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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 25, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-23985
NVDA-20201025_G1.JPG

NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3177549
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2788 San Tomas Expressway
Santa Clara, California 95051
(408) 486-2000
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
N/A
(Former name, former address and former fiscal year if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.001 par value per share NVDA The Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
The number of shares of common stock, $0.001 par value, outstanding as of November 13, 2020, was 619 million.



NVIDIA CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED October 25, 2020
TABLE OF CONTENTS
    Page
   
Financial Statements (Unaudited)  
  a) Condensed Consolidated Statements of Income for the three and nine months ended October 25, 2020 and October 27, 2019
3
b) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended October 25, 2020 and October 27, 2019
4
  c) Condensed Consolidated Balance Sheets as of October 25, 2020 and January 26, 2020
5
d) Condensed Consolidated Statements of Shareholders' Equity for the three and nine months ended October 25, 2020 and October 27, 2019
6
  e) Condensed Consolidated Statements of Cash Flows for the nine months ended October 25, 2020 and October 27, 2019
8
  f) Notes to Condensed Consolidated Financial Statements
9
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Controls and Procedures
   
Legal Proceedings
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Exhibits
 
WHERE YOU CAN FIND MORE INFORMATION
Investors and others should note that we announce material financial information to our investors using our investor relations website, press releases, SEC filings and public conference calls and webcasts. We also use the following social media channels as a means of disclosing information about the company, our products, our planned financial and other announcements and attendance at upcoming investor and industry conferences, and other matters and for complying with our disclosure obligations under Regulation FD: 
NVIDIA Twitter Account (https://twitter.com/nvidia)
NVIDIA Company Blog (http://blogs.nvidia.com)
NVIDIA Facebook Page (https://www.facebook.com/nvidia)
NVIDIA LinkedIn Page (http://www.linkedin.com/company/nvidia)
NVIDIA Instagram Page (https://www.instagram.com/nvidia)
In addition, investors and others can view NVIDIA videos on YouTube.
The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following our press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time. The information we post through these channels is not a part of this quarterly report on Form 10-Q. These channels may be updated from time to time on NVIDIA's investor relations website.
2


PART I. FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)
NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
(Unaudited)
  Three Months Ended Nine Months Ended
  October 25, October 27, October 25, October 27,
2020 2019 2020 2019
Revenue $ 4,726  $ 3,014  $ 11,672  $ 7,813 
Cost of revenue 1,766  1,098  4,432  3,060 
Gross profit 2,960  1,916  7,240  4,753 
Operating expenses    
Research and development 1,047  712  2,778  2,091 
Sales, general and administrative 515  277  1,437  806 
Total operating expenses 1,562  989  4,215  2,897 
Income from operations 1,398  927  3,025  1,856 
Interest income 45  50  137 
Interest expense (53) (13) (131) (39)
Other, net (4) —  (5) — 
Other income (expense), net
(50) 32  (86) 98 
Income before income tax 1,348  959  2,939  1,954 
Income tax expense 12  60  64  109 
Net income $ 1,336  $ 899  $ 2,875  $ 1,845 
Net income per share:
Basic $ 2.16  $ 1.47  $ 4.67  $ 3.03 
Diluted $ 2.12  $ 1.45  $ 4.59  $ 2.99 
Weighted average shares used in per share computation:
Basic 618  610  616  609 
Diluted 630  618  626  617 
See accompanying Notes to Condensed Consolidated Financial Statements.

3


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
  Three Months Ended Nine Months Ended
  October 25, October 27, October 25, October 27,
2020 2019 2020 2019
 
Net income $ 1,336  $ 899  $ 2,875  $ 1,845 
Other comprehensive income (loss), net of tax
Available-for-sale securities:
Net change in unrealized gain (loss) (1) — 
Reclassification adjustments for net realized gain (loss) included in net income —  —  (2) — 
Net change in unrealized gain (loss) (1) — 
Cash flow hedges:
Net unrealized gain —  10 
Reclassification adjustments for net realized gain included in net income (2) —  (4)
Net change in unrealized gain (loss) (2) 10  — 
Other comprehensive income (loss), net of tax (2) 11 
Total comprehensive income $ 1,344  $ 897  $ 2,886  $ 1,854 
See accompanying Notes to Condensed Consolidated Financial Statements.

4


NVIDIA CORPORATION AND SUBSIDIARIES 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
October 25, January 26,
  2020 2020
ASSETS
Current assets:    
Cash and cash equivalents $ 2,251  $ 10,896 
Marketable securities 7,888 
Accounts receivable, net 2,546  1,657 
Inventories 1,495  979 
Prepaid expenses and other current assets 213  157 
Total current assets 14,393  13,690 
Property and equipment, net 2,059  1,674 
Operating lease assets 681  618 
Goodwill 4,193  618 
Intangible assets, net 2,861  49 
Deferred income tax assets 666  548 
Other assets 2,028  118 
Total assets $ 26,881  $ 17,315 
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable $ 1,097  $ 687 
Accrued and other current liabilities 1,574  1,097 
Short-term debt 998  — 
Total current liabilities 3,669  1,784 
Long-term debt 5,963  1,991 
Long-term operating lease liabilities 604  561 
Other long-term liabilities 1,311  775 
Total liabilities 11,547  5,111 
Commitments and contingencies - see Note 13
Shareholders’ equity:    
Preferred stock —  — 
Common stock
Additional paid-in capital 8,301  7,045 
Treasury stock, at cost (10,530) (9,814)
Accumulated other comprehensive income 12 
Retained earnings 17,550  14,971 
Total shareholders' equity 15,334  12,204 
Total liabilities and shareholders' equity $ 26,881  $ 17,315 
See accompanying Notes to Condensed Consolidated Financial Statements.

5


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED OCTOBER 25, 2020 AND OCTOBER 27, 2019
(Unaudited)
Common Stock
Outstanding
Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shareholders' Equity
(In millions, except per share data) Shares Amount
Balances, July 26, 2020 617  $ $ 7,828  $ (10,232) $ $ 16,313  $ 13,914 
Net income —  —  —  —  —  1,336  1,336 
Other comprehensive income —  —  —  —  — 
Issuance of common stock from stock plans  —  96  —  —  —  96 
Tax withholding related to vesting of restricted stock units (1) —  —  (298) —  —  (298)
Cash dividends declared and paid ($0.16 per common share)
—  —  —  —  —  (99) (99)
Stock-based compensation —  —  377  —  —  —  377 
Balances, October 25, 2020 619  $ $ 8,301  $ (10,530) $ 12  $ 17,550  $ 15,334 
Balances, July 28, 2019 609  $ $ 6,543  $ (9,524) $ (1) $ 13,317  $ 10,336 
Net income —  —  —  —  —  899  899 
Other comprehensive loss —  —  —  —  (2) —  (2)
Issuance of common stock from stock plans  —  63  —  —  —  63 
Tax withholding related to vesting of restricted stock units (1) —  —  (202) —  —  (202)
Cash dividends declared and paid ($0.16 per common share)
—  —  —  —  —  (98) (98)
Stock-based compensation —  —  218  —  —  —  218 
Balances, October 27, 2019 612  $ $ 6,824  $ (9,726) $ (3) $ 14,118  $ 11,214 
See accompanying Notes to Condensed Consolidated Financial Statements.

6


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED OCTOBER 25, 2020 AND OCTOBER 27, 2019
(Unaudited)
Common Stock
Outstanding
Additional Paid-in Capital Treasury Stock Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Shareholders' Equity
(In millions, except per share data) Shares Amount
Balances, January 26, 2020 612  $ $ 7,045  $ (9,814) $ $ 14,971  $ 12,204 
Net income —  —  —  —  —  2,875  2,875 
Other comprehensive income —  —  —  —  11  —  11 
Issuance of common stock from stock plans  —  190  —  —  —  190 
Tax withholding related to vesting of restricted stock units (2) —  —  (716) —  —  (716)
Cash dividends declared and paid ($0.48 per common share)
—  —  —  —  —  (296) (296)
Fair value of partially vested equity awards assumed in connection with acquisitions —  —  86  —  —  —  86 
Stock-based compensation —  —  980  —  —  —  980 
Balances, October 25, 2020 619  $ $ 8,301  $ (10,530) $ 12  $ 17,550  $ 15,334 
Balances, January 27, 2019 606  $ $ 6,051  $ (9,263) $ (12) $ 12,565  $ 9,342 
Net income —  —  —  —  —  1,845  1,845 
Other comprehensive income —  —  —  —  — 
Issuance of common stock from stock plans  —  146  —  —  —  146 
Tax withholding related to vesting of restricted stock units (3) —  —  (463) —  —  (463)
Cash dividends declared and paid ($0.48 per common share)
—  —  —  —  —  (292) (292)
Stock-based compensation —  —  627  —  —  —  627 
Balances, October 27, 2019 612  $ $ 6,824  $ (9,726) $ (3) $ 14,118  $ 11,214 
See accompanying Notes to Condensed Consolidated Financial Statements.
7


NVIDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
  Nine Months Ended
October 25, October 27,
  2020 2019
Cash flows from operating activities:    
Net income $ 2,875  $ 1,845 
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense 981  624 
Depreciation and amortization 810  275 
Deferred income taxes (117) (5)
Other (2)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable (667) (32)
Inventories (190) 531 
Prepaid expenses and other assets (409) 55 
Accounts payable 289  91 
Accrued and other current liabilities 111  (103)
Other long-term liabilities 74  10 
Net cash provided by operating activities 3,755  3,296 
Cash flows from investing activities:    
Proceeds from maturities of marketable securities 5,165  4,744 
Proceeds from sales of marketable securities 502  3,363 
Purchases of marketable securities (12,840) (1,461)
Acquisitions, net of cash acquired (8,524) — 
Purchases related to property and equipment and intangible assets (845) (344)
Investments and other, net (4) (6)
Net cash provided by (used in) investing activities (16,546) 6,296 
Cash flows from financing activities:    
Issuance of debt, net of issuance costs 4,971  — 
Proceeds related to employee stock plans 190  146 
Payments related to tax on restricted stock units (716) (463)
Dividends paid (296) (292)
Other (3) — 
Net cash provided by (used in) financing activities 4,146  (609)
Change in cash and cash equivalents (8,645) 8,983 
Cash and cash equivalents at beginning of period 10,896  782 
Cash and cash equivalents at end of period $ 2,251  $ 9,765 
See accompanying Notes to Condensed Consolidated Financial Statements.
8

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 were prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP, 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. The January 26, 2020 consolidated balance sheet was derived from our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended January 26, 2020, as filed with the SEC, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments, consisting only of normal recurring adjustments 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 consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 26, 2020. 
The unaudited condensed consolidated financial statements in this report include the financial results of Mellanox Technologies Ltd., or Mellanox, prospectively from April 27, 2020. For additional details, refer to Note 2 - Business Combination.
Significant Accounting Policies
Except for the accounting policies for business combination and investment in non-affiliated entities, there have been no material changes to our significant accounting policies disclosed in Note 1 - Organization and Summary of Significant Accounting Policies, of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended January 26, 2020.
Business Combination
We allocate the fair value of the purchase price of an acquisition to the tangible assets acquired, liabilities assumed, and intangible assets acquired, including in-process research and development, or IPR&D, based on their estimated fair values. The excess of the fair value of the purchase price over the fair values of these net tangible and intangible assets acquired is recorded as goodwill. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but our estimates and assumptions are inherently uncertain and subject to refinement. The estimates and assumptions used in valuing intangible assets include, but are not limited to, the amount and timing of projected future cash flows, discount rate used to determine the present value of these cash flows and asset lives. These estimates are inherently uncertain and, therefore, actual results may differ from the estimates made. As a result, during the measurement period of up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of the purchase price of an acquisition, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statements of income.
We initially capitalize the fair value of IPR&D as an intangible asset with an indefinite life. We assess for impairment thereafter. When IPR&D projects are completed, we reclassify the IPR&D as an amortizable purchased intangible asset and amortize over the asset’s estimated useful life.
Acquisition-related expenses are recognized separately from the business combination and expensed as incurred.
Investment in Non-Affiliated Entities
Non-marketable equity investments in privately-held companies are recorded at fair value on a non-recurring basis only if an impairment or observable price adjustment occurs in the period with changes in fair value recorded through net income. These investments are valued using observable and unobservable inputs or data in an inactive market and the valuation requires our judgment due to the absence of market prices and inherent lack of liquidity. The estimated fair value is based on quantitative and qualitative factors including subsequent financing activities by the investee.

9

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Fiscal Year
We operate on a 52- or 53-week year, ending on the last Sunday in January. Fiscal year 2021 is a 53-week year and fiscal year 2020 is a 52-week year. The third quarters of fiscal years 2021 and 2020 were both 13-week quarters.
Reclassifications
Certain prior fiscal year balances have been reclassified to conform to the current fiscal year presentation.
Principles of Consolidation
Our condensed consolidated financial statements include the accounts of NVIDIA Corporation and our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 materially from our estimates. On an on-going basis, we evaluate our estimates, including those related to revenue recognition, cash equivalents and marketable securities, accounts receivable, inventories, income taxes, goodwill, stock-based compensation, litigation, investigation and settlement costs, restructuring and other charges, and other contingencies. The inputs into our judgments and estimates consider the economic implications of COVID-19 on our critical and significant accounting estimates. These estimates are based on historical facts and various other assumptions that we believe are reasonable.
Adoption of New and Recently Issued Accounting Pronouncements
Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued a new accounting standard to replace the existing incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates for accounts receivable and other financial instruments, including available-for-sale debt securities. We adopted the standard in the first quarter of fiscal year 2021 and the impact of the adoption was not material to our consolidated financial statements.
Note 2 - Business Combination
Pending Acquisition of Arm Limited
On September 13, 2020, we entered into a Share Purchase Agreement, or the Purchase Agreement, with Arm Limited, or Arm, and SoftBank Group Capital Limited and SVF Holdco (UK) Limited, or together, SoftBank, for us to acquire, from SoftBank, all of the allotted and issued ordinary shares of Arm in a transaction valued at $40 billion. We paid $2 billion in cash at signing, or the Signing Consideration, and will pay upon closing of the acquisition $10 billion in cash and issue to SoftBank 44.3 million shares of our common stock with an aggregate value of $21.5 billion. The transaction includes a potential earn out, which is contingent on the achievement of certain financial performance targets by Arm during the fiscal year ending March 31, 2022. If the financial targets are achieved, SoftBank can elect to receive either up to $5 billion in cash or up to 10.3 million shares of our common stock. We will issue up to $1.5 billion in restricted stock units to Arm employees after closing. The $2 billion paid upon signing was allocated between advanced consideration for the acquisition of $1.36 billion and the prepayment of intellectual property licenses from Arm of $0.17 billion and royalties of $0.47 billion. The closing of the acquisition is subject to customary closing conditions, including receipt of specified governmental and regulatory consents and approvals and expiration of any related mandatory waiting period, and Arm's implementation of the reorganization and distribution of Arm’s IoT Services Group and certain other assets and liabilities. If the Purchase Agreement is terminated under certain circumstances, we will be refunded $1.25 billion of the Signing Consideration. The $2 billion payment upon signing was allocated on a fair value basis and any refund of the Signing Consideration will use stated values in the Purchase Agreement. We believe the closing of the acquisition will likely occur in the first quarter of calendar year 2022.

10

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Acquisition of Mellanox Technologies, Ltd.
On April 27, 2020, we completed the acquisition of all outstanding shares of Mellanox for a total purchase consideration of $7.13 billion. Mellanox is a supplier of high-performance interconnect products for computing, storage and communications applications. We acquired Mellanox to optimize data center workloads to scale across the entire computing, networking, and storage stack.
Preliminary Purchase Price Allocation
The aggregate purchase consideration has been preliminarily allocated as follows (in millions):

Purchase Price
Cash paid for outstanding Mellanox ordinary shares (1) $ 7,033 
Cash for Mellanox equity awards (2) 16 
Total cash consideration 7,049 
Fair value of Mellanox equity awards assumed by NVIDIA (3) 85 
Total purchase consideration $ 7,134 
Allocation
Cash and cash equivalents $ 115 
Marketable securities 699 
Accounts receivable, net 216 
Inventories 320 
Prepaid expenses and other assets 179 
Property and equipment, net 144 
Goodwill 3,431 
Intangible assets 2,970 
Accounts payable (136)
Accrued and other current liabilities (236)
Income tax liability (191)
Deferred income tax liability (258)
Other long-term liabilities (119)
$ 7,134 

(1)    Represents the cash consideration of $125.00 per share paid to Mellanox shareholders for approximately 56 million shares of outstanding Mellanox ordinary shares.
(2)    Represents the cash consideration for the settlement of approximately 249 thousand Mellanox stock options held by employees and non-employee directors of Mellanox.
(3)    Represents the fair value of Mellanox’s stock-based compensation awards attributable to pre-combination services.

