NVIDIA CORP – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

  This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "goal," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential" and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Quarterly Report on Form 10-Q in greater detail under the heading "Risk Factors." Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this filing. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.  

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, the NVIDIA logo, CUDA, GeForce, Quadro, Tegra, and Tesla are trademarks and/or registered trademarks of NVIDIA Corporation in the United States and other countries. Other company and product names may be trademarks of the respective companies with which they are associated.

  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 30, 2011 and "Item 1A. Risk Factors" of this Quarterly Report on Form 10-Q and 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.  Overview  Our Company 

NVIDIA Corporation invented the graphics processing unit, or GPU, in 1999.

  Since then, we have strived to set new standards in visual computing with interactive graphics available on devices ranging from tablets and smart phones to notebooks and workstations. Our expertise in programmable GPUs and computer-systems technology has led to breakthroughs in parallel processing which make supercomputing less expensive and widely accessible. We are strategically investing in three major areas - visual computing, high performance computing and mobile computing. We serve the visual computing market with our consumer GeForce graphics products and professional Quadro graphics products; the high performance computing market with our Tesla computing solutions products; and the mobile computing market with our Tegra system-on-chip products.  We have three primary financial reporting segments - GPU, Professional Solutions Business, or PSB and Consumer Products Business, or CPB.  Our GPU business is comprised primarily of our GeForce discrete and chipset products which support desktop and notebook personal computers, or PCs, plus memory products. Our GPU business also includes license revenue in connection with the License Agreement with Intel Corporation. Our PSB is comprised of our Quadro professional workstation products and other professional graphics products, including our NVIDIA Tesla high-performance computing products. Our CPB is comprised of our Tegra mobile products that support smartphones, tablets, personal media players, or PMPs, internet television, in-car instrumentation, navigation and entertainment, and other similar 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 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

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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 second quarter of fiscal year 2012, we introduced the GeForce 560 GPU, the latest addition to our Fermi architecture-based product family. The GeForce 560 GPU brings performance and features such as PhysX, 3D Vision, SLI and surround technologies to PC games. Additionally, we announced that YouTube is for the first time giving users the ability to view several 3D videos on their NVIDIA 3D Vision PCs and notebooks when using the latest version of the Mozilla Firefox Web browser.  During the second quarter of fiscal year 2012, we also unveiled the first gaming notebook with the GeForce 500M Series of notebook GPUs. The GeForce GTX 560M graphics processor delivers a gaming experience at full 1080p resolution in DirectX 11 title with Optimus technology to deliver longer battery life.  During the first quarter of fiscal year 2012, we launched the GeForce GTX 590 which is powered by dual Fermi GPUs on a single card and targets the enthusiast market.  During the first quarter of fiscal year 2012, we also launched the GeForce GTX 550 Ti, an entry-level gaming GPU for next generation Intel systems. GTX 550 Ti delivers faster performance for DX11 games compared with its closest competitive product.  

Professional Solutions Business

  During the third quarter of fiscal year 2012, we announced that Oak Ridge National Laboratory, which operates a computing facility for the U.S. Department of Energy, will deploy a new supercomputer, "Titan," based on Tesla GPUs. Titan, a Cray XK6 supercomputer, is expected to be faster and more energy efficient than today's fastest supercomputer.  During the third quarter of fiscal year 2012, we also announced a technology that takes advantage of the parallel processing power of the GPU for image processing. This technology enables processing application developers to now deliver higher quality and more realistic on-air graphics when processing real-time video streams.  During the second quarter of fiscal year 2012, we unveiled the Tesla M2090 GPU that accelerates computational research in AMBER 11, an application which helps simulate behavior of biomolecules. The Tesla M2090 is also suited to a wide range of high performance computing applications like molecular dynamics applications, computer-aided engineering applications, earth science applications and oil and gas applications. We also announced that Tesla GPUs were being used by J.P. Morgan, the investment bank, to deliver a 40-times increase in the end-to-end speed of its risk calculations, while reducing the cost of ownership.  During the first quarter of fiscal year 2012, we announced the new Quadro 400, a new professional graphics solution designed for applications such as Autodesk AutoCAD and other leading CAD/CAM applications. The Quadro 400 GPU offers power efficiency, consuming less than 35 watts, and its low-profile footprint means it offers the flexibility to fit into any workstation, including small form-factor systems. We also announced the new CUDA® 4.0 Toolkit. The new release provides unified virtual addressing, GPU-to-GPU communication and enhanced C++ template libraries which enable more developers to take advantage of GPU computing. We believe this, along with other ongoing initiatives in our Tesla high-performance computing business, will lead to continued growth in the PSB.  

