term liabilities

(2,542
)

-

Total liabilities assumed

(10,145
)

(8,232
)
Net assets acquired

$
88,320

$
29,720

		Mental Images	Ageia
	(Straight-line depreciation/amortization period)
Property and equipment		2 -5 years	1-2 years
Intangible assets:
Existing technology		4-5 years	4 years
Customer relationships		4-5 years	5 years
Patents		5 years	-
Trademark		5 years	5 years

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

The amount of the IPR&D represents the value assigned to research and development projects of Mental Images that had commenced but had not yet reached technological feasibility at the time of the acquisition and for which we had no alternative future use. In accordance with Statement of Financial Accounting Standards No. 2, or SFAS No. 2, Accounting for Research and Development Costs, as clarified by FASB issued Interpretation No. 4, or FIN 4, Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method an interpretation of FASB Statement No. 2, amounts assigned to IPR&D meeting the above-stated criteria were charged to research and development expenses as part of the allocation of the purchase price.

The pro forma results of operations for these acquisitions have not been presented because the effects of the acquisitions, individually or in the aggregate, were not material to our results.

~~Note 8 - Goodwill~~

~~The carrying amount of goodwill is as follows:~~

April 27,
2008

January 27,
2008

(In thousands)
3dfx

$
75,326

$
75,326

MediaQ

35,167

35,167

ULi

31,115

31,115

Hybrid Graphics

27,906

27,906

PortalPlayer

104,473

104,473

Mental Images

63,290

63,086

Ageia

16,758

-

Other

16,984

16,984

Total goodwill

$
371,019

$
354,057

~~During the first quarter of fiscal year 2009, the amount of goodwill increased by $17.0 million primarily due to our acquisition of Ageia on February 10, 2008.~~

~~Note 9 - Amortizable Intangible Assets~~

We are currently amortizing our intangible assets with definitive lives over periods ranging from one to five years, primarily on a straight-line basis. The components of our amortizable intangible assets are as follows:

April 27, 2008 January 27, 2008

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net Carrying
Amount

(In thousands)
Technology licenses

$
90,562

$
(25,865
)

$
64,697

$
94,970

$
(32,630
)

$
62,340

Patents

12,183

(5,095
)

7,088

35,348

(27,632
)

7,716

Acquired intellectual property

75,030

(21,814
)

53,216

77,900

(41,030
)

36,870

Other

-

-

-

1,494

(1,494
)

-

Total intangible assets

$
177,775

$
(52,774
)

$
125,001

$
209,712

$
(102,786
)

$
106,926

The increase in the net carrying amount of technology licenses as of April 27, 2008 when compared to January 27, 2008, is primarily related to approximately $5.0 million of net cash outflows under a confidential patent licensing arrangement entered into during fiscal year 2007, offset by amortization for the quarter. Additionally, the increase in net carrying value of acquired intellectual property of $16.3 million is primarily related to intangible assets that resulted from our acquisition of Ageia during the first quarter of fiscal year 2009. Please refer to Note 7 of these Notes to Condensed Consolidated Financial Statements for further information. The decrease in the gross carrying amounts of the intangible assets as of April 27, 2008 when compared to January 27, 2008 is due to the write off of fully amortized intangible assets.

1514

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~Amortization expense associated~~

Note 8 - Marketable Securities

We account for our investment instruments in accordance with ~~intangible assets was $7.5 million~~Statement of Financial Accounting Standards No. 115, or SFAS No. 115, Accounting for Certain Investments in Debt and ~~$7.0~~Equity Securities. All of our cash equivalents and marketable securities are treated as “available-for-sale” under SFAS No. 115. Cash equivalents consist of financial instruments which are readily convertible into cash and have original maturities of three months or less at the time of acquisition. Marketable securities consist primarily of highly liquid investments with a maturity of greater than three months when purchased and some equity investments. We classify our marketable securities at the date of acquisition in the available-for-sale category as our intention is to convert them into cash for operations. These securities are reported at fair value with the related unrealized gains and losses included in accumulated other comprehensive income (loss), a component of stockholders’ equity, net of tax. Any unrealized losses which are considered to be other-than-temporary impairments are recorded in the other income (expense) section of our consolidated statements of income. Realized gains (losses) on the sale of marketable securities are determined using the specific-identification method and recorded in the other income (expense) section of our consolidated statements of income.

We performed an impairment review of our investment portfolio as of October 26, 2008. Currently, we have the intent and ability to hold our investments with impairment indicators until maturity. Based on our quarterly impairment review and having considered the guidance in Statement of Financial Accounting Standards Staff Position No. 115-1, or FSP No. 115-1, A Guide to the Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, we recorded other than temporary impairment charges of $8.8 million for the three months ended ~~April~~October 26, 2008. These charges include $5.6 million related to what we believe is an other than temporary impairment of our investment in the money market funds held by the Reserve International Liquidity Fund, Ltd., or International Reserve Fund. Please refer to Note 17 of these Notes to the Condensed Consolidated Financial Statements for further details. We concluded that our investments were appropriately valued and that, except for the $8.8 million impairment charges recognized in the quarter, no other than temporary impairment charges were necessary on our portfolio of available for sale investments as of October 26, 2008.

Net realized gains for the three and nine months ended October 26, 2008 were $0.9 million and $2.1 million, respectively. Net realized gains for the three and nine months ended October 28, 2007 were not significant. As of October 26, 2008, we had a net unrealized loss of $4.1 million, which was comprised of gross unrealized losses of $7.0 million, offset by $2.9 million of gross unrealized gains. As of January 27, 2008, ~~and April 29, 2007, respectively. Future amortization expense~~we had a net unrealized gain of $10.7 million, which was comprised of gross unrealized gains of $11.1 million, offset by $0.4 million of gross unrealized losses.

Note 9 - Goodwill

The carrying amount of goodwill is as follows:

	October 26, 2008		January 27, 2008
	(In thousands)
PortalPlayer	$	104,473	$	104,473
3dfx		75,326		75,326
Mental Images		58,768		63,086
MediaQ		35,167		35,167
ULi		31,115		31,115
Hybrid Graphics		27,906		27,906
Ageia		16,547		-
Other		16,984		16,984
Total goodwill	$	366,286	$	354,057

During the nine months ended October 26, 2008, goodwill increased by $12.2 million, primarily due to our acquisition of Ageia on February 10, 2008. This increase in goodwill was offset by a decrease of $4.3 million for Mental Images related to the ~~net carrying amount~~reassessment of ~~intangible assets at April 27, 2008 is estimated to be $23.5 million for~~estimates made during the remainder of fiscal 2009, $27.4 million in fiscal 2010, $22.7 million in fiscal 2011, $21.0 million in fiscal 2012, $16.8 million in fiscal 2013, and a total of $13.6 million in fiscal 2014 and fiscal years subsequent of fiscal 2014.preliminary purchase price allocation.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10 - Amortizable Intangible Assets

We currently amortize our intangible assets with definitive lives over periods ranging from one to ten years using a method that reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise used up or, if that pattern can not be reliably determined, using a straight-line amortization method. The components of our amortizable intangible assets are as follows:

	October 26, 2008							January 27, 2008
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
(In thousands)
Technology licenses	$	130,359	$	(31,304	)	$	99,055	$	94,970	$	(32,630	)	$	62,340
Acquired intellectual property		75,280		(30,538	)		44,742		77,900		(41,030	)		36,870
Patents		18,588		(6,739	)		11,849		35,348		(27,632	)		7,716
Other		-		-			-		1,494		(1,494	)		-
Total intangible assets	$	224,227	$	(68,581	)	$	155,646	$	209,712	$	(102,786	)	$	106,926

The increase in the net carrying amount of technology licenses as of October 26, 2008 when compared to January 27, 2008, is primarily related to approximately $21.5 million of net cash outflows under a confidential patent licensing arrangement entered into during fiscal year 2007 and $25.0 million towards the purchase of a non-exclusive license related to advanced power management and other computing technologies that we entered into during the third quarter of fiscal 2009. These increases were offset by amortization for the nine months ended October 26, 2008. Additionally, the increase in the net carrying value of acquired intellectual property is primarily related to the intangible assets that resulted from our acquisition of Ageia during the first quarter of fiscal year 2009, offset by amortization for the nine months ended October 26, 2008. Please refer to Note 7 of these Notes to Condensed Consolidated Financial Statements for further information. During the nine months ended October 26, 2008, the increase in the gross carrying amount of the intangible assets was offset by the write-off of fully amortized intangible assets that are no longer in use.

Amortization expense associated with intangible assets for the three and nine months ended October 26, 2008 was $8.7 million and $23.7 million, respectively. Amortization expense associated with intangible assets for the three and nine months ended October 28, 2007 was $5.7 million and $18.2 million, respectively. Future amortization expense related to the net carrying amount of intangible assets at October 26, 2008 is estimated to be $8.8 million for the remainder of fiscal year 2009, $31.3 million in fiscal 2010, $27.1 million in fiscal 2011, $24.5 million in fiscal 2012, $18.6 million in fiscal 2013, $14.1 million in fiscal 2014 and $31.2 million in fiscal years subsequent of fiscal 2014.

Note 11 - Balance Sheet Components

Certain balance sheet components are as follows:

	April 27, 2008		January 27, 2008		October 26, 2008		January 27, 2008
Inventories:	(In thousands)				(In thousands)
Raw materials	$	31,307	$	31,299	$	30,559	$	31,299
Work in-process		162,386		107,835		161,534		107,835
Finished goods		226,433		219,387		331,895		219,387
Total inventories	$	420,126	$	358,521	$	523,988	$	358,521

April 27,
2008

January 27,
2008

Accrued Liabilities: (In thousands)
Accrued customer programs (1)

$
261,589

$
271,869

Accrued payroll and related expenses

88,420

122,284

Accrued legal settlement (2)

30,600

30,600

Deferred rent

11,825

11,982

Taxes payable

8,898

7,766

Deferred revenue

14,708

5,856

Other

32,657

24,705

Total accrued liabilities

$
448,697

$
475,062

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	October 26, 2008			January 27, 2008			Estimated Useful Life
	(In thousands)						(Years)
Property and Equipment:
Test equipment	$	232,290		$	186,774		3
Land		213,929			38,442		(A)
Software and licenses		191,027			246,725		3 - 5
Computer equipment		130,174			137,642		3
Leasehold improvements		121,733			103,353		(B)
Office furniture and equipment		32,319			28,220		5
Building		29,216			4,104		25
Construction in process		13,997			8,258		(C)
		964,685			753,518
Accumulated depreciation and amortization		(355,011	)		(393,710	)
Total property and equipment, net	$	609,674		$	359,808

(A) Land is a non-depreciable asset.

(B) Leasehold improvements are amortized based on the lesser of either the asset’s estimated useful life or the remaining lease term.

The increase in property and equipment, net, at October 26, 2008 compared to January 27, 2008, includes the purchase of a property that is comprised of approximately 25 acres of land and ten commercial buildings in Santa Clara, California, which we purchased for approximately $150 million. During the nine months ended October 26, 2008, we also wrote-off approximately $151.0 million of fully depreciated property and equipment that was no longer in use, including $74.6 million of software and licenses.

	October 26, 2008		January 27, 2008
Accrued Liabilities:	(In thousands)
Accrued customer programs (1)	$	256,989	$	271,869
Warranty accrual (2)		181,687		5,707
Accrued payroll and related expenses		76,666		122,284
Accrued legal settlement (3)		30,600		30,600
Accrued costs related to purchase of property		28,146		-
Deferred rent		12,065		11,982
Deferred revenue		4,031		5,856
Accrued restructuring (4)		767		-
Other		26,262		26,764
Total accrued liabilities	$	617,213	$	475,062

(1) Please refer to Note 1 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the nature of accrued customer programs and their accounting treatment related to our revenue recognition policies and estimates.

(2) Please refer to Note 12 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the warranty accrual.

(3) Please refer to Note 13 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the 3dfx litigation.

(4) Please refer to Note 3 of these Notes to Condensed Consolidated Financial Statements for discussion regarding the Restructuring Charges.

April 27,
2008

January 27,
2008

Other Long-term Liabilities: (In thousands)
Deferred income tax liability

$
114,596

$
86,900

Income taxes payable, long term

49,628

44,235

Asset retirement obligation

6,534

6,470

Other long-term liabilities

22,970

24,993

Total other long-term liabilities

$
193,728

$
162,598

1617

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

	October 26, 2008		January 27, 2008
Other Long-term Liabilities:	(In thousands)
Deferred income tax liability	$	85,007	$	86,900
Income taxes payable, long-term		48,627		44,235
Asset retirement obligation		6,661		6,470
Other long-term liabilities		17,063		24,993
Total other long-term liabilities	$	157,358	$	162,598

Note 1112 - Guarantees

FASB Interpretation No. 45, or FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation it assumes under that guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a tabular reconciliation of the changes of the entity’s product warranty liabilities.

We record a reduction to revenue for estimated product returns at the time revenue is recognized primarily based on historical return rates. The estimated product returns and estimated product warranty liabilities for the three months ended April 27, 2008 and April 29, 2007 are as follows:

April 27,
2008

April 29,
2007

(In thousands)

Balance at beginning of period

$
24,432

$
17,958

Additions (1)

9,550

4,980

Deductions (2)

(8,882
)

(3,875
)
Balance at end of period (3)

$
25,100

$
19,063

~~(1)~~ Includes $8,865 and $4,746 for the three months ended April 27, 2008 and April 29, 2007, respectively, towards allowances for sales returns estimated at the time revenue is recognized primarily based on historical return rates and is charged as a reduction to revenue.