We allocated the purchase price to tangible and identified intangible assets acquired and liabilities assumed based on the preliminary estimates of their estimated fair values, which were determined using generally accepted valuation techniques based on estimates and assumptions made by management at the time of the acquisition and are subject to change during the measurement period which is not expected to exceed one year. The primary tasks that are required to be completed include validation of business level forecasts, jurisdictional forecasts, customer attrition rates, contingent liabilities assessments and any related tax impacts from the acquisition. Any adjustments to our preliminary purchase price allocation identified during the measurement period will be recognized in the period in which the adjustments are determined.
The goodwill is primarily attributable to the planned growth in the combined business of NVIDIA and Mellanox. Goodwill is not amortized to earnings, but instead is reviewed for impairment at least annually, absent any interim indicators of impairment. Goodwill recognized in the acquisition is not expected to be deductible for foreign tax purposes. Goodwill
11

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


arising from the Mellanox acquisition has been allocated to the Compute and Networking segment. Refer to Note 15 – Segment Information for further details on segments.
The operating results of Mellanox have been included in our condensed consolidated financial statements for the third quarter and first nine months of fiscal year 2021 since the acquisition date of April 27, 2020. Revenue attributable to Mellanox was approximately 13% and 10% of consolidated revenue for the third quarter and first nine months of fiscal year 2021, respectively. There is not a practical way to determine net income attributable to Mellanox due to integration. Acquisition-related costs attributable to Mellanox of $27 million were included in selling, general and administrative expense for the first nine months of fiscal year 2021.
Intangible Assets
The estimated fair value and weighted average useful life of the acquired intangible assets are as follows:
Fair Value Weighted Average Useful Lives
(In millions)
Developed technology (1) $ 1,640  5 years
Customer relationships (2) 440  3 years
Order backlog (3) 190  Based on actual shipments
Trade names (4) 70  5 years
Total identified finite-lived intangible assets 2,340 
IPR&D (5) 630  N/A
Total identified intangible assets $ 2,970 

(1)    The fair value of developed technology was identified using the Multi-Period Excess Earning Method.
(2)    Customer relationships represent the fair value of the existing relationships using the With and Without Method.
(3)    Order backlog represents primarily the fair value of purchase arrangements with customers using the Multi-Period Excess Earning Method.
(4)    Trade names primarily relate to Mellanox trade names and fair value was determined by applying the Relief-from-Royalty Method under the income approach.
(5)    The fair value of IPR&D was determined using the Multi-Period Excess Earning Method.

The fair value of the finite-lived intangible assets will be amortized over the estimated useful lives based on the pattern in which the economic benefits are expected to be received to cost of revenue and operating expenses.
Mellanox had an IPR&D project associated with the next generation interconnect product that had not yet reached technological feasibility as of the acquisition date. Accordingly, we recorded an indefinite-lived intangible asset of $630 million for the fair value of this project, which will initially not be amortized. Instead, the project will be tested for impairment whenever events or changes in circumstances indicate that the project may be impaired or may have reached technological feasibility. Once the project reaches technological feasibility, we will begin to amortize the intangible asset over its estimated useful life.
Supplemental Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for NVIDIA and Mellanox as if the companies were combined as of the beginning of fiscal year 2020:
Pro Forma
  Three Months Ended Nine Months Ended
  October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
(In millions)
Revenue $ 4,726  $ 3,350  $ 12,101  $ 8,765 
Net income $ 1,388  $ 786  $ 3,267  $ 1,190 
12

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


The unaudited pro forma information includes adjustments related to amortization of acquired intangible assets, adjustments to stock-based compensation expense, fair value of acquired inventory, and transaction costs. The unaudited pro forma information presented above is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2020 or of the results of our future operations of the combined businesses.
The pro forma results reflect the inventory step-up expense of $161 million in the first nine months of fiscal year 2020 and were excluded from the pro forma results for the first nine months of fiscal year 2021. There were no other material nonrecurring adjustments.
Note 3 - Leases
Our lease obligations primarily consist of operating leases for our headquarters complex, domestic and international office facilities, and data center space, with lease periods expiring between fiscal years 2021 and 2035.
Future minimum lease payments under our non-cancelable operating leases as of October 25, 2020, are as follows:   
Operating Lease Obligations
  (In millions)
Fiscal Year:  
2021 (excluding first nine months of fiscal year 2021)
$ 38 
2022 143 
2023 122 
2024 102 
2025 83 
2026 and thereafter
347 
Total 835 
Less imputed interest 115 
Present value of net future minimum lease payments 720 
Less short-term operating lease liabilities 116 
Long-term operating lease liabilities $ 604 
Operating lease expense was $37 million and $28 million for the third quarter of fiscal years 2021 and 2020, respectively, and $104 million and $83 million for the first nine months of fiscal years 2021 and 2020, respectively. Short-term and variable lease expenses for the third quarter and first nine months of fiscal years 2021 and 2020 were not significant.
Other information related to leases was as follows:
Nine Months Ended
October 25, 2020 October 27, 2019
  (In millions)
Supplemental cash flows information  
Operating cash flows used for operating leases $ 103  $ 78 
Operating lease assets obtained in exchange for lease obligations (1) $ 147  $ 122 
(1)    The first nine months of fiscal year 2021 includes $80 million of operating lease assets addition due to a business combination.
As of October 25, 2020, our operating leases had a weighted average remaining lease term of 7.8 years and a weighted average discount rate of 3.06%. As of January 26, 2020, our operating leases had a weighted average remaining lease term of 8.3 years and a weighted average discount rate of 3.45%.
13

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Note 4 - Stock-Based Compensation
Our stock-based compensation expense is associated with restricted stock units, or RSUs, performance stock units that are based on our corporate financial performance targets, or PSUs, performance stock units that are based on market conditions, or market-based PSUs, and our employee stock purchase plan, or ESPP.
Our Condensed Consolidated Statements of Income include stock-based compensation expense, net of amounts allocated to inventory, as follows:
  Three Months Ended Nine Months Ended
  October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
(In millions)
Cost of revenue $ 28  $ 15  $ 62  $ 27 
Research and development 232  141  594  400 
Sales, general and administrative 123  67  325  197 
Total $ 383  $ 223  $ 981  $ 624 
Equity Award Activity
The following is a summary of equity award transactions under our equity incentive plans:
RSUs, PSUs, and Market-based PSUs Outstanding
  Number of Shares Weighted Average Grant-Date Fair Value Per Share
(In millions, except per share data)
Balances, January 26, 2020 14  $ 176.72 
Granted $ 300.75 
Vested restricted stock (6) $ 152.46 
Balances, October 25, 2020 16  $ 253.81 

As of October 25, 2020, there was $3.42 billion of aggregate unearned stock-based compensation expense, net of forfeitures. This amount is expected to be recognized over a weighted average period of 2.7 years for RSUs, PSUs, and market-based PSUs, and 0.9 years for ESPP.

14

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Note 5 – Net Income Per Share
The following is a reconciliation of the denominator of the basic and diluted net income per share computations for the periods presented:
  Three Months Ended Nine Months Ended
October 25, October 27, October 25, October 27,
2020 2019 2020 2019
  (In millions, except per share data)
Numerator:    
Net income
$ 1,336  $ 899  $ 2,875  $ 1,845 
Denominator:
Basic weighted average shares
618  610  616  609 
Dilutive impact of outstanding equity awards
12  10 
Diluted weighted average shares
630  618  626  617 
Net income per share:
Basic (1)
$ 2.16  $ 1.47  $ 4.67  $ 3.03 
Diluted (2)
$ 2.12  $ 1.45  $ 4.59  $ 2.99 
Equity awards excluded from diluted net income per share because their effect would have been anti-dilutive —  11 
(1)    Calculated as net income divided by basic weighted average shares.
(2)    Calculated as net income divided by diluted weighted average shares.
Note 6 – Income Taxes
We recognized an income tax expense of $12 million and $64 million for the third quarter and first nine months of fiscal year 2021, respectively, and $60 million and $109 million for the third quarter and first nine months of fiscal year 2020, respectively. The income tax expense as a percentage of income before income tax was 0.9% and 2.2% for the third quarter and first nine months of fiscal year 2021, respectively, and 6.3% and 5.6% for the third quarter and first nine months of fiscal year 2020, respectively.
The decrease in our effective tax rate for the third quarter and first nine months of fiscal year 2021 as compared to the same periods of fiscal year 2020 was primarily due to a decrease in the proportional amount of earnings subject to United States tax and an increase of tax benefits from stock-based compensation.
Our effective tax rates for the first nine months of fiscal years 2021 and 2020 were lower than the U.S. federal statutory rate of 21% due to income earned in jurisdictions that are subject to taxes lower than the U.S. federal statutory tax rate, the benefit of the U.S. federal research tax credit, and tax benefits related to stock-based compensation.
During the second quarter of fiscal year 2021, we completed the acquisition of Mellanox. As a result of the acquisition, we recorded $256 million of net deferred tax liabilities primarily on the excess of book basis over the tax basis of the acquired intangible assets and undistributed earnings in certain foreign subsidiaries. We also recorded $153 million of long-term tax liabilities related to tax basis differences in Mellanox. The net deferred tax liabilities and long-term tax liabilities are based upon certain assumptions underlying our purchase price allocation. Upon finalization of the purchase price allocation, additional adjustments to the amount of our net deferred taxes and long-term tax liabilities may be required. As a result of the acquisition, we intend to indefinitely reinvest approximately $675 million of cumulative undistributed earnings held by Mellanox non-U.S. subsidiaries. We have not provided the amount of unrecognized deferred tax liabilities for temporary differences related to investments in Mellanox non-U.S. subsidiaries as the determination of such amount is not practicable.
For the first nine months of fiscal year 2021, there have been no material changes to our tax years that remain subject to examination by major tax jurisdictions. We are currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019. In the second quarter of fiscal year 2021, we assumed $59 million of unrecognized tax
15