Consumer Products Business

  During the third quarter of fiscal year 2012, we shipped Tegra 3, the first quad-core processor for super phones and tablets, which brings PC-class performance levels to tablets and phones. In November, Asus announced that its Eee Pad Transformer Prime, the first device based on Tegra 3, will be available worldwide in December.  During the third quarter of fiscal year 2012, we along with our partners added three more Tegra-based smartphones to the eight already available. These are LG Optimus EX, LG Optimus BQ and Motorola Electrify. In addition, we also added thirteen new tablets, for a total of twenty three currently available. Notable among these are the Asus Slider, Sony Tablet S, Sony Tablet P and Samsung's Galaxy Tab 8.9.                                            30

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During the second quarter of fiscal year 2012, we announced that the latest Samsung Electronics Galaxy smartphone - the Galaxy R - features our Tegra 2 chip, along with a 4.19-inch screen, and runs on the Android 2.3 (Gingerbread) operating system.

  During the second quarter of fiscal year 2012, we completed the acquisition of Icera, Inc., an innovator of baseband processors for 3G and 4G cellular phones and tablets.  Icera's high-speed wireless modem products have been approved by more than 50 carriers across the globe.  The total consideration to acquire Icera was $352.2 million in cash. Please refer to Note 9 of the Notes to Condensed Consolidated Financial Statements for further information regarding this business combination.  During the first quarter of fiscal year 2012, we launched along with our partners, the first wave of Android smartphones and tablets. Among them are the Motorola Atrix 4G and LG Optimus 2X smartphones; as well as tablets like the Acer ICONIA Tab A500, Asus Eee Pad Transformer, Dell Streak, LG Optimus Pad and G-Slate, and Motorola Xoom. In addition, Samsung and Sony announced that their Galaxy Tab 10.1 and Sony S1 and S2 projects, respectively, will be using our Tegra™ 2 mobile super chip.  

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 an operating segment basis for purposes of making operating decisions and assessing financial performance.  We report financial information for three operating segments to our CODM: the GPU business is comprised primarily of our GeForce discrete and chipset products which support desktop and notebook PCs, plus memory products. Our GPU business is also comprised of license revenue in connection with the License Agreement with Intel; 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; and our CPB which is comprised of our Tegra mobile products that support smartphones, tablets, personal media players, or PMPs, internet television, in-car instrumentation, navigation and entertainment, and other similar devices. CPB also includes license, royalty, other revenue and associated costs related to video game consoles and other digital consumer electronics devices.  The "All Other" category includes non-recurring charges and benefits that we do not allocate to our other operating segments as these expenses and credits are not included in the segment operating performance measures evaluated by our CODM. There were no non-recurring charges or benefits for the three and nine months ended October 30, 2011 and October 31, 2010, respectively. Please refer to Note 17 of the Notes to the Condensed Consolidated Financial Statements for further disclosure regarding segment information.   