~~(2)~~ ~~Includes $8,882 and $3,875 for the three months ended April 27, 2008 and April 29, 2007, respectively, written off against the allowance for sales returns.~~

~~(3)~~ ~~Includes $18,708 and $15,348 at April 27, 2008 and April 29, 2007, respectively, relating to allowance for sales returns.~~

In connection with certain agreements that we have executed in the past, we have at times provided indemnities to cover the indemnified party for matters such as tax, product and employee liabilities. We have also on occasion included intellectual property indemnification provisions in our technology related agreements with third parties. Maximum potential future payments cannot be estimated because many of these agreements do not have a maximum stated liability. As such, we have not recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

~~Note 12 - Commitments and Contingencies~~

~~3dfx~~

In May 2002, we were served with a California state court complaint filed by the landlord of 3dfx’s San Jose, California commercial real estate lease, Carlyle Fortran Trust, or Carlyle. In December 2002, we were served with a California state court complaint filed by the landlord of 3dfx’s Austin, Texas commercial real estate lease, CarrAmerica Realty Corporation. The landlords’ complaints both asserted claims for, among other things, interference with contract, successor liability and fraudulent transfer. The landlords’ sought to recover money damages, including amounts owed on their leases with 3dfx in the aggregate amount of approximately $15 million. In October 2002, 3dfx filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Northern District of California. In January 2003, the landlords’ actions were removed to the United States Bankruptcy Court for the Northern District of California and consolidated, for purposes of discovery, with a complaint filed against NVIDIA by the Trustee in the 3dfx bankruptcy case. Upon motion by NVIDIA in 2005, the District Court withdrew the reference to the Bankruptcy Court for the landlords’ actions, which were removed to the United States District Court for the Northern District of California. The Trustee’s lawsuit remained in the Bankruptcy Court. On November 10, 2005, the District Court granted our motion to dismiss the landlords’ respective amended complaints and allowed the landlords until February 4, 2006 to amend their complaints. The landlords re-filed claims against NVIDIA in early February 2006, and NVIDIA again filed motions requesting the District Court to dismiss those claims. On September 29, 2006, the District Court dismissed the CarrAmerica action in its entirety and without leave to amend. The District Court found, among other things, that CarrAmerica lacked standing to bring the lawsuit and that standing rests exclusively with the bankruptcy Trustee. On October 27, 2006, CarrAmerica filed a notice of appeal from that order. On December 15, 2006, the District Court also dismissed the Carlyle action in its entirety, finding that Carlyle also lacked standing to pursue its claims, and that certain claims were substantively unmeritorious. Carlyle filed a notice of appeal from that order on January 9, 2007. Both landlords’ appeals are pending before the United States Court of Appeals for the Ninth Circuit, and briefing on both appeals has been consolidated. NVIDIA has filed motions to recover its litigation costs and attorneys fees against both Carlyle and CarrAmerica. The District Court has postponed consideration of those motions until after the appeals are resolved.

In March 2003, we were served with a complaint filed by the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and seeks additional payments from us. On October 13, 2005, the Bankruptcy Court held a hearing on the Trustee’s motion for summary adjudication. On December 23, 2005, the Bankruptcy Court denied the Trustee’s Motion for Summary Adjudication in all material respects and held that NVIDIA may not dispute that the value of the 3dfx transaction was less than $108.0 million. The Bankruptcy Court denied the Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA was at least $108.0 million. In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court after notice and hearing. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. The conditional settlement never progressed substantially through the confirmation process.

On December 8, 2005, the Trustee filed a Form 8-K on behalf of 3dfx, in which the Trustee disclosed the terms of the conditional settlement agreement between NVIDIA and the Creditor’s Committee. Thereafter, certain shareholders of 3dfx filed a petition with the Bankruptcy Court to appoint an official committee to represent the claimed interests of 3dfx shareholders. That petition was granted and an Equity Holders’ Committee was appointed. Since that appointment, the Equity Holders’ Committee has filed a competing plan of reorganization/liquidation. The Equity Holders’ Committee’s plan assumes that 3dfx can raise additional equity capital that would be used to retire all of 3dfx’s debts. The Equity Holders’ Committee contends that the commitment by an investor to pay in equity capital is sufficient to trigger NVIDIA's obligations under the APA to pay the stock consideration. NVIDIA contends, among other things, that such a commitment is not sufficient and that its obligation to pay the stock consideration has been extinguished. By virtue of stock splits since the execution of the APA, the stock consideration would now total six million shares of NVIDIA common stock. The Equity Holders’ Committee filed a motion with the Bankruptcy Court seeking an order giving it standing to bring a lawsuit to obtain the stock consideration. Over our objection, the Bankruptcy Court granted that motion on May 1, 2006 and the Equity Holders’ Committee filed its Complaint for Declaratory Relief against NVIDIA that same day. NVIDIA moved to dismiss the Complaint for Declaratory Relief, and the Bankruptcy Court granted that motion with leave to amend. The Equity Committee thereafter amended its complaint, and NVIDIA moved to dismiss that amended complaint as well. At a hearing on December 21, 2006, the Bankruptcy Court granted the motion as to one of the Equity Holders’ Committee’s claims, and denied it as to the others. However, the Bankruptcy Court also ruled that NVIDIA would only be required to answer the first three causes of action by which the Equity Holders’ Committee seeks a determination that the APA was not terminated before 3dfx filed for bankruptcy protection, that the 3dfx bankruptcy estate still holds some rights in the APA, and that the APA is capable of being assumed by the bankruptcy estate. Because of the trial of the Trustee's fraudulent transfer claims against NVIDIA, the Equity Committee's lawsuit has not progressed substantially in 2007. The next status conference is not scheduled until August 28, 2008. In addition, the Equity Holders Committee filed a motion seeking Bankruptcy Court approval of investor protections for Harbinger Capital Partners Master Fund I, Ltd., an equity investment firm that has conditionally agreed to pay no more than $51.5 million for preferred stock in 3dfx. The hearing on that motion was held on January 18, 2007, and the Bankruptcy Court approved the proposed protections.

~~Proceedings, SEC inquiry and lawsuits related to our historical stock option granting practices~~

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

We voluntarily contacted the SEC regarding the Audit Committee’s review. In late August 2006, the SEC initiated an inquiry related to our historical stock option grant practices. In October 2006, we met with the SEC and provided it with a review of the status of the Audit Committee’s review. In November 2006, we voluntarily provided the SEC with additional documents. We continued to cooperate with the SEC throughout its inquiry. On October 26, 2007, the SEC formally notified us that the SEC's investigation concerning our historical stock option granting practices had been terminated and that no enforcement action was recommended.

Concurrently with our internal review and the SEC’s inquiry, since September 29, 2006, ten derivative cases have been filed in state and federal courts asserting claims concerning errors related to our historical stock option granting practices and associated accounting for stock-based compensation expense. These complaints have been filed in various courts, including the California Superior Court, Santa Clara County, the United States District Court for the Northern District of California, and the Court of Chancery of the State of Delaware in and for New Castle County. The California Superior Court cases have been consolidated and plaintiffs filed a consolidated complaint on April 23, 2007. Plaintiffs in the Delaware action filed an Amended Shareholder Derivative Complaint on February 12, 2008. Plaintiffs in the federal action submitted a Second Amended Consolidated Verified Shareholders Derivative Complaint on March 18, 2008. All of the cases purport to be brought derivatively on behalf of NVIDIA against members of our Board and several of our current and former officers and directors. Plaintiffs in these actions allege claims for, among other things, breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, gross mismanagement, waste, and constructive fraud. The Northern District of California action also alleges violations of federal provisions, including Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA, among other things, damages in an unspecified amount, rescission, punitive damages, treble damages for insider selling, and fees and costs. Plaintiffs also seek an accounting, a constructive trust and other equitable relief. We intend to take all appropriate action in response to these complaints. Between May 14, 2007 and May 17, 2007, we filed several motions to dismiss or to stay the federal, Delaware and Santa Clara actions. The Delaware motions were superseded when the Delaware plaintiffs filed the Amended Shareholder Derivative Complaint on February 28, 2008. The federal motions were superseded when the federal plaintiffs submitted the Second Amended Consolidated Verified Shareholders Derivative Complaint on March 18, 2008. We have not yet responded to either of these Complaints. The Santa Clara motion to stay was denied without prejudice and the parties are currently engaged in discovery-related proceedings.

On August 5, 2007, our Board authorized the formation of a Special Litigation Committee to investigate, evaluate, and make a determination as to how NVIDIA should proceed with respect to the claims and allegations asserted in the underlying derivative cases brought on behalf of NVIDIA. Currently, the Special Litigation Committee is continuing its work.

~~Department of Justice Subpoena and Investigation, and Civil Cases~~

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

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

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

Plaintiffs filed their first consolidated complaints on June 14, 2007. On July 16, 2007, we moved to dismiss those complaints. The motions to dismiss were heard by Judge Alsup on September 20, 2007. The Court subsequently granted and denied the motions in part, and gave the plaintiffs leave to move to amend the complaints. On November 7, 2007, the Court granted plaintiffs’ motion to file amended complaints, ordered defendants to answer the complaints, lifted a previously entered stay on discovery, and set a trial date for January 12, 2009. Discovery is underway and Plaintiffs filed motions for class certification on April 24, 2008. Our oppositions to the motions were filed on May 20, 2008. We believe the allegations in the complaints are without merit and intend to vigorously defend the cases.

Product Defect ~~Contingencies~~

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

~~During the first quarter~~In July 2008, we recorded a $196.0 million charge against cost of ~~fiscal year 2009, one~~revenue to cover anticipated customer warranty, repair, return, replacement and other associated costs arising from a weak die/packaging material set in certain versions of our previous generation media and communications processor, or MCP, and GPU products used in notebook systems. All of our newly manufactured products and all of our products that are currently shipping in volume have a different material set that we believe is more robust.

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

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

In September, October and November 2008, several putative class action lawsuits were filed against us, asserting various claims related to ~~an alleged die/packaging material set defect in one~~the impacted MCP and GPU products. Please refer to Note 13 of ~~our notebook MCP products. This product was included in a significant number of the customer’s notebook products that have been sold~~these Notes to end users, and has also been shipped to other of our customers in significant quantities. We are evaluating the potential scope of this situation, including the nature and cause of the alleged defect and the merits of the customer’s claim, and to what extent the alleged defect might occur with other of our products. We are currently unable to estimate the amount of costs that may be incurred by us beyond the normal product warranty accrual that we have taken related to this claim and the alleged defect and, therefore, we have not recorded any additional related costs or a liability in our Condensed Consolidated Financial ~~statements as of, and~~Statements for ~~the three months ended, April 27, 2008.~~
further information regarding this litigation.

2018

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Accrual for estimated product returns and product warranty liabilities

We record a reduction to revenue for estimated product returns at the time revenue is recognized primarily based on historical return rates. Cost of revenue includes the estimated cost of product warranties that are calculated at the point of revenue recognition. Under limited circumstances, we may offer an extended limited warranty to customers for certain products. The estimated product returns and estimated product warranty liabilities for the three and nine months ended October 26, 2008 and October 28, 2007 are as follows:

	Three Months Ended						Nine Months Ended
	October 26, 2008			October 28, 2007			October 26, 2008			October 28, 2007
	(In thousands)
Balance at beginning of period	$	205,091		$	20,694		$	24,432		$	17,958
Additions (1),(4)		6,550			7,362			219,842			20,810
Deductions (2),(5)		(12,129	)		(5,546	)		(44,762	)		(16,258	)
Balance at end of period (3)	$	199,512		$	22,510		$	199,512		$	22,510

(1) Includes $ 6,550 and $ 22,588 for the three and nine months ended October 26, 2008, respectively, and $6,584 and $19,611 for the three and nine months ended October 28, 2007, respectively, towards allowances for sales returns estimated at the time revenue is recognized primarily based on historical return rates and is charged as a reduction to revenue.

(2) Includes $6,685 and $23,489 for the three and nine months ended October 26, 2008, respectively, and $5,546 and $16,258 for the three and nine months ended October 28, 2007, respectively, written off against the allowance for sales returns.

(3) Includes $17,825 and $17,830 at October 26, 2008 and October 28, 2007, respectively, relating to allowance for sales returns.

(4) Includes $195,954 for the nine months ended October 26, 2008 for incremental repair and replacement costs from a weak die/packaging material set.

(5) Includes $4,660 and $20,490 for the three and nine months ended October 26, 2008 in deductions towards warranty accrual associated with incremental repair and replacement costs from a weak die/packaging material set.

Note 13 - Commitments and Contingencies

3dfx

On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or APA, to purchase certain graphics chip assets from 3dfx. The transaction closed on April 18, 2001. That acquisition, and 3dfx's October 2002 bankruptcy filing, led to four lawsuits against NVIDIA: two brought by 3dfx's former landlords, one by 3dfx's bankruptcy trustee and the fourth by a committee of 3dfx's equity security holders in the bankruptcy estate.

Landlord Lawsuits.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In 2005, the U.S. District Court for the Northern District of California withdrew the reference to the Bankruptcy Court for the landlords’ actions, and on November 10, 2005, granted our motion to dismiss both landlords’ complaints. The landlords filed amended complaints in early February 2006, and NVIDIA again filed motions to dismiss those claims. On September 29, 2006, the District Court dismissed the CarrAmerica action in its entirety and without leave to amend. On December 15, 2006, the District Court also dismissed the Carlyle action in its entirety. Both landlords filed timely notices of appeal from those orders.

On July 17, 2008, the United States Court of Appeals for the Ninth Circuit held oral argument on the landlords' appeals. On November 25, 2008, the Court of Appeals issued its opinion affirming the dismissal of Carlyle’s complaint in its entirety. The Court of Appeals also affirmed the dismissal of most of CarrAmerica’s complaint, but reversed the District Court’s dismissal of CarrAmerica’s claims for interference with contractual relations and fraud. The Court of Appeals has not yet issued its mandate. After the mandate issues, CarrAmerica’s case will be remanded back to the District Court for further proceedings. We continue to believe that there is no merit to Carr’s remaining claims.

Trustee Lawsuit.

In March 2003, the Trustee appointed by the Bankruptcy Court to represent 3dfx’s bankruptcy estate served his complaint on NVIDIA. The Trustee’s complaint asserts claims for, among other things, successor liability and fraudulent transfer and seeks additional payments from us. The Trustee's fraudulent transfer theory alleged that NVIDIA had failed to pay reasonably equivalent value for 3dfx's assets, and sought recovery of the difference between the $70 million paid and the alleged fair value, which the Trustee estimated to exceed $50 million. The Trustee's successor liability theory alleged NVIDIA was effectively 3dfx's legal successor and was therefore responsible for all of 3dfx's unpaid liabilities. This action was consolidated for pretrial purposes with the landlord cases, as noted above.

On October 13, 2005, the Bankruptcy Court heard the Trustee’s motion for summary adjudication, and on December 23, 2005, denied that motion in all material respects and held that NVIDIA may not dispute that the value of the 3dfx transaction was less than $108 million. The Bankruptcy Court denied the Trustee’s request to find that the value of the 3dfx assets conveyed to NVIDIA was at least $108 million.