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


benefits and $4 million of related interest through the Mellanox acquisition. Other than these amounts, there have been no material changes to our unrecognized tax benefits and any related interest or penalties since the fiscal year ended January 26, 2020.
While we believe that we have adequately provided for all uncertain tax positions, or tax positions where we believe it is not more-likely-than-not that the position will be sustained upon review, 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 with the respective tax authorities. As of October 25, 2020, 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.
Note 7 - Cash Equivalents and Marketable Securities 
Our cash equivalents and marketable securities, except for money market funds and certificates of deposits, are classified as “available-for-sale” debt securities.
The following is a summary of cash equivalents and marketable securities as of October 25, 2020 and January 26, 2020:
  October 25, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
Reported as
  Cash Equivalents Marketable Securities
  (In millions)
Debt securities issued by the United States Treasury $ 3,881  $ —  $ —  $ 3,881  $ 1,116  $ 2,765 
Corporate debt securities 3,139  —  3,141  427  2,714 
Debt securities issued by United States government agencies 1,571  —  1,572  —  1,572 
Certificates of deposit 797  —  —  797  29  768 
Money market funds 388  —  —  388  388  — 
Foreign government bonds 117  —  —  117  48  69 
Total $ 9,893  $ $ —  $ 9,896  $ 2,008  $ 7,888 


  January 26, 2020
Amortized
Cost
Unrealized
Gain
Unrealized
Loss
Estimated
Fair Value
Reported as
  Cash Equivalents Marketable Securities
  (In millions)
Money market funds $ 7,507  $ —  $ —  $ 7,507  $ 7,507  $ — 
Debt securities issued by the United States Treasury 1,358  —  —  1,358  1,358  — 
Debt securities issued by United States government agencies 1,096  —  —  1,096  1,096  — 
Corporate debt securities 592  —  —  592  592  — 
Foreign government bonds 200  —  —  200  200  — 
Certificates of deposit 27  —  —  27  27  — 
Asset-backed securities —  —  — 
Total $ 10,781  $ —  $ —  $ 10,781  $ 10,780  $
Net realized gains and unrealized gains and losses were not significant for all periods presented.
The amortized cost and estimated fair value of cash equivalents and marketable securities as of October 25, 2020 and January 26, 2020 are shown below by contractual maturity.
October 25, 2020 January 26, 2020
Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value
(In millions)
Less than one year $ 9,329  $ 9,330  $ 10,781  $ 10,781 
Due in 1 - 5 years 564  566  —  — 
Total $ 9,893  $ 9,896  $ 10,781  $ 10,781 

Note 8 – Fair Value of Financial Assets and Liabilities
The fair values of our financial assets and liabilities are determined using quoted market prices of identical assets or quoted market prices of similar assets from active markets. We review fair value hierarchy classification on a quarterly basis.
16

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Fair Value at
Pricing Category October 25, 2020 January 26, 2020
(In millions)
Assets
Cash equivalents and marketable securities:
Money market funds Level 1 $ 388  $ 7,507 
Debt securities issued by the United States Treasury Level 2 $ 3,881  $ 1,358 
Corporate debt securities Level 2 $ 3,141  $ 592 
Debt securities issued by United States government agencies Level 2 $ 1,572  $ 1,096 
Certificates of deposit Level 2 $ 797  $ 27 
Foreign government bonds Level 2 $ 117  $ 200 
Asset-backed securities Level 2 $ —  $
Other asset:
Investment in non-affiliated entities (1) Level 3 $ 106  $ 77 
Liabilities
Other non-current liabilities:
2.20% Notes Due 2021 (2)
Level 2 $ 1,016  $ 1,006 
3.20% Notes Due 2026 (2)
Level 2 $ 1,127  $ 1,065 
2.85% Notes Due 2030 (2)
Level 2 $ 1,676  $ — 
3.50% Notes Due 2040 (2)
Level 2 $ 1,163  $ — 
3.50% Notes Due 2050 (2)
Level 2 $ 2,311  $ — 
3.70% Notes Due 2060 (2)
Level 2 $ 594  $ — 
(1)     Investment in non-affiliated entities is privately held and recorded at fair value on a non-recurring basis only if an impairment or observable price adjustment occurs in the period with changes in fair value recorded through net income. The amount recorded as of October 25, 2020 has not been significant.
(2)    These liabilities are carried on our Consolidated Balance Sheets at their original issuance value, net of unamortized debt discount and issuance costs, and are not marked to fair value each period. Refer to Note 12 of these Notes to Condensed Consolidated Financial Statements for additional information.


17

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Note 9 - Amortizable Intangible Assets
The components of our amortizable intangible assets are as follows:
  October 25, 2020 January 26, 2020
  Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
  (In millions)
Acquisition-related intangible assets (1) $ 3,287  $ (642) $ 2,645  $ 195  $ (192) $
Patents and licensed technology 705  (489) 216  520  (474) 46 
Total intangible assets $ 3,992  $ (1,131) $ 2,861  $ 715  $ (666) $ 49 
(1)     As of October 25, 2020, acquisition-related intangible assets include the fair value of a Mellanox IPR&D project of $630 million, which has not been amortized. Once the project reaches technological feasibility, we will begin to amortize the intangible asset over its estimated useful life. Refer to Note 2 of these Notes to Condensed Consolidated Financial Statements for further details.
Amortization expense associated with intangible assets was $174 million and $465 million for the third quarter and first nine months of fiscal year 2021, respectively, and $6 million and $19 million for the third quarter and first nine months of fiscal year 2020, respectively. Future amortization expense related to the net carrying amount of intangible assets as of October 25, 2020 is estimated to be $146 million for the remainder of fiscal year 2021, $542 million in fiscal year 2022, $539 million in fiscal year 2023, $418 million in fiscal year 2024, $364 million in fiscal year 2025, and $852 million in fiscal year 2026 and thereafter. Refer to Note 2 of these Notes to Condensed Consolidated Financial Statements for further details on intangible assets.
Note 10 - Balance Sheet Components 
Certain balance sheet components are as follows:
October 25, January 26,
  2020 2020
Inventories: (In millions)
Raw materials $ 455  $ 249 
Work in-process 380  265 
Finished goods 660  465 
Total inventories $ 1,495  $ 979 

October 25, January 26,
  2020 2020
Other assets: (In millions)
Advanced consideration for acquisition (1) $ 1,357  $ — 
Prepaid royalties (1) 446 
Investment in non-affiliated entities 106  77 
Other 119  40 
Total other assets $ 2,028  $ 118 

(1)    Advanced consideration for acquisition and long-term prepaid royalties are related to the pending acquisition of Arm. Refer to Note 2 of these Notes to Condensed Consolidated Financial Statements for further details.

18

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


October 25, January 26,
  2020 2020
Accrued and Other Current Liabilities: (In millions)
Customer program accruals $ 609  $ 462 
Accrued payroll and related expenses 277  185 
Deferred revenue (1) 235  141 
Licenses and royalties 124  66 
Operating leases 116  91 
Taxes payable 70  61 
Product warranty and return provisions 33  24 
Professional service fee 28  18 
Coupon interest on debt obligations 19  20 
Other 63  29 
Total accrued and other current liabilities $ 1,574  $ 1,097 
(1)    Deferred revenue primarily includes customer advances and deferrals related to license and development arrangements and post contract customer support, or PCS.
October 25, January 26,
  2020 2020
Other Long-Term Liabilities: (In millions)
Income tax payable (1) $ 747  $ 528 
Deferred income tax (2) 258  29 
Deferred revenue (3) 147  60 
Licenses payable 71  110 
Employee benefits 40  22 
Other 48  26 
Total other long-term liabilities $ 1,311  $ 775 
(1)    As of October 25, 2020, income tax payable represents the long-term portion of the one-time transition tax payable of $284 million, unrecognized tax benefits of $264 million, related interest and penalties of $46 million, and other foreign long-term tax payable of $153 million.
(2)    Deferred income tax primarily relates to acquired intangible assets.
(3)    Deferred revenue primarily includes deferrals related to PCS.
Deferred Revenue
The following table shows the changes in deferred revenue during the first nine months of fiscal years 2021 and 2020:
October 25, October 27,
  2020 2019
(In millions)
Balance at beginning of period $ 201  $ 138 
Deferred revenue added during the period 361  237 
Addition due to business combinations 75  — 
Revenue recognized during the period (255) (199)
Balance at end of period $ 382  $ 176 

19

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Revenue related to remaining performance obligations represents the remaining contracted license, development arrangements and PCS that has not been recognized. This includes related deferred revenue currently recorded and amounts that will be invoiced in future periods. As of October 25, 2020, the amount of our remaining performance obligations that has not been recognized as revenue was $679 million, of which we expect to recognize approximately 41% as revenue over the next twelve months and the remainder thereafter. This amount excludes the value of remaining performance obligations for contracts with an original expected length of one year or less.
Note 11 - Derivative Financial Instruments
We enter into foreign currency forward contracts to mitigate the impact of foreign currency exchange rate movements on our operating expenses. These contracts are designated as cash flow hedges for hedge accounting treatment. Gains or losses on the contracts are recorded in accumulated other comprehensive income or loss and reclassified to operating expense when the related operating expenses are recognized in earnings or ineffectiveness should occur. The fair value of the contracts was not significant as of October 25, 2020 and January 26, 2020.
We also enter into foreign currency forward contracts to mitigate the impact of foreign currency movements on monetary assets and liabilities that are denominated in currencies other than the U.S. dollar, including intercompany hedging instruments, or intercompany derivatives, with wholly-owned subsidiaries in order to hedge certain forecasted expenses denominated in currencies other than the U.S. dollar. These forward contracts were not designated for hedge accounting treatment. Therefore, the change in fair value of these contracts is recorded in other income or expense and offsets the change in fair value of the hedged foreign currency denominated monetary assets and liabilities, which is also recorded in other income or expense.