Results of Operations

  The following table sets forth, for the periods indicated, certain items in our condensed consolidated statements of operations expressed as a percentage of revenue.                                          Three Months Ended               Nine Months Ended                                     October 30,     October 31,     October 30,     October 31,                                        2011            2010            2011            2010 Revenue                                   100.0 %         100.0 %         100.0 %         100.0 % Cost of revenue                            47.8            53.5            48.6            63.0 Gross profit                               52.2            46.5            51.4            37.0 Operating expenses Research and development                   24.1            24.3            24.2            23.8 Sales, general and administrative           9.7             9.9            10.0            10.3 Total operating expenses                   33.8            34.2            34.2            34.1 Operating Income (loss)                    18.5            12.3            17.2             2.9 Interest and other income, net              0.7               -             0.4             0.3 Income (loss) before income tax (benefit)                                  19.2            12.3            17.6             3.2 Income tax expense (benefit)                2.5             2.2             2.4             0.1 Net Income (loss)                          16.7 %          10.1 %          15.2 %           3.1 %                                           31

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Three and Nine Months Ended October 30, 2011 and October 31, 2010.

Revenue

  Revenue was $1.07 billion for our third quarter of fiscal year 2012, compared to $843.9 million for our third quarter of fiscal year 2011, which represents an increase of approximately 26.3%. Revenue was $3.04 billion for the first nine months of fiscal year 2012 and $2.66 billion for the first nine months of fiscal year 2011, which represents an increase of 14.6%. We expect revenue in the fourth quarter of fiscal year 2012 to be relatively flat, plus or minus 2 percent, as compared to the third quarter of fiscal year 2012.  A discussion of our revenue results for each of our operating segments is as follows:  GPU Business. GPU business revenue increased approximately 10.8% to $644.8 million in the third quarter of fiscal year 2012, compared to $581.9 million for the third quarter of fiscal year 2011.  GPU revenues improved primarily due to strength in our desktop GPU products as demand for our high-end products increased as consumers geared up their PCs for new game title releases. Our share of the total Desktop GPU market also increased according to the latest 2011 PC Graphics Report from Mercury Research. Notebook revenues increased due to a combination of our strong design wins in notebook systems based on Intel'sSandy Bridge platform and an increase in our share of the total market according to the latest 2011 PC Graphics Report from Mercury Research. Additionally, license revenue of $66.0 million in connection with the License Agreement that we entered into with Intel in January 2011 also contributed to the increase in GPU business revenues. Offsetting these increases were decreases in MCP chipset revenues as these products approach their end of life.  GPU business revenue was relatively flat at $1.92 billion for the first nine months of fiscal year 2012 compared to $1.91 billion for the first nine months of fiscal year 2011. This was primarily the result of an increase in desktop revenues driven by the continued ramp of our Fermi architecture-based GPUs and an increase in notebook revenues driven by strong design wins in notebook systems based on Intel'sSandy Bridge platform.  Additionally, license revenue in connection with the License Agreement that we entered into with Intel in January 2011 also contributed to GPU business revenues in fiscal year 2012. Offsetting these increases was a significant decrease in MCP chipset revenues as these products approach their end of life.  PSB. PSB revenue increased by approximately 9.6% to $230.3 million in the third quarter of fiscal year 2012, compared to $210.1 million in the third quarter of fiscal year 2011. This was mainly due to an increase in demand for our Fermi-generation products in the enterprise markets as well as new growth we are experiencing in emerging geographic markets. Tesla sales also improved on continued Fermi adoption by our customers. PSB revenue increased by 4.5% to $642.4 million for the first nine months of fiscal year 2012 as compared to $614.9 million for the first nine months of fiscal year 2011, driven primarily by strength in our Quadro workstation sales fueled primarily by continued customer adoption of products based on our Fermi architecture.   CPB.  CPB revenue increased by 267.9% to $191.1 million in the third quarter of fiscal year 2012, compared to $51.9 million for the third quarter of fiscal year 2011.  This was primarily due to significantly higher unit shipment volume of our Tegra 2 products that are included in smartphones and tablets using the Android operating system, which has been steadily gaining market share. Sales of our embedded entertainment products also increased in the third quarter of fiscal year 2012 when compared to the third quarter of fiscal year 2011 driven by customer refreshes of entertainment systems. CPB revenue increased by approximately 273.5% to $481.4 million for the first nine months of fiscal year 2012 as compared to $128.9 million for the first nine months of fiscal year 2011. This revenue growth was also driven primarily by higher unit shipment volume of our Tegra 2 products and increased sales of our embedded entertainment products.  Concentration of Revenue  Revenue from sales to customers outside of the United States and other Americas accounted for 83% and 81% of total revenue for the third quarter of fiscal years 2012 and 2011, respectively and were 85% and 83% for the first nine months of fiscal years 2012 and 2011, respectively. Revenue by geographic region is allocated to individual countries based on the location to which the products are initially billed even if the revenue is attributable to end customers in a different location.  Revenue from significant customers, those representing 10% or more of total revenue, aggregated approximately 11% of our total revenue from one customer for the three and nine months ended October 30, 2011, respectively. Revenue from significant customers, those representing 10% or more of total revenue, aggregated approximately 12% of our total revenue from one customer and 13% of our total revenue from one customers for the three and nine months ended October 31, 2010, respectively.                                            32 --------------------------------------------------------------------------------