In early November 2005, after several months of mediation, NVIDIA and the Official Committee of Unsecured Creditors, or the Creditors’ Committee, agreed to a Plan of Liquidation of 3dfx, which included a conditional settlement of the Trustee’s claims against us. This conditional settlement was subject to a confirmation process through a vote of creditors and the review and approval of the Bankruptcy Court. The conditional settlement called for a payment by NVIDIA of approximately $30.6 million to the 3dfx estate. Under the settlement, $5.6 million related to various administrative expenses and Trustee fees, and $25.0 million related to the satisfaction of debts and liabilities owed to the general unsecured creditors of 3dfx. Accordingly, during the three month period ended October 30, 2005, we recorded $5.6 million as a charge to settlement costs and $25.0 million as additional purchase price for 3dfx. The Trustee advised that he intended to object to the settlement. The conditional settlement never progressed substantially through the confirmation process.

On April 30, 2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties' contentions and evidence and concluded that "the creditors of 3dfx were not injured by the Transaction." This decision did not entirely dispose of the Trustee's action, however, as the Trustee's claims for successor liability and intentional fraudulent conveyance were still pending. On June 19, 2008, NVIDIA filed a motion for summary judgment to convert the Memorandum Decision After Trial to a final judgment. That motion was granted in its entirety and judgment was entered in NVIDIA’s favor on September 11, 2008. The Trustee filed a Notice of Appeal from that judgment on September 22, 2008, and on September 25, 2008, NVIDIA exercised its election to have the appeal heard by the United States District Court.

The Equity Committee Lawsuit.

On December 8, 2005, the Trustee filed a Form 8-K on behalf of 3dfx, disclosing the terms of the conditional settlement agreement between NVIDIA and the Creditor’s Committee. Thereafter, certain 3dfx shareholders filed a petition with the Bankruptcy Court to appoint an official committee to represent the claimed interests of 3dfx shareholders. The court granted that petition and appointed an Equity Securities Holders’ Committee, or the Equity Committee. The Equity Committee thereafter sought and obtained an order granting it standing to bring suit against NVIDIA, for the benefit of the bankruptcy estate, to compel NVIDIA to pay the Stock Consideration then unpaid from the APA, and filed its own competing plan of reorganization/liquidation. The Equity Committee’s plan assumes that 3dfx can raise additional equity capital that would be used to retire all of 3dfx’s debts, and thus to trigger NVIDIA's obligation to pay six million shares of Stock Consideration specified in the APA. NVIDIA contends, among other things, that such a commitment is not sufficient and that its obligation to pay the stock consideration had long before been extinguished. On May 1, 2006, the Equity Committee filed its lawsuit for declaratory relief to compel NVIDIA to pay the Stock Consideration. In addition, the Equity Committee filed a motion seeking Bankruptcy Court approval of investor protections for Harbinger Capital Partners Master Fund I, Ltd., an equity investment fund that conditionally agreed to pay no more than $51.5 million for preferred stock in 3dfx. The hearing on that motion was held on January 18, 2007, and the Bankruptcy Court approved the proposed protections.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

After losing an earlier motion to dismiss, the Equity Committee again amended its complaint, and NVIDIA moved to dismiss that amended complaint as well. On December 21, 2006, the Bankruptcy Court granted the motion as to one of the Equity Committee’s claims, and denied it as to the others. However, the Bankruptcy Court also ruled that NVIDIA would only be required to answer the first three causes of action by which the Equity Committee seeks determinations that (1) the APA was not terminated before 3dfx filed for bankruptcy protection, (2) the 3dfx bankruptcy estate still holds some rights in the APA, and (3) the APA is capable of being assumed by the bankruptcy estate.

Because of the trial of the Trustee's fraudulent transfer claims against NVIDIA, the Equity Committee's lawsuit did not progress substantially in 2007. On July 31, 2008, the Equity Committee filed a motion for summary judgment on its first three causes of action. On September 15, 2008, NVIDIA filed a cross-motion for summary judgment. On October 24, 2008, the Court held a hearing on the parties’ cross-motions for summary judgment, and the matter now awaits that court’s decision.

Proceedings, SEC inquiry and lawsuits related to our historical stock option granting practices

Concurrently with our internal review and the SEC’s inquiry, since September 29, 2006, ten derivative cases have been filed in state and federal courts asserting claims concerning errors related to our historical stock option granting practices and associated accounting for stock-based compensation expense. These complaints have been filed in various courts, including the California Superior Court, Santa Clara County, the United States District Court for the Northern District of California, and the Court of Chancery of the State of Delaware in and for New Castle County. The California Superior Court cases have been consolidated and plaintiffs filed a consolidated complaint on April 23, 2007. Plaintiffs in the Delaware action filed an Amended Shareholder Derivative Complaint on February 12, 2008. Plaintiffs in the federal action submitted a Second Amended Consolidated Verified Shareholders Derivative Complaint on March 18, 2008. All of the cases purport to be brought derivatively on behalf of NVIDIA against members of our Board and several of our current and former officers and directors. Plaintiffs in these actions allege claims for, among other things, breach of fiduciary duty, unjust enrichment, insider selling, abuse of control, gross mismanagement, waste, and constructive fraud. The Northern District of California action also alleges violations of federal provisions, including Sections 10(b) and 14(a) of the Securities Exchange Act of 1934. The plaintiffs seek to recover for NVIDIA, among other things, damages in an unspecified amount, rescission, punitive damages, treble damages for insider selling, and fees and costs. Plaintiffs also seek an accounting, a constructive trust and other equitable relief. Between May 14, 2007 and May 17, 2007, we filed several motions to dismiss or to stay the federal, Delaware and Santa Clara actions. The Delaware motions were superseded when the Delaware plaintiffs filed the Amended Shareholder Derivative Complaint on February 28, 2008. The federal motions were superseded when the federal plaintiffs submitted the Second Amended Consolidated Verified Shareholders Derivative Complaint on March 18, 2008. NVIDIA has not yet responded to these complaints.

On August 5, 2007, our Board authorized the formation of a Special Litigation Committee to investigate, evaluate, and make a determination as to how NVIDIA should proceed with respect to the claims and allegations asserted in the underlying derivative cases brought on behalf of NVIDIA. The Special Litigation Committee has made substantial progress in completing its work, but has not yet issued a report.

Between June 2007 and September 2008 the parties to the actions engaged in settlement discussions, including four mediation sessions before the Honorable Edward Infante (Ret.). On September 22, 2008, we disclosed that we had entered into Memoranda of Understanding regarding the settlement of all derivative actions concerning our historical stock option granting practices. On November 10, 2008, the definitive settlement agreements were concurrently filed in the Chancery Court of Delaware and the United States District Court Northern District of California and are subject to approval by both such courts. The settlement agreements do not contain any admission of wrongdoing or fault on the part of NVIDIA, our board of directors or executive officers. The terms of the settlement agreements include, among other things, the agreement by the board of directors to continue and to implement certain corporate governance changes; acknowledgement of the prior amendment of certain options through re-pricings and limitations of the relevant exercise periods; an agreement by Jen-Hsun Huang, our president and chief executive officer, to amend additional options to increase the aggregate exercise price of such options by $3.5 million or to cancel options with an intrinsic value of $3.5 million; an $8.0 million cash payment by our insurance carrier to NVIDIA; and an agreement to not object to attorneys’ fees to be paid by NVIDIA to plaintiffs’ counsel of no more than $7.25 million, if approved by the courts.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Department of Justice Subpoena and Investigation, and Civil Cases

On November 29, 2006, we received a subpoena from the San Francisco Office of the Antitrust Division of the United States Department of Justice, or DOJ, in connection with the DOJ's investigation into potential antitrust violations related to GPUs and cards. On October 10, 2008, the DOJ formally notified us that the DOJ investigation has been closed. No specific allegations were made against NVIDIA during the investigation.

As of October 26, 2008, over 50 civil complaints have been filed against us. The majority of the complaints were filed in the Northern District of California, several were filed in the Central District of California, and other cases were filed in several other Federal district courts. On April 18, 2007, the Judicial Panel on Multidistrict Litigation transferred the actions currently pending outside of the Northern District of California to the Northern District of California for coordination of pretrial proceedings before the Honorable William H. Alsup. By agreement of the parties, Judge Alsup will retain jurisdiction over the consolidated cases through trial or other resolution.

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

Plaintiffs filed their first consolidated complaints on June 14, 2007. On July 16, 2007, we moved to dismiss those complaints. The motions to dismiss were heard by Judge Alsup on September 20, 2007. The court subsequently granted and denied the motions in part, and gave the plaintiffs leave to move to amend the complaints. On November 7, 2007, the court granted plaintiffs’ motion to file amended complaints, ordered defendants to answer the complaints, lifted a previously entered stay on discovery, and set a trial date for January 12, 2009. Plaintiffs filed motions for class certification on April 24, 2008. We filed oppositions to the motions on May 20, 2008. On July 18, 2008, the court ruled on Plaintiffs’ class certification motions. The court denied class certification for the proposed class of indirect purchasers. The court granted in part class certification for the direct purchasers but limited the direct purchaser class to individual purchasers that acquired graphics processing cards products directly from NVIDIA or ATI from their websites between December 4, 2002 and November 7, 2007.

On September 16, 2008, we executed a settlement agreement, or the Agreement, in connection with the claims of the certified class of direct purchaser plaintiffs approved by the court. The Agreement calls for NVIDIA to pay $850,000 into a $1.7 million fund to be made available for payments to the certified class. We are not obligated under the Agreement to pay plaintiffs’ attorneys’ fees, costs, or make any other payments in connection with the settlement other than the payment of $850,000. The Agreement is subject to court approval and, if approved, would dispose of all claims and appeals raised by the certified class in the complaints against NVIDIA. Because the Court certified a class consisting only of a narrow group of direct purchasers, the Agreement does not resolve any claims that other direct purchasers may assert. In addition, on September 9, 2008, we reached a settlement agreement with the remaining individual indirect purchaser plaintiffs that provides for NVIDIA to pay $112,500 in exchange for a dismissal of all claims and appeals related to the complaints raised by the individual indirect purchaser plaintiffs. This settlement is not subject to the approval of the court. Pursuant to the settlement, the individual indirect purchaser plaintiffs in the complaints have dismissed their claims and withdrawn their appeal of the class certification ruling. Because the Court did not certify a class of indirect purchasers, this settlement agreement resolves only the claims of those indirect purchasers that were named in the various actions.

Rambus Corporation

On July 10, 2008, Rambus Corporation, or Rambus, filed suit against NVIDIA Corporation, asserting patent infringement of 17 patents claimed to be owned by Rambus. Rambus seeks damages, enhanced damages and injunctive relief. The lawsuit was filed in the Northern District of California in San Jose, California. On July 11, 2008, NVIDIA filed suit against Rambus in the Middle District of North Carolina asserting numerous claims, including antitrust and other claims. NVIDIA seeks damages, enhanced damages and injunctive relief. Rambus has since dropped two patents from its lawsuit in the Northern District of California. NVIDIA has filed a motion to dismiss certain aspects of Rambus' lawsuit in the Northern District of California. Rambus has filed a motion to transfer and a motion to dismiss in the case pending in the Middle District of North Carolina. These two motions are currently pending. A case management conference in the case pending in the Northern District of California is scheduled for January 30, 2009. On November 6, 2008, Rambus filed a complaint alleging a violation of 19 U.S.C. Section 1337 based on a claim of patent infringement against NVIDIA and 14 other respondents with the U.S. International Trade Commission, or ITC. The complaint seeks an exclusion order barring the importation of products that allegedly infringe nine Rambus patents. The ITC is expected to decide whether to institute an investigation by December 8, 2008. NVIDIA has retained counsel to defend against this litigation in the event an investigation is instituted. NVIDIA intends to pursue its offensive and defensive cases vigorously.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Product Defect Litigation and Securities Cases

In September, October and November 2008, several putative consumer class action lawsuits were filed against us, asserting various claims arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems. On August 8, 2008, a putative consumer class action titled Poirier v. Dell Inc. and NVIDIA Corp. was filed in the Western District of Pennsylvania. The Poirier action asserted claims against us for breaches of implied warranties. The Poirier action was voluntarily dismissed on September 24, 2008.

On September 12, 2008, a putative consumer class action lawsuit titled Feinstein v. NVIDIA Corp. was filed in California Superior Court in Santa Clara. The Feinstein complaint asserts claims against us for, among other things, violations of the Consumer Legal Remedies Act, Business & Professions Code sections 17200 and 17500, and strict liability. We removed the Feinstein action to federal court in the Northern District of California in San Jose on October 2, 2008. Also on September 12, 2008, a putative consumer class action lawsuit titled Nakash v. NVIDIA Corp. was filed in federal court in the Northern District of California in San Francisco. The Nakash complaint asserts claims for breach of warranty, violations of the New Jersey Consumer Fraud Act and unjust enrichment. The Nakash action was transferred to federal court in San Jose on October 28, 2008.

On September 15, 2008, a putative consumer class action lawsuit titled Inicom Networks, Inc. v. NVIDIA Corp., Dell, Inc. and Hewlett-Packard was filed in federal court in the Northern District of California in San Jose. A First Amended Complaint was filed on October 27, 2008, which no longer asserted claims against Dell, Inc. The First Amended Complaint asserts claims against us for, among other things, unfair and fraudulent business practices, breach of warranties, and declaratory relief.

On September 23, 2008, a putative consumer class action lawsuit titled Olivos v. NVIDIA Corp., Dell, Inc. and Hewlett-Packard was filed in federal court in the Eastern District of New York. The Olivos complaint is substantially the same as the Inicom complaint in California, and asserts claims against us for, among other things, breach of warranty and violation of New York’s Deceptive Acts and Practices statute. On October 27, 2008, we filed a request with the court seeking leave under the local court rules to file a motion to transfer the Olivos action to the Northern District of California, San Jose division. On that same day, the plaintiff filed a motion with the Judicial Panel on Multidistrict Litigation, requesting that the Feinstein, Nakash and Inicom actions in California be transferred to New York and consolidated there. The parties have agreed that the Olivos case will be transferred to California to be consolidated with the actions presently pending in the Northern District of California, San Jose Division, and have advised the Judicial Panel on Multidistrict Litigation of this fact. Accordingly, the Company does not anticipate that there will be significant activity in connection with the Multidistrict Litigation proceeding.