The table below presents the notional value of our foreign currency forward contracts outstanding as of October 25, 2020 and January 26, 2020:
  October 25,
2020
January 26,
2020
(In millions)
Designated as cash flow hedges $ 744  $ 428 
Not designated for hedge accounting $ 352  $ 287 
As of October 25, 2020, all designated foreign currency forward contracts mature within eighteen months. The expected realized gains and losses deferred into accumulated other comprehensive income or loss related to foreign currency forward contracts within the next twelve months was not significant.
During the first nine months of fiscal years 2021 and 2020, the impact of derivative financial instruments designated for hedge accounting treatment on other comprehensive income or loss was not significant and all such instruments were determined to be highly effective. Therefore, there were no gains or losses associated with ineffectiveness.
Note 12 - Debt
Long-Term Debt
In March 2020, we issued $1.50 billion of the 2.85% Notes Due 2030, $1.00 billion of the 3.50% Notes Due 2040, $2.00 billion of the 3.50% Notes Due 2050, and $500 million of the 3.70% Notes Due 2060, or collectively, the March 2020 Notes. Interest on the March 2020 Notes is payable on April 1 and October 1 of each year, beginning on October 1, 2020. Upon 30 days' notice to holders of the Notes, we may redeem the Notes for cash prior to maturity, at redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-whole premium will be paid for redemptions of the Notes Due 2030 on or after January 1, 2030, the Notes Due 2040 on or after October 1, 2039, the Notes Due 2050 on or after October 1, 2049, or the Notes Due 2060 on or after October 1, 2059. The net proceeds from the March 2020 Notes were $4.97 billion, after deducting debt discount and issuance costs.
In September 2016, we issued $1.00 billion of the 2.20% Notes Due 2021 and $1.00 billion of the 3.20% Notes Due 2026, or collectively, the September 2016 Notes. Interest on the September 2016 Notes is payable on March 16 and September 16 of each year. Upon 30 days' notice to holders of the Notes, we may redeem the Notes for cash prior to maturity, at redemption prices that include accrued and unpaid interest, if any, and a make-whole premium. However, no make-
20

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


whole premium will be paid for redemptions of the Notes Due 2021 on or after August 16, 2021, or for redemptions of the Notes Due 2026 on or after June 16, 2026. The net proceeds from the September 2016 Notes were $1.98 billion, after deducting debt discount and issuance costs.
Both the September 2016 Notes and the March 2020 Notes, or collectively, the Notes, are our unsecured senior obligations and rank equally in right of payment with all existing and future unsecured and unsubordinated indebtedness. The Notes are structurally subordinated to the liabilities of our subsidiaries and are effectively subordinated to any secured indebtedness to the extent of the value of the assets securing such indebtedness. All existing and future liabilities of our subsidiaries will be effectively senior to the Notes.
The carrying value of the Notes and the associated interest rates were as follows:
Expected
Remaining Term (years)
Effective
Interest Rate
October 25, 2020 January 26, 2020
(In millions)
2.20% Notes Due 2021
0.9 2.38% $ 1,000  $ 1,000 
3.20% Notes Due 2026
5.9 3.31% 1,000  1,000 
2.85% Notes Due 2030
9.4 2.93% 1,500  — 
3.50% Notes Due 2040
19.4 3.54% 1,000  — 
3.50% Notes Due 2050
29.5 3.54% 2,000  — 
3.70% Notes Due 2060
39.5 3.73% 500  — 
Unamortized debt discount and issuance costs (39) (9)
Net carrying amount $ 6,961  $ 1,991 

As of October 25, 2020, we were in compliance with the required covenants under the Notes.
Revolving Credit Facility
We have a Credit Agreement under which we may borrow up to $575 million for general corporate purposes and can obtain revolving loan commitments up to $425 million. As of October 25, 2020, we had not borrowed any amounts and were in compliance with the required covenants under this agreement.
Commercial Paper
We have a $575 million commercial paper program to support general corporate purposes. As of October 25, 2020, we had not issued any commercial paper.
Note 13 - Commitments and Contingencies
Purchase Obligations
As of October 25, 2020, we had outstanding inventory purchase obligations totaling $2.57 billion and other purchase obligations totaling $398 million.
Accrual for Product Warranty Liabilities
The estimated amount of product returns and warranty liabilities was $19 million and $15 million as of October 25, 2020 and January 26, 2020, respectively, and the activities related to the warranty liabilities were not significant.
In connection with certain agreements that we have entered in the past, we have provided indemnities to cover the indemnified party for matters such as tax, product, and employee liabilities. We have 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. We have not recorded any liability in our Condensed Consolidated Financial Statements for such indemnifications.

21

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Litigation
Securities Class Action and Derivative Lawsuits
The plaintiffs in the putative securities class action lawsuit, captioned 4:18-cv-07669-HSG, initially filed on December 21, 2018, and titled In Re NVIDIA Corporation Securities Litigation, filed an amended complaint on May 13, 2020. The amended complaint asserts that NVIDIA and certain NVIDIA executives violated Section 10(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and SEC Rule 10b-5, by making materially false or misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand between May 10, 2017 and November 14, 2018. Plaintiffs also allege that the NVIDIA executives who they named as defendants violated Section 20(a) of the Exchange Act. Plaintiffs seek class certification, an award of unspecified compensatory damages, an award of reasonable costs and expenses, including attorneys’ fees and expert fees, and further relief as the Court may deem just and proper. On June 29, 2020, NVIDIA moved to dismiss the amended complaint on the basis that plaintiffs failed to state any claims for violations of the securities laws by NVIDIA or the individual defendants. As of September 14, 2020, the motion was fully briefed but the Court has not yet issued a decision.
The putative derivative lawsuit pending in the United States District Court for the Northern District of California, captioned 4:19-cv-00341-HSG, initially filed January 18, 2019 and titled In re NVIDIA Corporation Consolidated Derivative Litigation, remains stayed pending resolution of NVIDIA’s motion to dismiss the complaint in the In Re NVIDIA Corporation Securities Litigation action. The lawsuit asserts claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of Sections 14(a), 10(b), and 20(a) of the Exchange Act based on the dissemination of allegedly false and misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand. The plaintiffs are seeking unspecified damages and other relief, including reforms and improvements to NVIDIA’s corporate governance and internal procedures.
The putative derivative actions initially filed September 24, 2019 and pending in the United States District Court for the District of Delaware, Lipchitz v. Huang, et al. (Case No. 1:19-cv-01795-UNA) and Nelson v. Huang, et. al. (Case No. 1:19-cv-01798- UNA), remain stayed pending resolution of NVIDIA’s motion to dismiss the complaint in the In Re NVIDIA Corporation Securities Litigation action. The lawsuits assert claims for breach of fiduciary duty, unjust enrichment, insider trading, misappropriation of information, corporate waste and violations of Sections 14(a), 10(b), and 20(a) of the Exchange Act based on the dissemination of allegedly false, and misleading statements related to channel inventory and the impact of cryptocurrency mining on GPU demand. The plaintiffs seek unspecified damages and other relief, including disgorgement of profits from the sale of NVIDIA stock and unspecified corporate governance measures.
It is possible that additional suits will be filed, or allegations received from shareholders, with respect to these same or other matters, naming NVIDIA and/or its officers and directors as defendants.
Accounting for Loss Contingencies
As of October 25, 2020, we have not recorded any accrual for contingent liabilities associated with the legal proceedings described above based on our belief that liabilities, while possible, are not probable. Further, except as specifically described above, any possible loss or range of loss in these matters cannot be reasonably estimated at this time. We are engaged in legal actions not described above arising in the ordinary course of business and, while there can be no assurance of favorable outcomes, we believe that the ultimate outcome of these actions will not have a material adverse effect on our operating results, liquidity or financial position.
Note 14 - Shareholders’ Equity 
Capital Return Program 
Beginning August 2004, our Board of Directors authorized us to repurchase our stock.
Through October 25, 2020, we have repurchased an aggregate of 260 million shares under our share repurchase program for a total cost of $7.08 billion. All shares delivered from these repurchases have been placed into treasury stock. As of October 25, 2020, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $7.24 billion through December 2022.
During the third quarter and first nine months of fiscal year 2021, we paid $99 million and $296 million in cash dividends to our shareholders, respectively.
22