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, service arrangements and stock-based compensation related to personnel associated with manufacturing.  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 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.  Our overall gross margin was 52.2% and 46.5% for the third quarter of fiscal years 2012 and 2011, respectively and 51.4% and 37.0% for the first nine months of fiscal years 2012 and 2011, respectively.  The improvement in gross margin for each of these periods during fiscal year 2012 when compared to fiscal year 2011 was attributable to the high-gross margin revenue we recorded from the License Agreement we entered into with Intel in January 2011, a more favorable overall product mix, the continuing positive impact of improved yields of our 40nm Fermi products and other manufacturing cost reductions. In addition, our gross margin for the first nine months of fiscal year 2012 improved significantly compared to the same period in fiscal year 2011 due to a warranty charge of $181.2 million that we recorded during the first nine months of fiscal year 2011 to cover the estimated remaining customer warranty, repair, return, replacement and other costs arising from a weak die/packaging material set in certain versions of our previous generation products used in notebook configurations. No such charge was made during the first nine months ended fiscal year 2012.  We expect our gross margin for the fourth quarter of fiscal year 2012 to be flat to up 0.5 percentage points from the level that we obtained for the third quarter of fiscal year 2012. We intend to continue to work hard to improve our gross margin by, among other things, focusing on delivering cost effective product architectures and enhancing our business processes.  

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 increased during the third quarter of fiscal year 2012 as compared to the third quarter of fiscal year 2011, as well as during the first nine months of fiscal year 2012 as compared to the first nine months of fiscal year 2011.  Contributing to the increase in GPU business gross margin for the third quarter and first nine of fiscal year 2012 were revenue from the License Agreement we entered into with Intel in January 2011 and improved average selling prices, or ASPs, in our desktop and notebook GPU products, helped by the success of our high-end products this fiscal year. Additionally, gross margin for the GPU business was lower in the first nine months of fiscal year 2011 when compared to the first nine months of fiscal year 2012 due to the $181.2 million warranty charge that we recorded during the first nine months of fiscal year 2011 as well as charges that we recorded for inventory reserves in that same period that were significantly in excess of our typical quarterly charges, neither of which recurred during the first nine months of fiscal year 2012.   PSB. The gross margin of our PSB decreased slightly during the third quarter and first nine months of fiscal year 2012 as compared to the third quarter and first nine months of fiscal year 2011. These decreases were primarily due to the mix of products sold.  CPB. The gross margin of our CPB decreased during the third quarter and first nine months of fiscal year 2012 as compared to the third quarter and first nine months of fiscal year 2011. This decrease reflects the higher concentration within the periods of Tegra product revenue, which has lower gross margins than the other revenue components of CPB such as license and royalty revenues.                                                  33

--------------------------------------------------------------------------------    Operating Expenses                                     Three Months Ended                                              Nine Months Ended                  October 30,       October 31,          $           %           October 30,         October 31,         $           %                     2011              2010           Change       Change           2011                2010           Change      Change                                 (in millions)                                                  (in millions)