On October 29, 2008, a putative consumer class action lawsuit titled Sielicki v. NVIDIA Corp. and Dell, Inc. was filed in federal court in the Western District of Texas—Austin Division, and served on us on November 5, 2008. The Sielicki complaint is substantially the same as the Inicom and Olivos complaints, and asserts claims against us for, among other things, breach of warranty and unjust enrichment. The plaintiff in the Sielicki action has agreed to transfer that case to California to be consolidated with the actions currently pending in the Northern District of California, San Jose Division.

On November 6, 2008, a putative consumer class action lawsuit titled Cormier v. NVIDIA Corp. was filed in federal court in the Northern District of California—San Jose Division. This complaint has not yet been served on NVIDIA. The Cormier complaint is substantially the same as the Feinstein complaint and asserts claims against us for, among other things, violations of the Consumer Legal Remedies Act, Business & Professions Code sections 17200 and 17500, unjust enrichment and strict liability.

On November 14, 2008, a putative consumer class action lawsuit titled National Business Officers Association, Inc. v. NVIDIA Corp. was filed in federal court in the Northern District of California—San Jose Division. This complaint has not yet been served on NVIDIA. The National Business complaint is substantially the same as the Inicom complaint and asserts claims against us for, among other things, violations of Business & Professions Code sections 17200, breach of express and implied warranties, unjust enrichment and declaratory relief.

On November 18, 2008, a putative consumer class action lawsuit titled West v. NVIDIA Corp. was filed in federal court in the Northern District of California's San Jose Division. This complaint has not yet been served on NVIDIA. The West complaint is substantially similar to the Nakash complaint and asserts claims against us for, among other things, breach of warranty, and unjust enrichment.

We are attempting to consolidate all of the aforementioned consumer class action cases. If the parties are unable to agree to consolidation, we intend to file a motion to consolidate in the Northern District of California, San Jose Division, which would be scheduled for hearing on January 23, 2009.

In September 2008, three putative securities class actions, or the Actions, were filed in the United States District Court for the Northern District of California arising out of our announcements on July 2, 2008, that we would take a charge against cost of revenue to cover anticipated costs and expenses arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products and that we were revising financial guidance for our second quarter of fiscal 2009. The Actions purport to be brought on behalf of purchasers of NVIDIA stock and assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. On October 30, 2008, the Actions were consolidated under the caption “In re NVIDIA Corporation Securities Litigation, Civil Action No. 08-CV-04260-JW (HRL)”. Pursuant to the order consolidating the Actions, NVIDIA is not obligated to respond to any of the underlying complaints. Pursuant to the provisions of the Private Securities Litigation Reform Act of 1995, motions for appointment of lead plaintiff and lead counsel were due by November 10, 2008. A hearing on these motions is currently scheduled for December 22, 2008.

We intend to take all appropriate action with respect to the above cases.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 14 - Stockholders’ Equity

Stock Repurchase Program

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

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

Through ~~April 27,~~October 26, 2008, we had repurchased ~~68.0~~91.1 million shares under our stock repurchase program for a total cost of ~~$1.16~~$1.46 billion. During the ~~first fiscal quarter~~three months ended ~~April 27,~~October 26, 2008, we entered into a structured share repurchase transaction to repurchase ~~6.3~~23.1 million shares for ~~$123.9~~$299.7 million which we recorded on the trade date of the transaction.

Convertible Preferred Stock

As of ~~April 27,~~October 26, 2008 and January 27, 2008, there were no shares of preferred stock outstanding.

~~Note 14 - Comprehensive Income~~

Comprehensive income consists of net income and other comprehensive income or loss. Other comprehensive income or loss components include unrealized gains or losses on available-for-sale securities, net of tax. The components of comprehensive income, net of tax, were as follows:

Three Months Ended

April 27,
2008

April 29,
2007

(In thousands)
Net income

$
176,805

$
132,259

Net change in unrealized gains on available-for-sale securities, net of tax (5,631 ) (79 )
Reclassification adjustments for net realized gains on available-for-sale securities included in net income, net of tax

(854
)

(73
)
Total comprehensive income

$
170,320

$
132,107

Common Stock

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

At the Annual Meeting of Stockholders held on June 19, 2008, the stockholders approved an increase in our authorized number of shares of common stock to 2,000,000,000. The par value of common stock remains unchanged at $0.001 per share.

Note 15 - Comprehensive Income

	Three Months Ended						Nine Months Ended
	October 26, 2008			October 28, 2007			October 26, 2008			October 28, 2007
	(In thousands)
Net income	$	61,748		$	235,661		$	117,624		$	540,652
Net change in unrealized gains (losses) on available-for-sale securities, net of tax		(3,712	)		1,830			(11,326	)		2,071
Reclassification adjustments for net realized gains (losses) on available-for-sale securities included in net income (loss), net of tax		709			(67	)		(677	)		(157	)
Total comprehensive income	$	58,745		$	237,424		$	105,621		$	542,566

Note 16 - Segment Information

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

We report financial information for four operating segments to our CODM: the GPU business, which is comprised primarily of our GeForce products that support desktop and notebook ~~personal computers, or~~ PCs, plus memory products; the professional solutions business, or PSB, which is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products; the ~~media and communications processor, or~~ MCP business which is comprised of NVIDIA nForce core logic and motherboard GPU products; and our consumer products business, or CPB, which is comprised of our ~~CPB is comprised of our~~Tegra and GoForce ~~and APX~~ mobile brands and products that support handheld personal media players, or PMPs, personal digital assistants, or PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In addition to these operating segments, we have the “All Other” category that includes human resources, legal, finance, general administration, restructuring charges and corporate marketing expenses, which total ~~$76.2~~$88.5 million and ~~$68.0~~$66.2 million for third quarter of fiscal years 2009 and 2008, respectively, and total $245.4 million and $197.0 million for the ~~three~~first nine months ~~ended April 27,~~of fiscal years 2009 and 2008, ~~and April 29, 2007,~~ respectively, that we do not allocate to our other operating segments as these expenses are not included in the segment operating performance measures evaluated by our CODM. “All Other” also includes the results of operations of other miscellaneous reporting segments that are neither individually reportable, nor aggregated with another operating segment. Revenue in the “All Other” category is primarily derived from sales of components.

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

	GPU		PSB		MCP		CPB			All Other			Consolidated		GPU		PSB		MCP			CPB			All Other			Consolidated
	(In thousands)														(In thousands)
Three Months Ended April 27, 2008:
Three Months Ended October 26, 2008:
Revenue	$	701,489	$	203,427	$	195,093	$	42,465		$	10,914		$	1,153,388	$	461,494	$	199,322	$	197,553		$	34,174		$	5,112		$	897,655
Depreciation and amortization expense	$	12,714	$	4,625	$	7,670	$	4,918		$	11,641		$	41,568	$	13,805	$	5,635	$	13,622		$	4,864		$	15,174		$	53,100
Operating income (loss)	$	169,047	$	110,328	$	3,580	$	(3,850	)	$	(76,126	)	$	202,979	$	51,758	$	99,001	$	(1,178	)	$	19		$	(92,804	)	$	56,796
Three Months Ended April 29, 2007:
Three Months Ended October 28, 2007:
Revenue	$	483,495	$	140,873	$	148,750	$	67,226		$	3,936		$	844,280	$	689,909	$	152,158	$	198,151		$	65,873		$	9,506		$	1,115,597
Depreciation and amortization expense	$	8,285	$	2,187	$	6,593	$	6,095		$	9,162		$	32,322	$	8,834	$	1,926	$	7,219		$	5,676		$	10,054		$	33,709
Operating income (loss)	$	124,417	$	69,307	$	7,839	$	10,168		$	(70,485	)	$	141,246	$	207,938	$	82,182	$	17,005		$	7,788		$	(67,072	)	$	247,841
Nine Months Ended October 26, 2008:
Revenue															$	1,666,472	$	582,402	$	559,426		$	111,264		$	24,155		$	2,943,719
Depreciation and amortization expense															$	40,345	$	15,501	$	29,048		$	14,382		$	41,255		$	140,531
Operating income (loss)															$	179,210	$	293,015	$	(104,670	)	$	(10,190	)	$	(252,982	)	$	104,383
Nine Months Ended October 28, 2007:
Revenue															$	1,752,438	$	420,353	$	507,959		$	195,281		$	19,099		$	2,895,130
Depreciation and amortization expense															$	26,051	$	6,073	$	20,656		$	16,775		$	28,926		$	98,481
Operating income (loss)															$	500,182	$	217,852	$	37,245		$	20,724		$	(202,156	)	$	573,847

Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if our customers’ revenue is attributable to end customers that are located in a different location. The following tables summarize information pertaining to our revenue from customers based on invoicing address in different geographic regions:

					Three Months Ended				Nine Months Ended
	Three Months Ended				October 26, 2008		October 28, 2007		October 26, 2008		October 28, 2007
	April 27, 2008		April 29, 2007		(In thousands)
Revenue:	(In thousands)
China					$	289,778	$	345,198	$	926,470	$	880,941
Taiwan	$	391,628	$	272,983		215,434		353,558		879,140		943,515
China		367,426		238,285
Other Asia Pacific		167,854		109,930		181,835		193,045		520,689		441,661
United States		93,831		101,866		84,588		82,783		255,883		257,173
Other Americas						64,305		26,734		86,349		86,693
Europe		131,954		81,550		61,715		114,279		275,188		285,147
Other Americas		695		39,666
Total revenue	$	1,153,388	$	844,280	$	897,655	$	1,115,597	$	2,943,719	$	2,895,130

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Revenue from significant customers, those representing approximately 10% or more of total revenue for the respective periods, is summarized as follows:

Three Months Ended

April 27,
2008

April 29,
2007

Revenue:
Customer A
11 % 9 %

	Three Months Ended						Nine Months Ended
	October 26, 2008			October 28, 2007			October 26, 2008			October 28, 2007
Revenue:
Customer A		13	%		8	%		11	%	6	%
Customer B		12	%		4	%		6	%	6	%
Customer C		4	%		10	%		6	%	9	%
Customer D		6	%		9	%		9	%	10	%

~~NVIDIA CORPORATION AND SUBSIDIARIES~~

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

~~(Unaudited)~~

Accounts receivable from significant customers, those representing approximately 10% or more of total trade accounts receivable for the respective periods, is summarized as follows:

April 27,
2008

January 27,
2008

Accounts Receivable:
Customer A

11
%

12
%
Customer B

11
%

6
%
Customer C

10
%

9
%

~~Note 16 – Fair Value of Cash Equivalents and Marketable Securities~~

We measure our cash equivalents and marketable securities at fair value. Our financial assets and liabilities are determined using market prices from both active markets, or Level 1, and less active markets, or Level 2. Level 1 valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 valuations are obtained from readily-available pricing sources for identical instruments in less active markets. All of our cash equivalents and marketable securities valuations are classified as Level 1 or Level 2 because we value them using quoted market prices or alternative pricing sources and models utilizing market observable inputs.

~~As of April 27, 2008, we did not have any assets or liabilities without observable market values, or Level 3 assets, that would require a high level of judgment to determine fair value.~~

~~Financial assets and liabilities measured at fair value are summarized below:~~

Fair value measurement at reporting date using
Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs
April 27, 2008 (Level 1) (Level 2)
(In thousands)
Asset-backed Securities (1) $ 88,255 $ - $ 88,255
Commercial paper (2) 250,365 - 250,365
Corporate debt securities (3) 274,273 - 274,273
Debt securities issued by United States Treasury (1) 33,487 - 33,487
Other Debt securities issued by US Government agencies (4) 297,993 - 297,993
Mortgage-backed securities issued by Government-sponsored entities (1) 70,172 - 70,172
Money market funds (5) 304,774 304,774 -
Equity securities (1) 3,357 - 3,357
Total assets $ 1,322,676 $ 304,774 $ 1,017,902

~~(1)~~

~~Included in Marketable Securities on the Condensed Consolidated Balance Sheet.~~

~~(2)~~

~~Includes $177,410 in Cash and cash equivalents and $72,955 in Marketable Securities on the Condensed Consolidated Balance Sheet.~~

~~(3)~~

~~Includes $1,520 in Cash and cash equivalents and $272,753 in Marketable Securities on the Condensed Consolidated Balance Sheet.~~

~~(4)~~

~~Includes $20,640 in Cash and cash equivalents and $277,353 in Marketable Securities on the Condensed Consolidated Balance Sheet.~~

~~(5)~~

~~Included in Cash and cash equivalents on the Condensed Consolidated Balance Sheet.~~

	October 26, 2008			January 27, 2008
Accounts Receivable:
Customer A		22	%	4	%
Customer B		5	%	12	%

~~ITEM 2.~~ ~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~Note 17 – Fair Value of Cash Equivalents and Marketable Securities

~~Forward-Looking Statements~~

When used in this Quarterly Report on Form 10-Q, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “will” and similar expressions are intended to identify forward-looking statements. These statements relate to future periods and include, but are not limited to, statements as to: the features, benefits, capabilities, performance, impact and production of our products and technologies; product defects and the impact of product defects; causes of product defects; our reliance on third parties to manufacture, assemble and test our products; reliance on a limited number of customers and suppliers; new product lines; design wins; our market position; our competition, sources of competition and our competitive position; the importance of our strategic relationships; average selling prices; enhanced visual experiences; seasonality; customer demand; our continued growth and factors contributing to our growth; our international operations; our ability to attract and retain qualified personnel; our inventory; acquisitions and investments; stock options; the impact of stock-based compensation expense; our financial results; mix and sources of revenue; capital and operating expenditures;We measure our cash ~~flow and cash balances; uses of cash; liquidity; our investment portfolio~~equivalents and marketable securities; our exchange rate risk; our stock repurchase program; our internal control over financial reporting; our disclosure controls and procedures; recent accounting pronouncements; our intellectual property; compliance with environmental laws and regulations; litigation arising from our historical stock option grant practices and financial restatements; the Department of Justice subpoena and investigation; and litigation matters. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risks discussed below as well as difficulties associated with: conducting international operations; slower than anticipated growth; forecasting customer demand; product defects; software or manufacturing defects; defects in product design or materials used to manufacture a product; disruptions in our relationships with our partners and suppliers; supply constraints; unanticipated decreases in average selling prices; increased sales of lower margin products; difficulty in collecting accounts receivable; international and political conditions; changes in international laws; fluctuations in the global credit market; declines in global economic conditions; fixed operating expenses; our inability to decrease inventory purchase commitments; difficulties in entering new markets; slower than expected development of a new market; inventory write-downs; the impact of competitive pricing pressures; fluctuations in investments and the securities market; failure to achieve design wins; changes in customers’ purchasing behaviors; the concentration of sales of our products to a limited number of customers; decreases in demand for our products; delays in the development of new products by us or our partners; delays in volume production of our products; developments in and expenses related to litigation; our inability to realize the benefits of acquisitions; the outcome of litigation or regulatory actions; and the matters set forth under Part II, Item 1A. - Risk Factors. These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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

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

at fair value. The ~~following discussion and analysis~~fair values of our financial ~~condition~~assets and ~~results~~liabilities are determined using quoted market prices of ~~operations should be read~~identical assets or quoted market prices of similar assets from active markets. Level 1 valuations are obtained from real-time quotes for transactions in ~~conjunction with Part II, “Item 1A. Risk Factors”, “Item 6. Selected~~ active exchange markets involving identical assets. Level 2 valuations are obtained from quoted market prices in active markets involving similar assets. Level 3 valuations are based on unobservable inputs to the valuation methodology and include our own data about assumptions market participants would use in pricing the asset or liability based on the best information available under the circumstances.