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Note 15 - 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 decisions and assessing financial performance. In the prior fiscal year, we had reported two operating segments: GPU and Tegra Processor. During the first quarter of fiscal year 2021, we changed our operating segments to be consistent with the revised manner in which our CODM reviews our financial performance and allocates resources. The two new operating segments are "Graphics" and "Compute & Networking". Comparative periods presented reflect this change. Our operating segments are equivalent to our reportable segments.
Our Graphics segment includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems. Our Compute & Networking segment includes Data Center platforms and systems for artificial intelligence, or AI, high performance computing, or HPC, and accelerated computing; Mellanox networking and interconnect solutions; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms.
Operating results by segment include costs or expenses that are directly attributable to each segment, and costs or expenses that are leveraged across our unified architecture and therefore allocated between our two segments.
The “All Other” category includes the expenses that our CODM does not assign to either Graphics or Compute & Networking for purposes of making operating decisions or assessing financial performance. The expenses include stock-based compensation expense, corporate infrastructure and support costs, acquisition-related costs, legal settlement costs, and other non-recurring charges and benefits that our CODM deems to be enterprise in nature.
Our CODM does not review any information regarding total assets on a reportable segment basis. Depreciation and amortization expense directly attributable to each reportable segment is included in operating results for each segment. However, the CODM does not evaluate depreciation and amortization expense by operating segment and, therefore, it is not separately presented. There is no intersegment revenue. The accounting policies for segment reporting are the same as for our consolidated financial statements. The table below presents details of our reportable segments and the “All Other” category.
  Graphics Compute & Networking All Other Consolidated
  (In millions)
Three Months Ended October 25, 2020        
Revenue $ 2,787  $ 1,939  $ —  $ 4,726 
Operating income (loss) $ 1,345  $ 738  $ (685) $ 1,398 
Three Months Ended October 27, 2019        
Revenue $ 2,226  $ 788  $ —  $ 3,014 
Operating income (loss) $ 1,068  $ 158  $ (299) $ 927 
Nine Months Ended October 25, 2020
Revenue $ 6,778  $ 4,894  $ —  $ 11,672 
Operating income (loss) $ 3,092  $ 1,880  $ (1,947) $ 3,025 
Nine Months Ended October 27, 2019
Revenue $ 5,555  $ 2,258  $ —  $ 7,813 
Operating income (loss) $ 2,307  $ 418  $ (869) $ 1,856 

23

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


Three Months Ended Nine Months Ended
October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
(In millions)
Reconciling items included in "All Other" category:
Stock-based compensation expense $ (383) $ (223) $ (981) $ (624)
Acquisition-related and other costs (192) (7) (669) (22)
Unallocated cost of revenue and operating expenses (89) (69) (259) (210)
Legal settlement costs (21) —  (38) (13)
Total $ (685) $ (299) $ (1,947) $ (869)
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 table summarizes information pertaining to our revenue from customers based on the invoicing address by geographic regions:
  Three Months Ended Nine Months Ended
October 25, October 27, October 25, October 27,
  2020 2019 2020 2019
  (In millions)
Revenue:    
Taiwan $ 1,296  $ 838  $ 3,062  $ 2,171 
China (including Hong Kong) 1,113  758  2,727  1,894 
Other Asia Pacific 955  805  2,260  1,983 
United States 890  236  2,331  589 
Europe 247  216  741  753 
Other countries 225  161  551  423 
Total revenue $ 4,726  $ 3,014  $ 11,672  $ 7,813 
The following table summarizes information pertaining to our revenue by each of the specialized markets we serve:
  Three Months Ended Nine Months Ended
October 25, October 27, October 25, October 27,
  2020 2019 2020 2019
  (In millions)
Revenue:    
Gaming $ 2,271  $ 1,659  $ 5,264  $ 4,027 
Professional Visualization 236  324  746  881 
Data Center 1,900  726  4,793  2,015 
Automotive 125  162  391  537 
OEM and Other 194  143  478  353 
Total revenue $ 4,726  $ 3,014  $ 11,672  $ 7,813 
24

NVIDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)


No customer represented 10% or more of total revenue for the third quarter and first nine months of fiscal year 2021. One customer represented 10% and 11% of our total revenue for the third quarter and first nine months of fiscal year 2020, respectively, and was attributable primarily to the Graphics segment.
One customer represented 13% and 21% of our accounts receivable balance as of October 25, 2020 and January 26, 2020, respectively.
Note 16 - Goodwill
During the first quarter of fiscal year 2021, we changed our operating segments to Graphics and Compute & Networking, as discussed in Note 15 of these Notes to Condensed Consolidated Financial Statements. As a result, our reporting units also changed, and we reassigned the goodwill balance to the new reporting units based on their relative fair values. We determined there was no goodwill impairment immediately prior to the reorganization. As of October 25, 2020, the total carrying amount of goodwill was $4.19 billion and the amount of goodwill allocated to our Graphics and Compute & Networking reporting units was $347 million and $3.85 billion, respectively. In the first nine months of fiscal year 2021, goodwill increased by $3.57 billion. The increase in goodwill in the first nine months of fiscal year 2021 was due to goodwill of $3.43 billion arising from the Mellanox acquisition, and goodwill of $133 million from other acquisition activity, both of which were allocated to the Compute & Networking reporting unit.
ITEM 2. 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. Other statements in this Form 10-Q regarding the potential future impact of the COVID-19 pandemic on the Company’s business and results of operations are 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.
NVIDIA, the NVIDIA logo, GeForce, DRIVE AGX Orin, GeForce NOW, GeForce RTX SUPER, NVIDIA A100, NVIDIA Broadcast, NVIDIA CloudXR, NVIDIA CUDA, NVIDIA DLSS, NVIDIA DGX A100, NVIDIA DGX SuperPOD, NVIDIA DRIVE, NVIDIA EGX, NVIDIA GRID, NVIDIA Jarvis, NVIDIA Jetson, NVIDIA Maxine, NVIDIA Merlin, NVIDIA Omniverse, NVIDIA Omniverse Machinima, NVIDIA Reflex, NVIDIA RTX, Mellanox, Quadro, Quadro RTX, Quadro View and Tegra are trademarks and/or registered trademarks of NVIDIA Corporation in the United States and/or other countries. Other company and product names may be trademarks of the respective companies with which they are associated. Features, pricing, availability, and specifications are subject to change without notice.
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 26, 2020 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 or sell shares of our common stock.
25




Overview
Our Company and Our Businesses
NVIDIA pioneered accelerated computing to help solve the most challenging computational problems. Starting with a focus on PC graphics, we extended our focus in recent years to the revolutionary field of AI. Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA leveraged its GPU architecture to create platforms for virtual reality, HPC, and AI.
Through fiscal year 2020, our reportable segments were GPU and Tegra Processor. Starting with the first quarter of fiscal year 2021, our reportable segments have changed to "Graphics" and "Compute & Networking".
Our Graphics segment includes GeForce GPUs for gaming and PCs, the GeForce NOW game streaming service and related infrastructure, and solutions for gaming platforms; Quadro GPUs for enterprise design; GRID software for cloud-based visual and virtual computing; and automotive platforms for infotainment systems.
Our Compute & Networking segment includes Data Center platforms and systems for AI, HPC, and accelerated computing; Mellanox networking and interconnect solutions; DRIVE for autonomous vehicles; and Jetson for robotics and other embedded platforms.
All prior period comparisons presented reflect our new reportable segments. Our market platforms – Gaming, Professional Visualization, Data Center, Automotive, OEM and Other – remain unchanged.
Headquartered in Santa Clara, California, NVIDIA was incorporated in California in April 1993 and reincorporated in Delaware in April 1998.
26




Recent Developments, Future Objectives and Challenges
Pending Acquisition of Arm Limited
On September 13, 2020, we entered into a Purchase Agreement with Arm and SoftBank for us to acquire, from SoftBank, all of the allotted and issued ordinary shares of Arm in a transaction valued at $40 billion. We paid $2 billion in Signing Consideration and will pay upon closing of the acquisition $10 billion in cash and issue to SoftBank 44.3 million shares of our common stock with an aggregate value of $21.5 billion. The transaction includes a potential earn out, which is contingent on the achievement of certain financial performance targets by Arm during the fiscal year ending March 31, 2022. If the financial performance targets are achieved, Softbank can elect to receive either up to $5 billion in cash or up to 10.3 million shares of our common stock. We will issue up to $1.5 billion in restricted stock units to Arm employees after closing. The $2 billion paid upon signing was allocated between advanced consideration for the acquisition of $1.36 billion and the prepayment of intellectual property licenses from Arm of $0.17 billion and royalties of $0.47 billion. The closing of the acquisition is subject to customary closing conditions, including receipt of specified governmental and regulatory consents and approvals and expiration of any related mandatory waiting period, and Arm's implementation of the reorganization and distribution of Arm’s IoT Services Group and certain other assets and liabilities. If the Purchase Agreement is terminated under certain circumstances, we will be refunded $1.25 billion of the Signing Consideration. The $2 billion payment upon signing was allocated on a fair value basis and any refund of the Signing Consideration will use stated values in the Purchase Agreement. We believe the closing of the acquisition will likely occur in the first quarter of calendar year 2022.
COVID-19
The worldwide COVID-19 pandemic is prompting governments and businesses to take unprecedented measures including restrictions on travel, temporary business closures, quarantines and shelter-in-place orders. It has significantly impacted global economic activity and caused volatility and disruption in global financial markets. Since March 2020, most of our employees have been working remotely and we have temporarily prohibited most business travel.
Our Gaming and Data Center market platforms have benefited from stronger demand as people continue to work, learn, and play from home. In Professional Visualization, stronger demand for mobile workstations due to work from home trends was partially offset by lower demand for desktop workstations. In Automotive, customers' production volumes have largely returned to pre-COVID levels. In our supply chain, stronger demand globally has limited the availability of capacity and components.