Research and development expenses       $       256.5     $       204.5     $    52.0         25.4 %   $       735.7       $       633.3     $  102.4         16.2 % Sales, general and administrative expenses               103.1              83.8          19.3         23.0 %            $304.8              $273.5        $31.3       11.4 % Total operating expenses       $       359.6     $       288.3     $    71.3         24.7 %   $     1,040.5       $       906.8     $  133.7         14.7 % Research and development as a percentage of net revenue          24.1   %          24.3   %                                     24.2   %            23.8   % Sales, general and administrative as a percentage of net revenue              9.7   %           9.9   %                                     10.0   %            10.3   %    Research and Development  Research and development expenses were $256.5 million and $204.5 million during the third quarter of fiscal years 2012 and 2011, respectively, an increase of $52.0 million, or 25.4%. Compensation and benefits increased by $29.6 million and stock-based compensation increased by $5.2 million, both of which were primarily related to growth in headcount. Development cost increase by $3.7 million driven by ramp-up efforts on 28nm technology. Also contributing to the increase were other acquisition-related costs of $4.2 million for compensation charges related to the retention program we have established for employees from our acquisition of Icera and $2.3 million of amortization expense for intangible assets associated with our acquisition of Icera in June 2011.  Research and development expenses were $735.7 million and $633.3 million in the first nine months of fiscal years 2012 and 2011, respectively, an increase of $102.4 million, or 16.2%. Compensation and benefits increased by $67.2 million and stock-based compensation increased by $16.3 million, both of which were primarily related to growth in headcount. Also contributing to the increase were other acquisition-related costs of $8.3 million for compensation charges related to the retention program we have established for employees from our acquisition of Icera and $3.8 million of amortization expense for intangible assets associated with our acquisition of Icera in June 2011.  

Sales, General and Administrative

  Sales, general and administrative expenses were $103.1 million and $83.8 million during the third quarter of fiscal years 2012 and 2011, respectively, an increase of $19.3 million, or 23.0%. Compensation and benefits increased by $10.4 million and stock-based compensation increased by $2.3 million, both of which were primarily related to growth in headcount.  Also contributing to the increase were $0.8 million of amortization expense for intangible assets associated with our acquisition of Icera and other acquisition-related costs of $2.2 million for transaction costs and compensation charges related to the retention program we have established for employees from our acquisition of Icera in June 2011.  Sales, general and administrative expenses were $304.8 million and $273.5 million for the first nine months of fiscal years 2012 and 2011, respectively, an increase of $31.3 million, or 11.4%. Compensation and benefits increased by $25.4 million and stock-based compensation increased by $7.9 million, both of which were primarily related to growth in headcount. Also contributing to the increase were acquisition-related costs of $4.3 million for transaction services  and $2.5 million for compensation charges related to the retention program we have established for employees from the acquisition of Icera in June 2011. Offsetting these increases was a net charge of $12.7 million recorded during the second quarter of fiscal year 2011 for estimated costs of implementing a settlement with the plaintiffs of a putative consumer class action lawsuit, another related estimated consumer class action settlement, and offsetting insurance reimbursements relating to a weak die packaging material set.  

We expect operating expenses to be approximately 372.0 million in the fourth quarter of fiscal year 2012.

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Interest Income

  Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $4.4 million and $4.2 million in the third quarter of fiscal years 2012 and 2011, respectively, an increase of $0.2 million.  Interest income was $14.9 million and $14.6 million for the first nine months of fiscal years 2012 and 2011, respectively, an increase of $0.3 million. These increases were primarily due to higher average cash balances in the third quarter and first nine months of fiscal year 2012 when compared to the third quarter and first nine months of fiscal year 2011.  