Financial ~~Data”, our~~assets and liabilities measured at fair value are summarized below:

			Fair value measurement at reporting date using
	October 26,			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		High Level of Judgment
	2008			(Level 1)		(Level 2)		(Level 3)
		(In thousands)
Asset-backed securities (1)	$	49,468		$	-	$	49,468	$	-
Commercial paper (2)		13,382			-		13,382		-
Corporate debt securities (1)		200,444			-		200,444		-
Debt securities issued by United States Treasury (3)		119,734			-		119,734		-
Other debt securities issued by U.S. Government agencies (4)		322,904			-		322,904		-
Mortgage-backed securities issued by Government-sponsored entities (1)		154,201			-		154,201		-
Money market funds (5)		144,186			19,786				124,400
Total assets	$	1,004,319		$	19,786	$	860,133	$	124,400

(1) Included in Marketable securities on the Condensed Consolidated ~~Financial Statements~~Balance Sheet.

(2) Includes $11,388 in Cash and ~~related Notes thereto, as well as other cautionary statements~~cash equivalents and ~~risks described elsewhere~~$1,994 in ~~this Quarterly Report~~Marketable securities on ~~Form 10-Q, before deciding to purchase, hold or sell shares of our common stock.~~the Condensed Consolidated Balance Sheet.

(3) Includes $61,673 in Cash and cash equivalents and $58,061 in Marketable securities on the Condensed Consolidated Balance Sheet.

(4) Includes $69,634 in Cash and cash equivalents and $253,270 in Marketable securities on the Condensed Consolidated Balance Sheet.

(5) Includes $19,786 in Cash and cash equivalents and $124,400 in Marketable securities on the Condensed Consolidated Balance Sheet.

~~Overview~~

~~Our Company~~

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

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

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

~~Recent Developments, Future Objectives and Challenges~~

~~GPU Business~~

During the first quarter of fiscal year 2009, we launched several new GPUs in the GeForce family. The product launches included the GeForce 9600 GT, which provides more than double the performance of our previous GeForce 8600 GTS; the GeForce 9800 GX2, which provides a new dual GPU board featuring Quad SLI technology; GeForce 9800 GTX, which is a flexible GPU that supports both two-way and three-way Scalable Link Interface, or SLI technology. Additionally, we also launched the GeForce 8800 GT, which is the first after-market consumer graphics card for the Mac Pro and is sold directly by us.

On February 10, 2008, we completed our acquisition of Ageia Technologies, Inc., or Ageia, an industry leader in gaming physics technology. Ageia's PhysX software is widely adopted in several PhysX-based games that are shipping or in development on Sony Playstation 3, Microsoft XBOX 360, Nintendo Wii, and gaming PCs. We believe that the combination of the GPU and physics engine brands will result in an enhanced visual experience for the gaming world.

During the first quarter of fiscal year 2009, we gained market share in the standalone desktop, standalone notebook, and integrated notebook graphics categories when compared to first quarter of fiscal year 2008 as reported in the 2008 PC Graphics Report from Mercury Research.

~~Professional Solutions Business~~

~~During the first quarter of fiscal year 2009, we launched the Quadro FX 3600M Professional which is among the highest performance notebook GPUs.~~

~~MCP Business~~

During the first quarter of fiscal year 2009, we shipped Hybrid SLI DX10 motherboard GPUs – the GeForce 8000 GPU series. The GeForce 8000 GPU series includes GeForce Boost Hybrid SLI technology, which is designed to double performance when paired with a GeForce 8 desktop GPU. Additionally, we also launched the NVIDIA nForce 790i Ultra SLI MCP which is among the industry’s highly rated overclockable platform for Intel processors.

~~Consumer Products Business~~

During the first quarter of fiscal year 2009, we launched the NVIDIA APX 2500 application processor. The APX 2500 is a computer-on-a-chip designed to meet the growing multimedia demands of today's mobile phone and entertainment user. We believe that the mobile application processor is an area where we can add a significant amount of value and we also believe it represents a revenue growth opportunity.

~~Seasonality~~

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

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

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

We report financial information for four operating segments to our CODM: the GPU business, which is comprised primarily of our GeForce products that support desktop and notebook PCs, plus memory products; the PSB which is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products; the MCP business which is comprised of NVIDIA nForce core logic and motherboard GPU products; and our CPB, which is comprised of our CPB is comprised of our GoForce and APX mobile brands and products that support handheld PMPs, PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

In addition to these operating segments, we have the “All Other” category that includes human resources, legal, finance, general administration and corporate marketing expenses, which total $76.2 million and $68.0 million for the three months ended April 27, 2008 and April 29, 2007, respectively, that we do not allocate to our other operating segments as these expenses are not included in the segment operating performance measures evaluated by our CODM. “All Other” also includes the results of operations of other miscellaneous reporting segments that are neither individually reportable, nor aggregated with another operating segment. Revenue in the “All Other” category is primarily derived from sales of components.

~~Results of Operations~~

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

Three Months Ended

April 27,
2008

April 29,
2007

Revenue

100.0
%

100.0
%
Cost of revenue

55.4

55.0

Gross profit

44.6

45.0

Operating expenses:

Research and development

19.0

18.8

Sales, general and administrative

8.1

9.5

Total operating expenses

27.1

28.3

Income from operations

17.5

16.7

Interest and other income, net

0.9

1.5

Income before income tax expense

18.4

18.2

Income tax expense

3.1

2.6

Net income

15.3
%

15.6
%

NVIDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

~~First Quarter of Fiscal Years 2009 and 2008~~

~~Revenue~~For our money market funds that were held by the International Reserve Fund at October 26, 2008, we assessed the fair value of the money market funds by considering the underlying securities held by the International Reserve Fund. As the International Reserve Fund has halted redemption requests and is currently believed to be holding all of their securities until maturity, we valued the underlying securities held by the International Reserve Fund at their maturity value using an income approach. Certain of the debt securities held by the International Reserve Fund were issued by companies that have filed for bankruptcy as of October 26, 2008 and, as such, our valuation of those securities was ~~$1.15 billion for~~zero. The net result was that, as of October 26, 2008, we estimated the ~~first quarter~~fair value of ~~fiscal year 2009, compared~~the International Reserve Fund’s investments to ~~$844.3~~be 95.7% of their last-known value prior to October 26, 2008. Based on this assessment, we recorded an other than temporary impairment charge of $5.6 million for the ~~first quarter of fiscal year 2008, which represents an increase of 37%. For~~three months ended October 26, 2008. Due to the ~~second quarter of fiscal 2009, we expect a seasonal decline associated with~~inherent subjectivity and the ~~PC business, although overall, we believe our market and competitive positions continue to be strong. A discussion~~significant judgment involved in the valuation of our ~~revenue results for each~~holdings of International Reserve Fund, we have classified these securities under the Level 3 fair value hierarchy.

As of October 26, 2008, our money market investment in the International Reserve Fund, which was valued at $124.4 million, net of other than temporary impairment charges, was classified as marketable securities in our Condensed Consolidated Balance Sheet due to the halting of redemption requests in September 2008 by the International Reserve Fund. We expect to receive the proceeds of our ~~operating segments is as follows:~~investment in the International Reserve Fund by no later than October 2009, when all of the underlying securities held by the International Reserve Fund are scheduled to have matured. However, redemptions from the International Reserve Fund are currently subject to pending litigation, which could cause further delay in receipt of our funds.

~~GPU Business. GPU Business revenue increased by 45% to $701.5 million in the first quarter~~Reconciliation of fiscal year 2009, compared to $483.5 million for the first quarter of fiscal year 2008. This improvement was primarily due to increased sales of our desktop GPU products and notebook GPU products. Sales of our desktop GPU products increased by approximately 44% compared to the first quarter of fiscal year 2008, primarily due to growth of the Standalone Desktop market as reported in the 2008 PC Graphics Report from Mercury Research. Our leadership position in the Standalone Desktop market was driven by our GeForce 8-based products and our new generation of GeForce 9-based products. Sales of our notebook GPU products increased by approximately 99% compared to the first quarter of fiscal year 2008. Notebook GPU revenue growth was primarily due to share gains in the Standalone Notebook category as reported in the 2008 PC Graphics Report from Mercury Research. Our share gains in the Standalone Notebook category were primarilyfinancial assets measured at fair value on a ~~result of shipments of products used in notebook PC design wins related to Intel’s Santa Rosa platform.~~recurring basis using significant unobservable inputs, or Level 3 inputs:

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

	Three months ended October 26, 2008			Nine months ended October 26, 2008

Balance, beginning of period	$	-		$	-
Transfer into Level 3		130,000			130,000
Other than temporary impairment		(5,600	)		(5,600	)
Balance, end of period	$	124,400		$	124,400

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

~~Concentration of Revenue~~

~~Revenue from sales to customers outside of the United States and other Americas accounted for 92% and 83%~~ Total financial assets at fair value classified within Level 3 were 3.4% of total ~~revenue for the first quarter~~assets on our Condensed Consolidated Balance Sheet as of fiscal years 2009 and 2008, respectively. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the foreign contract equipment manufacturers, or CEMs’, add-in board and motherboard manufacturers’ revenue is attributable to end customers in a different location.

Sales to our significant customers accounted for approximately 11% of our total revenue from one customer during the first quarter of fiscal year 2009. In the first quarter of fiscal year 2008, there were no sales to any customer in excess of 10% of our total revenue.October 26, 2008.

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

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

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

~~Operating Expenses~~

Three Months Ended

April 27,
2008

April 29,
2007

$
Change

%
Change

(In millions)
Research and development expenses

$
218.8

$
158.3

$
60.5

38
%
Sales, general and administrative expenses

93.1

80.6

12.5

16
%
Total operating expenses

$
311.9

$
238.9

$
73.0

31
%
Research and development as a percentage of net revenue

19
%

19
%

Sales, general and administrative as a percentage of net revenue

8
%

10
%

~~Sales, General and Administrative~~

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

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

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

~~Other Expense, net~~

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

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

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

~~Liquidity and Capital Resources~~

As of
April 27, 2008

As of
January 27, 2008

(In millions)
Cash and cash equivalents
$ 803.3 $ 727.0
Marketable securities
818.3 1,082.5
Cash, cash equivalents, and marketable securities
$ 1,621.6 $ 1,809.5

Three Months Ended
April 27, April 29,
2008 2007

(In millions)

Net cash provided by operating activities

$
145.2

$
295.2

Net cash used in investing activities

$
24.5

$
(79.8
)
Net cash used in financing activities

$
(93.4
)

$
(80.9
)

~~Operating activities~~

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

~~Investing activities~~

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

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

~~Financing activities~~

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

Cash generated by operations is used as our primary source of liquidity. Our investment portfolio consisted of cash and cash equivalents, asset-backed securities, commercial paper, mortgage-backed securities issued by Government-sponsored enterprises, equity securities, money market funds and highly liquid debt securities of corporations, municipalities and the United States government and its agencies. As of April 27, 2008, we did not have any investments in auction-rate preferred securities. These investments are denominated in United States dollars.

At April 27, 2008 and January 27, 2008, we had $1.62 billion and $1.81 billion, respectively, in cash, cash equivalents and marketable securities. Our investment policy requires the purchase of top-tier investment grade securities, the diversification of asset type and includes certain limits on our portfolio duration, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. As of April 27, 2008, we were in compliance with our investment policy. As of April 27, 2008, our investments in the financial sector and government agencies accounted for approximately 34% and 22%, respectively, of our total investment portfolio. Substantially all of our investments are with A/A2 or better rated securities with the substantial majority of the securities rated AA-/Aa3 or better. As of April 27, 2008, $872.6 million of our portfolio had a maturity of less than a year, and a substantial majority of our remaining investments have remaining maturities of three years or less. In the first quarter of fiscal year 2009, we did not recognize any other-than-temporary impairments on our portfolio of available-for-sale investments.

Recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets, causing global credit and liquidity issues. The short-term funding markets experienced issues during the third and fourth quarter of calendar 2007, leading to liquidity disruption in the market. If the global credit market continues to deteriorate, our investment portfolio may be impacted and we could determine some of our investments are impaired, which could adversely impact our financial results.

~~Stock Repurchase Program~~

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

During the first fiscal quarter ended April 27, 2008, we entered into a structured share repurchase transaction to repurchase 6.3 million shares for $123.9 million which we recorded on the trade date of the transaction. Through April 27, 2008, we had repurchased 68.0 million shares under our stock repurchase program for a total cost of $1.16 billion.

~~Operating Capital and Capital Expenditure Requirements~~

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

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

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

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

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

~~We may continue to use cash in connection with the acquisition of new businesses or assets and capital expenditures related to our property purchases.~~

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

~~3dfx Asset Purchase~~

~~Product Defect Contingencies~~

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

During the first quarter of fiscal year 2009, one of our customers asserted claims for incremental repair and replacement costs related to an alleged die/packaging material set defect in one of our notebook MCP products. This product was included in a significant number of the customer’s notebook products that have been sold to end users, and has also been shipped to other of our customers in significant quantities. We are evaluating the potential scope of this situation, including the nature and cause of the alleged defect and the merits of the customer’s claim, and to what extent the alleged defect might occur with other of our products. We are currently unable to estimate the amount of costs that may be incurred by us beyond the normal product warranty accrual that we have taken related to this claim and the alleged defect and, therefore, we have not recorded any additional related costs or a liability in our Condensed Consolidated Financial statements as of, and for the three months ended, April 27, 2008.