As the COVID-19 pandemic continues, the timing and overall demand from customers and the availability of supply chain, logistical services and component supply may have a material net negative impact on our business and financial results. Refer to Part II, Item 1A of this Quarterly Report on Form 10-Q for additional information under the heading “Risk Factors”.
The Company believes its existing balances of cash, cash equivalents and marketable securities, along with commercial paper and other short-term liquidity arrangements, will be sufficient to satisfy its working capital needs, capital asset purchases, dividends, debt repayments and other liquidity requirements associated with its existing operations.
Third Quarter of Fiscal Year 2021 Summary
Three Months Ended
  October 25, 2020 July 26, 2020 October 27, 2019 Quarter-over-Quarter Change Year-over-Year Change
($ in millions, except per share data)
Revenue $ 4,726  $ 3,866  $ 3,014  22  % 57  %
Gross margin 62.6  % 58.8  % 63.6  % 380 bps (100) bps
Operating expenses $ 1,562  $ 1,624  $ 989  (4) % 58  %
Income from operations $ 1,398  $ 651  $ 927  115  % 51  %
Net income $ 1,336  $ 622  $ 899  115  % 49  %
Net income per diluted share $ 2.12  $ 0.99  $ 1.45  114  % 46  %
27




Revenue for the third quarter of fiscal year 2021 was $4.73 billion, up 57% from a year earlier and up 22% sequentially.
Graphics segment revenue was $2.79 billion, up 25% from a year earlier and up 34% sequentially.
Compute & Networking segment revenue was $1.94 billion, up 146% from a year ago and up 9% sequentially.
From a market-platform perspective, Gaming revenue was $2.27 billion, up 37% both from a year ago and sequentially. The increases reflect higher sales across desktop and notebook gaming GPUs, and game console SOCs. Desktop gaming sales benefited from the launch of our GeForce RTX 30 Series based on the NVIDIA Ampere architecture.
Professional Visualization revenue was $236 million, down 27% from a year earlier and up 16% sequentially. The year-on-year decline was influenced by COVID-19, with reduced demand for desktop workstations. The sequential increase reflects a sharp rebound in mobile workstations due to work from home trends.
Data Center revenue was $1.90 billion, up 162% from a year ago and up 8% sequentially. Our recent acquisition of Mellanox contributed 13% of total company revenue and approximately a third of Data Center revenue. In addition to Mellanox, the year-on-year and sequential increases were driven by the ramp of NVIDIA Ampere architecture products.
Automotive revenue was $125 million, down 23% from a year earlier and up 13% sequentially. The year-on-year decrease reflects a decline in revenue from legacy infotainment modules and autonomous driving development agreements. The sequential increase reflects higher sales of AI cockpit solutions.
OEM and Other revenue was $194 million, up 36% from a year ago and up 33% sequentially, primarily due to higher volume of entry-level laptop GPUs.
Gross margin was 62.6% in the third quarter, down 100 basis points from a year earlier and up 380 basis points sequentially. The year-on-year decline reflects charges related to the Mellanox acquisition and lower margins in Gaming, partially offset by a shift in product mix with higher Data Center and lower Automotive sales. The sequential increase was primarily driven by the absence of a non-recurring inventory step-up expense related to the Mellanox acquisition in the prior quarter.
Operating expenses were $1.56 billion, up 58% from a year earlier and down 4% sequentially. The year-on-year increase was primarily driven by compensation-related costs, the Mellanox acquisition, infrastructure costs, and employee growth. The sequential decrease was due to a reduction in acquisition-related costs.
Income from operations was $1.40 billion, up 51% from a year earlier and up 115% sequentially. Net income was $1.34 billion. Net income per diluted share was $2.12, up 46% from a year earlier and up 114% sequentially.
Cash, cash equivalents and marketable securities at the end of the third quarter were $10.14 billion, up from $9.77 billion a year earlier and down from $10.98 billion in the prior quarter. The year-on-year increase primarily reflects the issuance of the $5 billion of notes in March 2020 and cash flow generation, partially offset by acquisitions. The sequential decrease primarily reflects the $2 billion payment under the Purchase Agreement to acquire Arm.
We paid $99 million in quarterly cash dividends in the third quarter.
Market Platform Highlights
During the third quarter of fiscal year 2021, in our Gaming platform, we unveiled GeForce RTX 30 Series GPUs; announced that Fortnite will support NVIDA RTX real-time ray tracing and DLSS AI super-resolution; introduced NVIDIA Reflex; and unveiled NVIDIA Broadcast.
In our Professional Visualization platform, we brought to open beta NVIDIA Omniverse; announced NVIDIA Omniverse Machinima; and collaborated with Adobe to bring GPU-accelerated neural filters to Adobe Photoshop AI-powered tools.
In our Data Center platform, we shared news that Amazon Web Services and Oracle Cloud Infrastructure announced general availability of cloud computing instances based on the NVIDIA A100 GPU; announced the NVIDIA DGX SuperPOD Solution for Enterprise; announced that five supercomputers backed by EuroHPC will use NVIDIA’s data center accelerators or networking; introduced the new family of NVIDIA BlueField-2 DPUs (data processing units); announced a broad partnership with VMware to create an end-to-end enterprise platform for AI and a new architecture for data center, cloud and edge; unveiled NVIDIA Maxine; introduced the NVIDIA RTX A6000 and NVIDIA A40 GPUs; extended our lead on MLPerf performance benchmarks for inference; announced a partnership with GSK to integrate computing
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platforms for imaging, genomics and AI into the drug and vaccine discovery process; and introduced NVIDIA A100 80GB GPU, NVIDIA DGX Station A100, and NVIDIA Mellanox InfiniBand.
In our Automotive platform, we announced with Mercedes-Benz that NVIDIA is powering the next-generation MBUX AI cockpit system; announced with Hyundai Motor Group that the Korean automaker’s entire lineup of Hyundai, Kia and Genesis models will come standard with NVIDIA DRIVE in-vehicle infotainment systems, starting in 2022; and announced that China’s Li Auto will develop its next-generation of electric vehicles using NVIDIA DRIVE AGX Orin, a software-defined platform for autonomous vehicles.
Financial Information by Business Segment and Geographic Data
Refer to Note 15 of the Notes to Condensed Consolidated Financial Statements for disclosure regarding segment information.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, cost of revenue, expenses and related disclosure of contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Our management has discussed the development and selection of these critical accounting policies and estimates with the Audit Committee of our Board of Directors. The Audit Committee has reviewed our disclosures relating to our critical accounting policies and estimates in this Quarterly Report on Form 10-Q. Due to the Mellanox acquisition, we added the following critical accounting policy:
Business Combinations
The application of acquisition accounting to a business acquisition requires that we identify the individual assets acquired and liabilities assumed and estimate the fair value of each. The fair value of assets acquired and liabilities assumed in a business acquisition are recognized at the acquisition date, with the purchase price exceeding the fair values being recognized as goodwill. Determining fair value of identifiable assets, particularly intangibles, liabilities acquired and contingent obligations assumed requires management to make estimates. In certain circumstances, the allocations of the purchase price are based upon preliminary estimates and assumptions and subject to revision when we receive final information, including appraisals and other analysis. Accordingly, the measurement period for such purchase price allocations will end when the information, or the facts and circumstances, becomes available, but will not exceed twelve months. We will recognize measurement-period adjustments during the period of resolution, including the effect on earnings of any amounts that would have been recorded in previous periods if the accounting had been completed at the acquisition date.
Goodwill and intangible assets often represent a significant portion of the assets acquired in a business combination. We recognize the fair value of an acquired intangible apart from goodwill whenever the intangible arises from contractual or other legal rights, or when it can be separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged, either individually or in combination with a related contract, asset or liability. Intangible assets consist primarily of technology, customer relationships, order backlog and trade name acquired in a business combination and IPR&D. We generally assess the estimated fair values of acquired intangibles using a combination of valuation techniques. To estimate fair value, we are required to make certain estimates and assumptions, including future economic and market conditions, revenue growth, technology migration curve, and risk-adjusted discount rates. Our estimates require significant judgment and are based on historical data, various internal estimates, and external sources. Our assessment of IPR&D also includes consideration of the risk of the projects not achieving technological feasibility.