Other Income (Expense), net

  Other income (expense) primarily consists of realized gains and losses on the sale of marketable securities and foreign currency translation. Net other income (expense) was $3.3 million in the third quarter of fiscal year 2012 compared to $(4.4) million in the third quarter of fiscal year 2011, an income increase of $7.7 million. Net other (expense) was $(2.1) million and $(5.3) million for the first nine months of fiscal years 2012 and 2011, respectively, an income increase of $3.2 million. The increase in income was primarily driven by an increase in foreign currency gains in the third quarter and first nine months of fiscal year 2012.  Income Taxes    We recognized income tax expense of $26.5 million and $73.8 million for the three and nine months ended October 30, 2011, respectively and $18.7 million and $3.8 million for the three and nine months ended October 31, 2010, respectively. Income tax expense as a percentage of income before taxes, or our effective tax rate, was 13.0% and 13.7% for the three and nine months ended October 30, 2011, respectively and 18.1% and 4.4% for the three and nine months ended October 31, 2010, respectively.   Our effective tax rate on income before tax for the first nine months of fiscal year 2012 of 13.7% was lower than the United States federal statutory rate of 35.0% due primarily to income earned in jurisdictions where the tax rate is lower than the United States federal statutory tax rate.  Further, our annual projected effective tax rate as of the first nine months of fiscal year 2012 of 15.2% differs from our effective tax rate for the first nine months fiscal year 2012 of 13.7% due to favorable discrete events that occurred in the first nine months of fiscal year 2012 primarily attributable to the expiration of statutes of limitations in certain non-U.S. jurisdictions for which we had not previously recognized related tax benefits. Our effective tax rate on income before tax for the first nine months of fiscal year 2011 of 4.4% was lower than the United States federal statutory rate of 35.0% primarily due to income earned in jurisdictions where the tax rate is lower than the United States federal statutory tax rate and the significant impact of certain discrete tax events that occurred during this time. Our annual projected effective tax rate as of the first nine months of fiscal year 2011 was 18.8% and differs from our effective tax rate for the first nine months of fiscal year 2011 of 4.4% due to favorable discrete events that occurred in the first nine months of fiscal year 2011 primarily attributable to the expiration of statutes of limitations in certain non-U.S. jurisdictions for which we had not previously recognized related tax benefits. We expect our effective tax rate in the fourth quarter of fiscal year 2012 to be approximately 14% to 16%, depending primarily on any discrete tax events that may occur in such quarter. 

Please refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for further information regarding the components of our income tax expense.

Liquidity and Capital Resources

                                                            As of October    As of January                                                               30, 2011         30, 2011                                                                     (In millions) Cash and cash equivalents                                  $      566.8     $      665.4 Marketable securities                                           2,181.5          1,825.2

Cash, cash equivalents, and marketable securities $ 2,748.3$ 2,490.6

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                                                       Nine Months Ended                                            October 30, 2011     October 31, 2010                                                        (In millions) Net cash provided by operating activities $         498.6      $         241.1 Net cash used in investing activities     $        (814.9 )    $        (340.4 ) Net cash provided by financing activities $         217.7      $         103.3    As of October 30, 2011, we had $2.75 billion in cash, cash equivalents and marketable securities, an increase of $257.8 million from $2.49 billion at the end of fiscal year 2011. 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 provided cash of $498.6 million and $241.1 million during the first nine months of fiscal years 2012 and 2011, respectively. The increase in cash provided by operating activities in the first nine months of fiscal year 2012 was primarily due to the significant increase in our net income.  

Investing activities

  Investing activities consisted primarily of purchases and sales of marketable securities, business acquisitions and purchases of property and equipment, which include leasehold improvements for our facilities and intangible assets. Investing activities used cash of $(814.9) million and $(340.4) million during the first nine months of fiscal years 2012 and 2011, respectively. The increase in investing activities was primarily due to the acquisition of Icera in the second quarter of fiscal year 2012. Please refer to Note 9 of the Notes to the Condensed Consolidated Financial Statements for further details.  We expect to spend approximately $30.0 million to $40.0 million for capital expenditures during the remainder of fiscal year 2012, primarily for leasehold improvements, software licenses, emulation equipment, computers and engineering workstations.  Financing activities  Financing activities provided cash of $217.7 million and $103.3 million during the first nine months of 2012 and 2011, respectively. Net cash provided by financing activities increased in the first nine months of fiscal year 2012 primarily due to an increase of proceeds from the issuance of common stock under our employee stock purchase plan and from the exercise of stock options during the first nine months of fiscal year 2012.  