~~Contractual Obligations~~

At April 27, 2008, we had outstanding inventory purchase obligations and capital purchase obligations totaling approximately $654.3 million and $44.1 million, respectively. There were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended January 27, 2008. Please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in our Form 10-K for a description of our contractual obligations.

~~Adoption of New Accounting Pronouncements~~

~~Recently Issued Accounting Pronouncements~~

Forward-Looking Statements:

When used in this Quarterly Report on Form 10-Q, the words “believes,” “plans,” “estimates,” “anticipates,” “expects,” “intends,” “allows,” “can,” “will” and similar expressions are intended to identify forward-looking statements. These statements relate to future periods and include, but are not limited to, statements as to: the features, benefits, capabilities, performance, impact and production of our products and technologies; product, manufacturing, design or software defects and the impact of such defects; defects in materials used to manufacture a product; causes of product defects; our reliance on third parties to manufacture, assemble and test our products; reliance on a limited number of customers and suppliers; new products or markets; design wins; our market position; our competition, sources of competition and our competitive position; our strategic relationships; average selling prices; seasonality; customer demand; growth; our international operations; our ability to attract and retain qualified personnel; our inventory; acquisitions and investments; stock options; the impact of stock-based compensation expense; our financial results; our tax positions; mix and sources of revenue; capital and operating expenditures; our cash; liquidity; our investment portfolio and marketable securities; our exchange rate risk; our stock repurchase program; our internal control over financial reporting; our disclosure controls and procedures; recent accounting pronouncements; our intellectual property; compliance with environmental laws and regulations; ongoing and potential litigation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, the risks discussed below as well as difficulties associated with: fluctuations in general economic conditions in the United States and worldwide; difficulties in entering new markets; slower than expected development of a new market; conducting international operations; slower than anticipated growth; forecasting customer demand; product, manufacturing, software and design defects; defects in product design or materials used to manufacture a product; supply constraints; the impact of competitive pricing pressures; unanticipated decreases in average selling prices; increased sales of lower margin products; international and political conditions; changes in international laws; fluctuations in the global credit market; fixed operating expenses; our inventory levels; fluctuations in investments and the securities market; changes in customers’ purchasing behaviors; the concentration of sales of our products to a limited number of customers; decreases in demand for our products; delays in the development of new products by us or our partners; delays in volume production of our products; developments in and expenses related to litigation or regulatory actions; our inability to realize the benefits of acquisitions; and the matters set forth under Part II, Item 1A. - Risk Factors. These forward-looking statements speak only as of the date hereof. Except as required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

NVIDIA, GeForce, SLI, Hybrid SLI, GoForce, Quadro, NVIDIA Quadro, NVIDIA nForce, Tesla, Tegra, CUDA, NVIDIA APX, PhysX, Ageia, Mental Images, and the NVIDIA logo are our trademarks and/or registered trademarks in the United States and other countries that are used in this document. We may also refer to trademarks of other corporations and organizations in this document.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” of our Annual Report on Form 10-K for the fiscal year ended January 27, 2008 and Part II, “Item 1A. Risk Factors”, of our Condensed Consolidated Financial Statements and related Notes thereto, as well as other cautionary statements and risks described elsewhere in this Quarterly Report on Form 10-Q, before deciding to purchase, hold or sell shares of our common stock.

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

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

Recent Developments, Future Objectives and Challenges

During the first nine months of fiscal year 2009, we launched several new GPUs in the GeForce family. The product launches included the GeForce 9600 GT, which provides more than double the performance of our previous GeForce 8600 GTS; the GeForce 9800 GX2, which provides a new dual GPU board featuring Quad SLI technology; and the GeForce 9800 GTX, which is a flexible GPU that supports both two-way and three-way Scalable Link Interface, or SLI, technology. Additionally, we also launched the GeForce 8800 GT, which is the first after-market consumer graphics card for the Mac Pro and is sold directly by us.

On February 10, 2008, we completed our acquisition of Ageia Technologies, Inc., or Ageia, an industry leader in gaming physics technology. Ageia's PhysX software is widely adopted in several PhysX-based games that are shipping or in development on Sony Playstation 3, Microsoft Xbox 360, Nintendo Wii, and gaming PCs. We believe that the combination of the GPU and physics engine brands will result in an enhanced visual experience for the gaming world.

During the second quarter of fiscal year 2009, we launched the GeForce GTX 280 and 260 GPUs. These products represent the second-generation of our unified architecture. Based on a comparison between the GeForce GTX 280 and the GeForce 8800 Ultra in a variety of benchmarks and resolutions, the GeForce GTX 280 and 260 GPUs deliver 50 percent more gaming performance over our previous GeForce 8800 Ultra GPU. We also launched the GeForce 9800 GTX+, GeForce 9800 GT, and GeForce 9500 GT GPUs that provide support for our PhysX physics engine and CUDA parallel processing across a wide range of price segments.

Professional Solutions Business

During the first quarter of fiscal year 2009, we launched the Quadro FX 3600M Professional, which is among the highest performing notebook GPUs.

In the second quarter of fiscal year 2009, we launched the Tesla C1060 computing processor and the S1070 computing system, which is among the first teraflop processors and has a 1U system with up to four teraflops of performance.

During the third quarter of fiscal year 2009, we launched five new Quadro FX notebook GPUs that spanned from ultra-high performance to ultra mobility. We also launched the first desk side visual supercomputer with the Quadro Plex D Series. At this year’s SIGGRAPH 2008 conference, we set a new milestone in computer graphics by demonstrating the world’s first real-time fully-interactive ray tracer on the new Quadro Plex D2 system. We also launched the NVIDIA Quadro CX, the industry’s first accelerator for Adobe’s Creative Suite 4, or Adobe CS4, content creation software. Adobe CS4 software has added optimization to take advantage of GPU technology. The Quadro CX is specifically designed to enhance the performance of the Adobe CS4 product line and to give creative professionals the ultimate performance and productivity.

During the first quarter of fiscal year 2009, we shipped Hybrid SLI DX10 mGPUs – the GeForce 8000 GPU series. The GeForce 8000 GPU series includes GeForce Boost Hybrid SLI technology, which is designed to double performance when paired with a GeForce 8 series desktop GPU. Additionally, we also launched the NVIDIA nForce 790i Ultra SLI MCP, which is one of the industry’s highly rated overclockable platform for Intel processors.

During the second quarter of fiscal year 2009, we launched the GeForce 9M series of notebook GPUs that enables improved performance in notebooks with Hybrid SLI technology and PhysX technology. We also launched SLI for Intel Broomfield CPU platforms. When paired with the nForce 200 SLI MCP, Intel’s Bloomfield CPU and Tylersburg core logic chipset will deliver NVIDIA three-way SLI technology with up to a 2.8 times performance boost over traditional single graphics card platforms.

During the third quarter of fiscal year 2009, we launched the GeForce 9400M mGPU along with Apple, Inc., or Apple, for their new lineup of Mac notebooks. The GeForce 9400M integrates three complex chips – the northbridge, the input-output network processor, and the GeForce GPU into a single chip and, as a result, significantly improves performance over Intel integrated graphics. Apple’s MacBook and MacBook Air notebook computers come standard with the GeForce 9400M. Apple’s MacBook Pro notebook computer comes standard with the hybrid combination of two GeForce GPUs - a GeForce 9400M for maximum battery life and a GeForce 9600M GT for high performance mode. We also launched the GeForce 9400 and 9300 mGPUs for Intel desktop PCs. These new mGPUs set a new price/performance standard for integrated graphics by combining the power of three different chips into one highly compact and efficient GPU.

Consumer Products Business

During the first nine months of fiscal year 2009, we launched the NVIDIA APX 2500 application processor. The Tegra APX 2500 is a computer-on-a-chip designed to meet the growing multimedia demands of today's mobile phone and entertainment user. We believe that the mobile application processor is an area where we can add a significant amount of value and we also believe it represents a revenue growth opportunity.

During the second quarter of fiscal year 2009, we launched the Tegra 600 and 650 that represent a single-chip heterogeneous computer architecture designed for low-power mobile computing devices.

Restructuring Charges

On September 18, 2008, we announced a workforce reduction to allow for continued investment in strategic growth areas, which was completed in the third quarter of fiscal year 2009. As a result, we eliminated approximately 360 positions worldwide, or about 6.5% of our global workforce. During the third quarter of fiscal year 2009, expenses associated with the workforce reduction, which were comprised primarily of severance and benefits payments to these employees, totaled $8.3 million. The remaining accrual of $0.8 million as of October 26, 2008 relates to severance and benefits payments, which are expected to be paid over the fourth quarter of fiscal year 2009. We anticipate that the expected decrease in operating expenses from this action will be offset by continued investment in strategic growth areas.

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

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

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

In September, October and November 2008, several putative class action lawsuits were filed against us, asserting various claims related to the impacted MCP and GPU products. Please refer to Note 13 of the Notes to Condensed Consolidated Financial Statements for further information regarding this litigation.

Dependence on PC market

We derive and expect to continue to derive the majority of our revenue from the sale or license of products for use in the desktop PC and notebook PC markets, including professional workstations. A reduction in sales of PCs, or a reduction in the growth rate of PC sales, may reduce demand for our products. For the first nine months of fiscal year 2009, sales of our desktop GPU and memory products decreased approximately 11% and 53%, respectively, as compared to the first nine months of fiscal year 2008. Changes in demand for our products could be large and sudden. Since PC manufacturers often build inventories during periods of anticipated growth, they may be left with excess inventories if growth slows or if they incorrectly forecast product transitions. In these cases, PC manufacturers may abruptly suspend substantially all purchases of additional inventory from suppliers like us until their excess inventory has been absorbed, which would have a negative impact on our financial results.

Historically, we have seen stronger revenue in the second half of our fiscal year than in the first half of our fiscal year, primarily due to back-to-school and holiday demand. While our revenue has generally followed this seasonal trend, there can be no assurance that this trend will continue. Our revenue outlook for the fourth quarter of fiscal year 2009 includes a wider than typical range due to the uncertainty regarding how the current economic environment will impact our business. We expect revenue to decline slightly during the fourth quarter of fiscal year 2009 as compared to the third quarter of fiscal year 2009.

Financial Information by Business Segment and Geographic Data

We report financial information for four operating segments to our CODM: the GPU business, which is comprised primarily of our GeForce products that support desktop and notebook personal computers, or PCs, plus memory products; the PSB, which is comprised of our NVIDIA Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products; the MCP business which is comprised of NVIDIA nForce core logic and mGPU products; and our CPB, which is comprised of our Tegra and GoForce mobile brands and products that support handheld PMPs, PDAs, cellular phones and other handheld devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.

In addition to these operating segments, we have the “All Other” category that includes human resources, legal, finance, general administration, restructuring charges and corporate marketing expenses, which total $88.5 million and $66.2 million for third quarter of fiscal years 2009 and 2008, respectively, and total $245.4 million and $197.0 million for the first nine months of fiscal years 2009 and 2008, respectively, that we do not allocate to our other operating segments as these expenses are not included in the segment operating performance measures evaluated by our CODM. “All Other” also includes the results of operations of other miscellaneous reporting segments that are neither individually reportable, nor aggregated with another operating segment. Revenue in the “All Other” category is primarily derived from sales of components.

Results of Operations

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

	Three Months Ended					Nine Months Ended
	October 26, 2008			October 28, 2007		October 26, 2008		October 28, 2007
Revenue		100.0	%	100.0	%	100.0	%	100.0	%
Cost of revenue		59.0		53.8		64.9		54.4
Gross profit		41.0		46.2		35.1		45.6
Operating expenses:
Research and development		23.7		16.1		21.9		17.1
Sales, general and administrative		10.1		7.9		9.4		8.6
Restructuring charges		0.9		-		0.3		-
Total operating expenses		34.7		24.0		31.6		25.7
Operating income		6.3		22.2		3.5		19.9
Interest and other income, net		0.5		1.7		0.8		1.6
Income before income tax expense (benefit)		6.8		23.9		4.3		21.5
Income tax expense (benefit)		(0.1	)	2.8		0.3		2.8
Net income		6.9	%	21.1	%	4.0	%	18.7	%

Three and nine months ended October 26, 2008 and October 28, 2007

Revenue was $897.7 million for our third quarter of fiscal year 2009, compared to $1.12 billion for our third quarter of fiscal year 2008, which represents a decrease of 20%. Revenue was $2.94 billion for the first nine months of fiscal year 2009 and $2.90 billion for the first nine months of fiscal year 2008, which represented an increase of 2%. We expect revenue to decline slightly during the fourth quarter of fiscal year 2009 as compared to the third quarter of fiscal year 2009. A discussion of our revenue results for each of our operating segments is as follows:

GPU Business. GPU Business revenue decreased by 33% to $461.5 million in the third quarter of fiscal year 2009, compared to $689.9 million for the third quarter of fiscal year 2008. This decrease was primarily due to decreased sales of our desktop GPU and memory products. Sales of our desktop GPU and memory products decreased by approximately 42% and 61%, respectively, compared to the third quarter of fiscal year 2008. These decreases were primarily due to a decline in the Standalone Desktop market segment as reported in the PC Graphics October 2008 Report from Mercury Research, driven by a combination of market migration from desktop PCs towards notebook PCs and an overall market shift in the mix of products towards lower priced products. The decline in revenue during the third quarter of fiscal year 2009 also reflects the impact of average sales price regression we experienced in our desktop GPU products as a result of increased competition. In addition, a decline in our share position caused by increased competition, as also reported in the PC Graphics October 2008 Report from Mercury Research, also contributed to the decrease in our desktop GPU revenue. Sales of our NVIDIA notebook GPU products in the third quarter of fiscal year 2009 decreased by 2% when compared to the third quarter of fiscal year 2008, as higher unit sales aided by the market move toward notebook PCs were offset by lower average sales prices in the third quarter of fiscal year 2009 when compared to the third quarter of fiscal year 2008.