There have been no other material changes in our critical accounting policies and estimates since our Annual Report on Form 10-K for the fiscal year ended January 26, 2020. Refer to Note 1 “Basis of Presentation” to the condensed consolidated financial statements for additional details. In addition, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in Part II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended January 26, 2020 for a more complete discussion of our critical accounting policies and estimates.
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Results of Operations
The following table sets forth, for the periods indicated, certain items in our Condensed Consolidated Statements of Income expressed as a percentage of revenue.
  Three Months Ended Nine Months Ended
  October 25,
2020
October 27,
2019
October 25,
2020
October 27,
2019
Revenue 100.0  % 100.0  % 100.0  % 100.0  %
     Cost of revenue 37.4  36.4  38.0  39.2 
Gross profit 62.6  63.6  62.0  60.8 
Operating expenses      
     Research and development 22.2  23.6  23.8  26.8 
     Sales, general and administrative 10.9  9.2  12.3  10.3 
Total operating expenses 33.1  32.8  36.1  37.1 
Income from operations 29.5  30.8  25.9  23.7 
     Interest income 0.1  1.5  0.4  1.8 
     Interest expense (1.1) (0.4) (1.1) (0.5)
     Other, net (0.1) —  —  — 
Other income (expense), net
(1.1) 1.1  (0.7) 1.3 
Income before income tax 28.4  31.9  25.2  25.0 
Income tax expense 0.3  2.0  0.5  1.4 
Net income 28.1  % 29.9  % 24.7  % 23.6  %
Revenue
Revenue by Reportable Segments
Three Months Ended Nine Months Ended
  October 25,
2020
October 27,
2019
$
Change
%
Change
October 25,
2020
October 27,
2019
$
Change
%
Change
  ($ in millions)
Graphics $ 2,787  $ 2,226  $ 561  25  % $ 6,778  $ 5,555  $ 1,223  22  %
Compute & Networking 1,939  788  1,151  146  % 4,894  2,258  2,636  117  %
Total $ 4,726  $ 3,014  $ 1,712  57  % $ 11,672  $ 7,813  $ 3,859  49  %
Graphics - Graphics segment revenue for the third quarter of fiscal year 2021 compared to the third quarter of fiscal year 2020 increased by 25% and revenue for the first nine months of fiscal year 2021 compared to the first nine months of fiscal year 2020 increased by 22%. These increases reflect growth in GeForce GPUs and game console SOCs, partially offset by lower sales of Quadro workstations.
Compute & Networking - Compute & Networking segment revenue for the third quarter of fiscal year 2021 compared to the third quarter of fiscal year 2020 increased by 146% and revenue for the first nine months of fiscal year 2021 compared to the first nine months of fiscal year 2020 increased by 117%. These increases reflect the addition of Mellanox acquired on April 27, 2020 and the continued ramp of NVIDIA Ampere GPU architecture systems and new products, partially offset by lower autonomous driving development agreement revenue.
Concentration of Revenue 
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Revenue from sales to customers outside of the United States accounted for 81% and 80% of total revenue for the third quarter and first nine months of fiscal year 2021, respectively, and 92% of total revenue for the third quarter and first nine months of fiscal year 2020. 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.
No customer represented 10% or more of total revenue for the third quarter and first nine months of fiscal year 2021. One customer represented 10% and 11% of our total revenue for the third quarter and first nine months of fiscal year 2020, respectively, and was attributable primarily to the Graphics segment.
Gross Margin
Our overall gross margin decreased to 62.6% for the third quarter of fiscal year 2021 from 63.6% for the third quarter of fiscal year 2020, reflecting charges related to the Mellanox acquisition and lower margins in Gaming, partially offset by a shift in product mix with higher Data Center and lower Automotive sales. Our overall gross margin increased to 62.0% for the first nine months of fiscal year 2021 from 60.8% for the first nine months of fiscal year 2020, primarily driven by Mellanox products, lower Automotive sales and lower product costs within Compute & Networking, partially offset by Mellanox acquisition-related costs including a non-recurring inventory step-up charge of $161 million and ongoing intangible asset amortization of $171 million.
Inventory provisions totaled $15 million and $42 million for the third quarter of fiscal years 2021 and 2020, respectively. Sales of inventory that was previously written-off or -down totaled $29 million and $78 million for the third quarter of fiscal years 2021 and 2020, respectively. As a result, the overall net effect on our gross margin was a favorable impact of 0.3% and 1.2% in the third quarter of fiscal years 2021 and 2020, respectively.
Inventory provisions totaled $96 million and $114 million for the first nine months of fiscal years 2021 and 2020, respectively. Sales of inventory that was previously written-off or -down totaled $116 million and $109 million for the first nine months of fiscal years 2021 and 2020, respectively. As a result, the overall net effect on our gross margin was a favorable impact of 0.2% in the first nine months of fiscal year 2021 and an unfavorable impact of 0.1% for the first nine months of fiscal year 2020.
A discussion of our gross margin results for each of our reportable segments is as follows:
Graphics - The gross margin of our Graphics segment decreased during the third quarter of fiscal year 2021 compared to the third quarter of fiscal year 2020, primarily driven by a shift in product mix and higher product costs. The gross margin of our Graphics segment increased during the first nine months of fiscal year 2021 compared to the first nine months of fiscal year 2020, primarily driven by lower legacy infotainment sales and product mix within Quadro.
Compute & Networking - The gross margin of our Compute & Networking segment increased during the third quarter and first nine months of fiscal year 2021 compared to the third quarter and first nine months of fiscal year 2020, primarily driven by Mellanox products and lower product costs.
Operating Expenses 
  Three Months Ended Nine Months Ended
  October 25,
2020
October 27,
2019
$
Change
%
Change
October 25,
2020
October 27,
2019
$
Change
%
Change
  ($ in millions)
Research and development expenses $ 1,047  $ 712  $ 335  47  % $ 2,778  $ 2,091  $ 687  33  %
% of net revenue 22  % 24  % 24  % 27  %
Sales, general and administrative expenses 515  277  238  86  % 1,437  806  631  78  %
% of net revenue 11  % % 12  % 10  %
Total operating expenses $ 1,562  $ 989  $ 573  58  % $ 4,215  $ 2,897  $ 1,318  45  %
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Research and Development
Research and development expenses increased by 47% and 33% during the third quarter and first nine months of fiscal year 2021, compared to the third quarter and first nine months of fiscal year 2020, respectively, primarily driven by expenses related to the Mellanox acquisition. In addition to Mellanox, increases reflect employee compensation and related costs, including stock-based compensation, and infrastructure costs.
Sales, General and Administrative
Sales, general and administrative expenses increased by 86% and 78% during the third quarter and first nine months of fiscal year 2021, compared to the third quarter of fiscal year 2020, respectively, primarily driven by Mellanox acquisition-related expenses. In addition to Mellanox, increases reflect employee compensation and related costs, including stock-based compensation.
Other Income (Expense), Net
Interest income consists of interest earned on cash, cash equivalents and marketable securities. Interest income was $7 million and $45 million during the third quarter of fiscal years 2021 and 2020, respectively, and $50 million and $137 million during the first nine months of fiscal years 2021 and 2020, respectively. The decrease in interest income was primarily due to lower interest earned on our investments.
Interest expense is primarily comprised of coupon interest and debt discount amortization related to our September 2016 Notes and March 2020 Notes. Interest expense was $53 million and $13 million during the third quarter of fiscal years 2021 and 2020, respectively, and $131 million and $39 million during the first nine months of fiscal years 2021 and 2020, respectively.
Income Taxes
We recognized an income tax expense of $12 million and $64 million for the third quarter and first nine months of fiscal year 2021, respectively, and $60 million and $109 million for the third quarter and first nine months of fiscal year 2020, respectively. The income tax expense as a percentage of income before income tax was 0.9% and 2.2% for the third quarter and first nine months of fiscal year 2021, respectively, and 6.3% and 5.6% for the third quarter and first nine months of fiscal year 2020, respectively.
The decrease in our effective tax rate for the third quarter and first nine months of fiscal year 2021 as compared to the same periods of fiscal year 2020 was primarily due to a decrease in the proportional amount of earnings subject to United States tax and an increase of tax benefits from stock-based compensation.
Refer to Note 6 of the Notes to Condensed Consolidated Financial Statements for further information.

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Liquidity and Capital Resources 
  October 25, 2020 January 26, 2020
  (In millions)
Cash and cash equivalents $ 2,251  $ 10,896