Liquidity

  Our primary source of liquidity is cash generated by our operations. Our investment portfolio consisted of cash and cash equivalents, 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. These investments are denominated in United States dollars. As of October 30, 2011, we did not have any investments in auction-rate preferred securities.  All of our cash equivalents and marketable securities are treated as "available-for-sale". 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 operations 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.  

As of October 30, 2011 and January 30, 2011, we had $2.75 billion and $2.49 billion, respectively, in cash, cash equivalents

                                       36 --------------------------------------------------------------------------------   and marketable securities. Our investment policy requires the purchase of top-tier investment grade securities and the diversification of asset types 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 30, 2011, we were in compliance with our investment policy. As of October 30, 2011, our investments in government agencies and government sponsored enterprises represented approximately 60% of our total investment portfolio, while the financial sector accounted for approximately 26% of our total investment portfolio. Of the financial sector investments, over half are guaranteed by the U.S. government. All of our investments are with A/A2 or better rated securities.  We performed an impairment review of our investment portfolio as of October 30, 2011.  Based on our quarterly impairment review, we concluded that our investments were appropriately valued and did not record any impairment during three and nine months ended October 30, 2011.  Net realized gains for the three and nine months ended October 30, 2011 were $0.1 million and $0.5 million, respectively. As of October 30, 2011, we had a net unrealized gain of $9.6 million, which was comprised of gross unrealized gains of $11.0 million, offset by gross unrealized losses of $1.4 million. As of January 30, 2011, we had a net unrealized gain of $10.5 million, which was comprised of gross unrealized gains of $11.0 million, offset by $0.5 million of gross unrealized losses.  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 18% of our accounts receivable balance at October 30, 2011. 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  Our Board of Directors has authorized us, subject to certain specifications, to repurchase shares of our common stock up to an aggregate maximum amount of $2.7 billion through May 2013. 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 Rule 10b-18 of the Securities Exchange Act of 1934, as amended, subject to market conditions, applicable legal requirements, and other factors. The program does not obligate NVIDIA 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. We did not enter into any structured share repurchase transactions or otherwise purchase any shares of our common stock during the three and nine months ended October 30, 2011. Through October 30, 2011, we have repurchased an aggregate of 90.9 million shares under our stock repurchase program for a total cost of $1.46 billion. As of October 30, 2011, we are authorized, subject to certain specifications, to repurchase shares of our common stock up to $1.24 billion through May 2013.  

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 twelve 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;

                                       37 --------------------------------------------------------------------------------   ·   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 expect to spend approximately $30.0 million to $40.0 million for capital expenditures during the remainder of fiscal year 2012.

  For additional factors see "Item 1A. Risk Factors - Risks Related to Our Business, Industry and Partners - Our revenue may fluctuate while our operating expenses are relatively fixed, which makes our results difficult to predict and could cause our results to fall short of expectations."  

Contractual Obligations

  At October 30, 2011, we had outstanding inventory purchase obligations totaling approximately $472.1 million. Also in connection with our completion of the acquisition of Icera on June 10, 2011, we have established a retention program in the aggregate amount of approximately $68.0 million to be paid out to Icera employees over a period of four years. There were no other material changes in our contractual obligations from those disclosed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2011.  

Please see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" in our Annual Report on Form 10-K for a description of our contractual obligations.

Off-Balance Sheet Arrangements

As of October 30, 2011, we had no material off-balance sheet arrangements as defined in Regulation S-K 303(a)(4)(ii).

Adoption of New and Recently Issued Accounting Pronouncements

Please see Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of adoption of new and recently issued accounting pronouncements.