GPU Business revenue decreased by 5% to $1.67 billion for the first nine months of fiscal year 2009 compared to $1.75 billion for the first nine months of fiscal year 2008. This decrease was primarily due to decreased sales of our desktop GPU and memory products, offset by increased sales of our notebook GPU products. Sales of our desktop GPU and memory products decreased approximately 11% and 53%, respectively, as compared to the first nine months of fiscal year 2008. These decreases were primarily due to a decline in the Standalone Desktop market segment as reported in the PC Graphics October 2008 Report from Mercury Research, driven by a combination of market migration from desktop PCs towards notebook PCs and an overall market shift in the mix of products towards lower priced products. The decline in revenue during the first nine months of fiscal year 2009 also reflects the impact of average sales price regression we experienced in our desktop GPU products as a result of increased competition. In addition, a decline in our share position caused by increased competition, as also reported in the PC Graphics October 2008 Report from Mercury Research, also contributed to the decrease in our desktop GPU revenue. Sales of our NVIDIA notebook GPU products increased approximately 34% when compared to the first nine months of fiscal year 2008, due primarily to higher unit sales aided by the market move toward notebook PCs over desktop PCs.

PSB. PSB revenue increased by 31% to $199.3 million in the third quarter of fiscal year 2009, compared to $152.2 million for the third quarter of fiscal year 2008. PSB revenue increased by 39% to $582.4 million for the first nine months of fiscal year 2009 as compared to $420.4 million for the first nine months of fiscal year 2008. Our NVIDIA professional workstation product sales increased due to an overall increase in shipments of boards and chips as compared to the third quarter and first nine months of fiscal year 2008 due to strong demand and our transition from previous generations of NVIDIA Quadro professional workstation products to GeForce 8-based and GeForce 9-based products. Sales of NVIDIA Quadro CX for Adobe’s CS4 software, which we launched in the third quarter of fiscal year 2009, also contributed towards the increase in sales in the third quarter and first nine months of fiscal year 2009.

MCP Business. MCP Business revenue of $197.6 million in the third quarter of fiscal year 2009 was relatively flat when compared to revenue of $198.2 million for the third quarter of fiscal year 2008. A decrease in sales of our AMD-based platform products was offset by an increase in sales of our Intel-based platform products as compared to the third quarter of fiscal year 2008.

MCP Business revenue increased by 10% to $559.4 million for the first nine months of fiscal year 2009 as compared to $508.0 million for first nine months of fiscal year 2008. The increase was a result of an approximately 230% increase in sales of our Intel-based platform products while sales of our AMD-based platform products decreased by 19% as compared to the first nine months of fiscal year 2008.

CPB. CPB revenue decreased by 48% to $34.2 million for the third quarter of fiscal year 2009, compared to $65.9 million for the third quarter of fiscal year 2008. CPB revenue decreased by 43% to $111.3 million for the first nine months of fiscal year 2009 as compared to $195.3 million for the first nine months of fiscal year 2008. The decline in CPB revenue is primarily driven by a combination of a decrease in revenue from our cell phone products, a decrease in revenue from our contractual development arrangements with Sony Computer Entertainment, or SCE, and a drop in royalties from SCE resulting from a decrease in the number of units shipped due to the transition of the PlayStation3 to a new process node, which took place earlier in the fiscal year.

Concentration of Revenue

Revenue from sales to customers outside of the United States and other Americas accounted for 83% and 90% of total revenue for the third quarter of fiscal years 2009 and 2008, respectively, and 88% for the first nine months for each fiscal year 2009 and 2008. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if our customers’ revenue is attributable to end customers in a different location.

Revenue from significant customers, those representing approximately 10% or more of total revenue for the respective periods, is summarized as follows:

	Three Months Ended						Nine Months Ended
	October 26, 2008			October 28, 2007			October 26, 2008			October 28, 2007
Revenue:
Customer A		13	%		8	%		11	%	6	%
Customer B		12	%		4	%		6	%	6	%
Customer C		4	%		10	%		6	%	9	%
Customer D		6	%		9	%		9	%	10	%

Gross Profit and Gross Margin

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

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on a variety of factors including the mix of types of products sold. Product mix is often difficult to estimate with accuracy. Therefore, if we experience product transition or competitive challenges, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted.

Our gross margin was 41.0% and 46.2% for the third quarter of fiscal years 2009 and 2008, respectively. The decline in gross margin for the third quarter of fiscal year 2009 reflects the impact of average sales price regression we experienced in our desktop GPU products as a result of increased competition. Our gross margin was 35.1% and 45.6% for the first nine months of fiscal years 2009 and 2008, respectively. The decline in gross margin for the first nine months of fiscal year 2009 reflects a $196.0 million charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and associated costs arising from a weak die/packaging material set in certain versions of our previous generation MCP and GPU products used in notebook systems, as well as the impact of average sales price regression we experienced in our desktop GPU products as a result of increased competition.

We will continue to focus on improving our gross margin. We expect it to remain relatively flat during the fourth quarter of fiscal year 2009 when compared to the third quarter of fiscal year 2009. A discussion of our gross margin results for each of our operating segments is as follows:

GPU Business. The gross margin of our GPU Business decreased during the third quarter of fiscal year 2009 as compared to the third quarter of fiscal year 2008, as well as during the first nine months of fiscal year 2008 as compared to the first nine months of fiscal year 2007. This decrease was primarily due to average sales price regression in our GeForce 9-based and previous generations of desktop products. Additionally, the gross margin during the first nine months of fiscal year 2009 declined as compared to the first nine months of fiscal year 2008, primarily due to a charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and associated costs arising from a weak die/packaging material set in certain versions of our previous generation GPU products used in notebook systems.

PSB. The gross margin of our PSB increased slightly during the third quarter of fiscal year 2009 as compared to the third quarter fiscal year 2008, as well as during the first nine months of fiscal year 2009 as compared to the first nine months of fiscal year 2008. This increase was primarily due to increased sales of our GeForce 9-based NVIDIA Quadro products, which began selling in the fourth quarter of fiscal year 2008, and GeForce 8-based NVIDIA Quadro products, which generally have higher gross margins than our previous generations of NVIDIA Quadro products.

MCP Business. The gross margin of our MCP Business decreased during the third quarter of fiscal year 2009 as compared to the third quarter fiscal year 2008, as well as during the first nine months of fiscal year 2009 as compared to the first nine months of fiscal year 2008 due to decline in the margins of our AMD and Intel-based products. During the first nine months of fiscal year 2009, gross margins declined primarily due to a charge against cost of revenue to cover anticipated customer warranty, repair, return, replacement and associated costs arising from a weak die/packaging material set in certain versions of our previous generation MCP products used in notebook systems.

CPB. The gross margin of our CPB increased during the third quarter of fiscal year 2009 as compared to the third quarter fiscal year 2008, as well as during the first nine months of fiscal year 2009 as compared to the first nine months of fiscal year 2008. This increase was primarily due to changes in the product mix in our CPB product lines. We experienced greater revenue decline in our lower margin cell phone and other handheld devices product lines as compared to higher margin SCE transactions in the current year.

	Three Months Ended												Nine Months Ended
	October 26, 2008			October 28, 2007				$ Change		% Change			October 26, 2008			October 28, 2007			$ Change		% Change
	(in millions)												(in millions)
Research and development expenses	$	212.4			$	179.5		$	32.9		18	%	$	644.1		$	495.8		$	148.3		30	%
Sales, general and administrative expenses		90.3				88.2			2.1		2	%		275.8			250.0			25.8		10	%
Restructuring charges		8.3				-			8.3		100	%		8.3			-			8.3		100	%
Total operating expenses	$	311.0			$	267.7		$	43.3		16	%	$	928.2		$	745.8		$	182.4		24	%
Research and development as a percentage of net revenue		23.7	%			16.1	%							21.9	%		17.1	%
Sales, general and administrative as a percentage of net revenue		10.1	%			7.9	%							9.4	%		8.6	%

Research and Development

Research and development expenses were $212.4 million and $179.5 million during the third quarter of fiscal years 2009 and 2008, respectively, an increase of $32.9 million, or 18%. The increase is primarily related to an increase in salaries and benefits by approximately $12.8 million as a result of the net addition of approximately 700 personnel in departments related to research and development functions, offset by lower expenses during the third quarter of fiscal year 2009 related to our variable compensation programs when compared to the third quarter of fiscal year 2008. Development expenses increased by $2.6 million primarily as a result of an increase in prototype materials used and higher engineering consumption. Stock-based compensation expense increased by $4.1 million primarily because of the impact of new hire and semi-annual stock awards granted subsequent to the third quarter of fiscal year 2008, offset by a reduction in expense related to older stock awards that were almost fully vested and for which the related expense had been almost fully amortized by the end of the first quarter of fiscal year 2009. Other increases in research and development expenses are primarily related to costs that were driven by personnel growth, including depreciation and amortization, facilities, and computer software and equipment.

Research and development expenses were $644.1 million and $495.8 million in the first nine months of fiscal years 2009 and 2008, respectively, an increase of 148.3 million, or 30%. The increase is primarily related to an increase in salaries and benefits by approximately $56.9 million as a result of the net addition of approximately 700 personnel in departments related to research and development functions, offset by lower expenses during the first nine months of fiscal year 2009 related to our variable compensation programs when compared to the first nine months of fiscal year 2008. Development expenses increased by $17.5 million primarily as a result of an increase in prototype materials used and higher engineering consumption due to higher volume of activity related to new product introductions in the current fiscal year. Stock-based compensation expense increased by $14.0 million primarily because of the impact of new hire and semi-annual stock awards granted subsequent to the third quarter of fiscal year 2008, offset by a reduction in expense related to older stock awards that were almost fully vested and for which the related expense had been almost fully amortized by the end of the first quarter of fiscal year 2009. Other increases in research and development expenses are primarily related to costs that were driven by personnel growth, including depreciation and amortization, facilities, and computer software and equipment.

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

Sales, General and Administrative

Sales, general and administrative expenses were $90.3 million and $88.2 million during the third quarter of fiscal years 2009 and 2008, respectively, an increase of $2.1 million, or 2%. Labor and related expenses decreased by $8.6 million due a headcount decline of approximately 7% as well as lower expenses during the third quarter of fiscal year 2009 related to our variable compensation programs when compared to the third quarter of fiscal 2008. Outside professional fees increased by $5.6 million primarily due to increased legal fees pertaining to ongoing litigation matters described in Note 13 of the Notes to Condensed Consolidated Financial Statements. Marketing and advertising expenses increased by $8.4 million, primarily due to increased advertising campaign related activities and trade shows in the current quarter. Depreciation and amortization expense increased by $4.7 million primarily due to amortization of intangible assets acquired from our acquisitions of Mental Images and Ageia; and from increased capital expenditures. Stock-based compensation expense increased by $1.3 million primarily due to the impact of new hire and semi-annual stock awards granted subsequent to the third quarter of fiscal year 2008, offset by a reduction in expense related to older stock awards that were almost fully vested and for which the related expense had been almost fully amortized by the end of the first quarter of fiscal year 2009.

Sales, general and administrative expenses were $275.8 million and $250.0 million for the first nine months of fiscal years 2009 and 2008, respectively, an increase of $25.8 million, or 10%. Labor and related expenses decreased by $4.8 million or approximately 3%, primarily due to lower expenses during the first nine months of fiscal year 2009 related to our variable compensation programs when compared to the first nine months of fiscal year 2008. Stock-based compensation expense increased by $6.0 million primarily due to the impact of new hire and semi-annual stock awards granted subsequent to the third quarter of fiscal year 2008, offset by a reduction in expense related to older stock awards that were almost fully vested and for which the related expense had been almost fully amortized by the end of the first quarter of fiscal year 2009. Outside professional fees increased by $14.8 million, primarily due to legal fees related to ongoing litigation matters described in Note 13 of the Notes to Condensed Consolidated Financial Statements. Marketing and advertising expenses increased by $15.8 million, primarily due to expenses related to a worldwide sales conference, increased advertising campaign and trade show costs, and other marketing related activities.

Restructuring Charges

On September 18, 2008, we announced a workforce reduction to allow for continued investment in strategic growth areas, which was completed in the third quarter of fiscal year 2009. As a result, we eliminated approximately 360 positions worldwide, or about 6.5% of our global workforce. During the third quarter of fiscal year 2009, expenses associated with the workforce reduction, which were comprised primarily of severance and benefits payments to these employees, totaled $8.3 million. The remaining accrual of $0.8 million as of October 26, 2008 relates to severance and benefits payments, which are expected to be paid during the fourth quarter of fiscal year 2009. We anticipate that the expected decrease in operating expenses from this action will be offset by continued investment in strategic growth areas.

Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $9.4 million and $17.4 million in the third quarter of fiscal years 2009 and 2008, respectively, a decrease of $8.0 million. Interest income was $35.9 million and $46.3 million for the first nine months of fiscal years 2009 and 2008, respectively, a decrease of $10.4 million. These decreases were primarily a result of the fall in interest rates and our relatively lower balances for cash, cash equivalents, and marketable securities during the first nine months of fiscal year 2009 when compared to the first nine months of fiscal year 2008.

Other Income (expense), net

Other income (expense) was $(5.2) million and $1.5 million in the third quarter of fiscal years 2009 and 2008, respectively, a decrease of $6.7 million. Other income (expense) was $(12.8) million and $1.3 million for the first nine months of fiscal year 2009 and fiscal year 2008, respectively, a decrease of $14.1 million. These decreases were primarily due to other than temporary impairment charges of $8.8 million and $9.9 million that we recorded during the three and nine months ended October 26, 2008, respectively. These charges include $5.6 million towards the other than temporary impairment of our investment in the Reserve International Liquidity Fund, Ltd., or the International Reserve Fund. Please refer to Note 17 of the Notes to the Condensed Consolidated Financial Statements for further details.

We recognized income tax expense (benefit) of ($0.7) million and $31.1 million for the third quarters of fiscal year 2009 and 2008, respectively, and $9.8 million and $80.8 million for the first nine months of fiscal years 2009 and 2008, respectively. Income tax expense (benefit) as a percentage of income before taxes, or our effective tax rate, was (1.2%) and 11.7% for the third quarters of fiscal years 2009 and 2008, respectively, and 7.7% and 13.0% for the nine months of fiscal years 2009 and 2008, respectively. Our effective tax rate is lower than the United States federal statutory tax rate of 35.0% due primarily to income earned in lower tax jurisdictions and the U.S. tax benefit of the federal research tax credits available in the respective periods.

Our effective tax rate for the first nine months of fiscal year 2009 of 7.7% was lower than our effective tax rate of 13.0% for the first nine months of fiscal year 2008 due primarily to a favorable impact from the expiration of statutes of limitations in certain non-U.S. jurisdictions and due to the reinstatement of the U.S. federal research tax credit under the Emergency Economic Stabilization Act of 2008, which was signed into law on October 3, 2008 and was retroactive to January 1, 2008.

Liquidity and Capital Resources

	As of October 26, 2008			As of January 27, 2008
	(In millions)
Cash and cash equivalents		$	461.3		$	727.0
Marketable securities			843.6			1,082.5
Cash, cash equivalents, and marketable securities		$	1,304.9		$	1,809.5

	Nine Months Ended
	October 26,				October 28,
	2008				2007
		(In millions)
Net cash provided by operating activities		$	269.2			$	1,017.7
Net cash used in investing activities		$	(178.0	)		$	(335.4	)
Net cash used in financing activities		$	(356.9	)		$	(170.0	)

As of October 26, 2008, we had $1.30 billion in cash, cash equivalents and marketable securities, a decrease of $504.6 million from $1.81 billion at the end of fiscal year 2008. Our portfolio of cash equivalents and marketable securities is managed by several financial institutions. Our investment policy requires the purchase of top-tier investment grade securities, the diversification of asset type and includes certain limits on our portfolio duration.

Operating activities

Operating activities generated cash of $269.2 million and $1,017.7 million during the first nine months of fiscal years 2009 and 2008, respectively. Our operating cash flows decreased due to the decrease in our net income plus the impact of non-cash charges to earnings and deferred income taxes during the comparable periods. Additionally, changes in operating assets and liabilities resulted in a net decrease in cash flow from operations. The changes in operating assets and liabilities resulted from the timing of payments to vendors and a significant increase in inventories. The increase in inventories was due primarily to increases in our newer GPU and MCP products.

Investing activities

Investing activities have consisted primarily of purchases and sales of marketable securities, acquisition of businesses and purchases of property and equipment, which includes purchases of property, leasehold improvements for our facilities and intangible assets. Investing activities used cash of $178.0 million and $335.4 million during the first nine months of fiscal years 2009 and 2008, respectively. Investing activities for the first nine months of fiscal year 2009 used cash of approximately $150.0 million for a property that includes approximately 25 acres of land and ten commercial buildings in Santa Clara, California. Capital expenditures also included new research and development equipment, testing equipment to support our increased production requirements, technology licenses, software, intangible assets and leasehold improvements at our campus and international offices. Additionally, we acquired Ageia during the first quarter of fiscal year 2009. The cash inflow from maturities of marketable securities provided cash of $1.13 billion, which partially offset the expenditures described above.

We expect to spend approximately $40 million to $60 million for capital expenditures that are typical to our business during the remainder of fiscal year 2009, primarily for property development, leasehold improvements, software licenses, emulation equipment, computers and engineering workstations. We are also currently evaluating plans to construct a new campus in Santa Clara, California. If we move forward with these plans, we may be required to fund significant construction costs using our cash, cash equivalents and marketable securities. While we expect that we will have sufficient balances of cash, cash equivalents and marketable securities available for this purpose, there is no assurance that we will not need to raise additional debt financing in order to fund this project. Such additional financing, if required, may not be available on favorable terms, or at all. In addition, we may continue to use cash in connection with the acquisition of new businesses or assets.

Financing activities

Financing activities used cash of $356.9 million and $170.0 million during the first nine months of fiscal years 2009 and 2008, respectively. Net cash used by financing activities in the first nine months of fiscal year 2009 was primarily due to $423.6 million paid towards our stock repurchase program, offset by cash proceeds of $66.7 million from common stock issued under our employee stock plans. During the first nine months of fiscal year 2008, we used $374.4 million towards our stock repurchase program, while we received cash proceeds of $204.4 million from common stock issued under our employee stock plans.

Cash generated by operations is used as our primary source of liquidity. Our investment portfolio consisted of cash and cash equivalents, asset-backed securities, commercial paper, mortgage-backed securities issued by Government-sponsored enterprises, equity securities, money market funds and debt securities of corporations, municipalities and the United States government and its agencies. As of October 26, 2008, we did not have any investments in auction-rate preferred securities. These investments are denominated in United States dollars.

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

At October 26, 2008 and January 27, 2008, we had $1.30 billion and $1.81 billion, respectively, in cash, cash equivalents and marketable securities. Our investment policy requires the purchase of top-tier investment grade securities, the diversification of asset type and includes certain limits on our portfolio duration, as specified in our investment policy guidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. As of October 26, 2008, we were in compliance with our investment policy. As of October 26, 2008, our investments in government agencies and government sponsored enterprises represented approximately 68% of our total investment portfolio, while the financial sector, which has been negatively impacted by recent market liquidity conditions, accounted for approximately 19%, of our total investment portfolio. Substantially all of our investments are with A/A2 or better rated securities with the substantial majority of the securities rated AA-/Aa3 or better.

We performed an impairment review of our investment portfolio as of October 26, 2008. Currently, we have the intent and ability to hold our investments with impairment indicators until maturity. Based on our quarterly impairment review and having considered the guidance in Statement of Financial Accounting Standards Staff Position No. 115-1, or FSP No. 115-1, A Guide to the Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities, we recorded other than temporary impairment charges of $8.8 million for the three months ended October 26, 2008. These charges include $5.6 million related to what we believe is an other than temporary impairment of our investment in the money market funds held by the International Reserve Fund. Please refer to Note 17 of the Notes to the Condensed Consolidated Financial Statements for further details. We concluded that our investments were appropriately valued and that except for the $8.8 million impairment charges recognized in the quarter, no other than temporary impairment charges were necessary on our portfolio of available for sale investments as of October 26, 2008.

Net realized gains for the three and nine months ended October 26, 2008 were $0.9 million and $2.1 million, respectively. Net realized gains for the three and nine months ended October 28, 2007 were not significant. As of October 26, 2008, we had a net unrealized loss of $4.1 million, which was comprised of gross unrealized losses of $7.0 million, offset by $2.9 million of gross unrealized gains. As of January 27, 2008, we had a net unrealized gain of $10.7 million, which was comprised of gross unrealized gains of $11.1 million, offset by $0.4 million of gross unrealized losses.

As of October 26, 2008, our money market investment in the International Reserve Fund, which was valued at $124.4 million, net of other than temporary impairment charges, was classified as marketable securities in our Condensed Consolidated Balance Sheet due to the halting of redemption requests in September 2008 by the International Reserve Fund. We expect to receive the proceeds of our investment in the International Reserve Fund by no later than October 2009, when all of the underlying securities held by the International Reserve Fund are scheduled to have matured. However, redemptions from the International Reserve Fund are currently subject to pending litigation, which could cause further delay in receipt of our funds.

Our accounts receivable are highly concentrated and make us vulnerable to adverse changes in our customers' businesses, and to downturns in the industry and the worldwide economy. One customer accounted for approximately 22% of our accounts receivable balance at October 26, 2008. While we strive to limit our exposure to uncollectible accounts receivable using a combination of credit insurance and letters of credit, difficulties in collecting accounts receivable could materially and adversely affect our financial condition and results of operations. These difficulties are heightened during periods when economic conditions worsen. We continue to work directly with more foreign customers and it may be difficult to collect accounts receivable from them. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. This allowance consists of an amount identified for specific customers and an amount based on overall estimated exposure. If the financial condition of our customers were to deteriorate, resulting in an impairment in their ability to make payments, additional allowances may be required, we may be required to defer revenue recognition on sales to affected customers, and we may be required to pay higher credit insurance premiums, any of which could adversely affect our operating results. In the future, we may have to record additional reserves or write-offs and/or defer revenue on certain sales transactions which could negatively impact our financial results.

Stock Repurchase Program

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

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

During the first nine months of fiscal year 2009, we entered into structured share repurchase transactions to repurchase 29.4 million shares for $423.6 million which we recorded on the trade date of the transaction. Through October 26, 2008, we had repurchased 91.1million shares under our stock repurchase program for a total cost of $1.46 billion.

Operating Capital and Capital Expenditure Requirements

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

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

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

·	new product announcements or product introductions by our competitors

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

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

During fiscal year 2002, we completed the purchase of certain assets from 3dfx Interactive, Inc., or 3dfx, for an aggregate purchase price of approximately $74.2 million. On December 15, 2000, NVIDIA Corporation and one of our indirect subsidiaries entered into an Asset Purchase Agreement, or the APA to purchase certain graphics chip assets from 3dfx. Under the terms of the APA, the cash consideration due at the closing was $70.0 million, less $15.0 million that was loaned to 3dfx pursuant to a Credit Agreement dated December 15, 2000. The APA also provided, subject to the other provisions thereof, that if 3dfx properly certified that all its debts and other liabilities had been provided for, then we would have been obligated to pay 3dfx one million shares, which due to subsequent stock splits now totals six million shares, of NVIDIA common stock. If 3dfx could not make such a certification, but instead properly certified that its debts and liabilities could be satisfied for less than $25.0 million, then 3dfx could have elected to receive a cash payment equal to the amount of such debts and liabilities and a reduced number of shares of our common stock, with such reduction calculated by dividing the cash payment by $25.00 per share. If 3dfx could not certify that all of its debts and liabilities had been provided for, or could not be satisfied, for less than $25.0 million, we would not be obligated under the APA to pay any additional consideration for the assets. On April 18, 2001, NVIDIA paid the cash consideration.

On December 21, 2006, the Bankruptcy Court scheduled a trial for one portion of the Trustee’s case against NVIDIA. On January 2, 2007, NVIDIA terminated the settlement agreement on grounds that the Bankruptcy Court had failed to proceed toward confirmation of the Creditors’ Committee’s plan. A non-jury trial began on March 21, 2007 on valuation issues in the Trustee's constructive fraudulent transfer claims against NVIDIA. Specifically, the Bankruptcy Court tried four questions: (1) what did 3dfx transfer to NVIDIA in the APA?; (2) of what was transferred, what qualifies as "property" subject to the Bankruptcy Court's avoidance powers under the Uniform Fraudulent Transfer Act and relevant bankruptcy code provisions?; (3) what is the fair market value of the "property" identified in answer to question (2)?; and (4) was the $70 million that NVIDIA paid "reasonably equivalent" to the fair market value of that property? The parties completed post-trial briefing on May 25, 2007. On April 30, 2008, the Bankruptcy Court issued its Memorandum Decision After Trial, in which it provided a detailed summary of the trial proceedings and the parties' contentions and evidence and concluded that "the creditors of 3dfx were not injured by the Transaction." This decision did not entirely dispose of the Trustee's action, however, as the Trustee's claims for successor liability and intentional fraudulent conveyance were still pending. On June 19, 2008, NVIDIA filed a motion for summary judgment to convert the Memorandum Decision After Trial to a final judgment. That motion was granted in its entirety and judgment was entered in NVIDIA’s favor on September 11, 2008. The Trustee filed a Notice of Appeal from that judgment on September 22, 2008, and on September 25, 2008, NVIDIA exercised its election to have the appeal heard by the United States District Court.

Please refer to Note 13 of the Notes to Condensed Consolidated Financial Statements for further information regarding this litigation.

		Page
PART I : FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)		3
	a) Condensed Consolidated Statements of Income for the three and nine months ended October 26, 2008 and October 28, 2007		3
	b) Condensed Consolidated Balance Sheets as of October 26, 2008 and January 27, 2008		4
	c) Condensed Consolidated Statements of Cash Flows for the nine months ended October 26, 2008 and October 28, 2007		5
	d) Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		43
Item 4.	Controls and Procedures		44
PART II :OTHER INFORMATION
Item 1.	Legal Proceedings		44
Item 1A.	Risk Factors		45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		60
Item 3.	Defaults upon Senior Securities		61
Item 4.	Submission of Matters to a Vote of Security Holders		61
Item 5.	Other Information		61
Item 6.	Exhibits		62
Signature			63

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

	Mental Images			Ageia
Fair Market Values	(In thousands)
Cash and cash equivalents	$	988		$	1,744
Marketable Securities		-			28
Accounts receivable		1,462			911
Prepaid and other current assets		249			3,825
Property and equipment		1,376			166
In-process research and development		4,000			-
Goodwill		63,290			16,758
Intangible assets:
Existing technology		14,400			13,450
Customer relationships		6,500			170
Patents		5,000			-
Trademark		1,200			900
Total assets acquired		98,465			37,952
Current liabilities		(6,395	)		(7,232	)
Acquisition related costs		(1,208	)		(1,000	)
Long-term liabilities		(2,542	)		-
Total liabilities assumed		(10,145	)		(8,232	)
Net assets acquired	$	88,320		$	29,720

	April 27, 2008								January 27, 2008
	Gross Carrying Amount			Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
	(In thousands)
Technology licenses		$	90,562	$	(25,865	)	$	64,697	$	94,970	$	(32,630	)	$	62,340
Patents			12,183		(5,095	)		7,088		35,348		(27,632	)		7,716
Acquired intellectual property			75,030		(21,814	)		53,216		77,900		(41,030	)		36,870
Other			-		-			-		1,494		(1,494	)		-
Total intangible assets		$	177,775	$	(52,774	)	$	125,001	$	209,712	$	(102,786	)	$	106,926

	As of April 27, 2008			As of January 27, 2008
	(In millions)
Cash and cash equivalents		$	803.3		$	727.0
Marketable securities			818.3			1,082.5
Cash, cash equivalents, and marketable securities		$	1,621.6		$	1,809.5

	Three Months Ended
	April 27,				April 29,
	2008				2007
		(In millions)
Net cash provided by operating activities		$	145.2			$	295.2
Net cash used in investing activities		$	24.5			$	(79.8	)
Net cash used in financing activities		$	(93.4	)		$	(80.9	)

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

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

Period:	Total Number of Shares Purchased	Average Price Paid per Share (2)		Total Number of Shares Purchased as Part of Publicly Announced Plans of Programs (3)			Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 28, 2008 through February 24, 2008	-		-		-	$	659,356,907
February 24, 2008 through March 30, 2008	-		-		-	$	659,356,907
March 31, 2008 through April 27, 2008	6,250,000	$	19.82		6,250,000	$	535,460,657
Total	6,250,000	$	19.82		6,250,000

Date: ~~May 22,~~December 1, 2008
	NVIDIA Corporation
By:	/s/ MARVIN D. BURKETT
	Marvin D. Burkett
	(Duly Authorized Officer and Principal Financial and Accounting Officer)