NVIDIA CORP/CA, 10-K405, 2000-03-13

NVIDIA CORP/CA
10-K405, 2000-03-13
SEMICONDUCTORS & RELATED DEVICES

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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

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FORM 10-K

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

For the fiscal year ended January 30, 2000

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

For the transition period from to

Commission file number 0-23985

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NVIDIA CORPORATION
(Exact name of registrant as specified in its charter)

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<S> <C>
Delaware 94-3177549
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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3535 Monroe Street
Santa Clara, CA 95051
(408) 615-2500
(Address, including zip code, and telephone number, including area code, of
principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common stock, $.001 par value per share

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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 14, 2000 was approximately $1,313,942,904.
Shares of common stock held by each current executive officer and director and
by each person who is known by the registrant to own 5% or more of the
outstanding common stock have been excluded from this computation in that such
persons may be deemed to be affiliates of the Company. Share ownership
information of certain persons known by the Company to own greater than 5% of
the outstanding common stock for purposes of the preceding calculation is
based solely on information on Schedule 13G filed with the Commission and is
as of February 14, 2000. This determination of affiliate status is not a
conclusive determination for other purposes.

The number of shares of common stock outstanding as of February 14, 2000
was 31,194,581.

DOCUMENTS INCORPORATED BY REFERENCE

The Registrant has incorporated by reference portions of its Proxy
Statement for its 2000 Annual Meeting of Stockholders to be filed by May 31,
2000.

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NVIDIA CORPORATION

TABLE OF CONTENTS

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PART I

Item 1. Business...................................................... 1
Item 2. Properties.................................................... 6
Item 3. Legal Proceedings............................................. 7
Item 4. Submission of Matters to a Vote of Security Holders........... 7

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters...................................................... 8
Item 6. Selected Financial Data....................................... 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.... 15
Item 8. Financial Statements and Supplementary Data................... 24
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..................................... 24

PART III

Item 10. Directors and Executive Officers of the Registrant............ 25
Item 11. Executive Compensation........................................ 26
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 26
Item 13. Certain Relationships and Related Transactions................ 26

PART IV

Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-
K............................................................ 27
Signatures.............................................................. 48
</TABLE>
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FORWARD-LOOKING STATEMENTS

This report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 which are subject to the "safe harbor" created
by those sections. These forward-looking statements include but are not
limited to: statements related to industry trends and future growth in the
markets for 3D graphics processors; our product development efforts; the
timing of our introduction of new products; industry and consumer acceptance
of our products; and future profitability. Discussions containing these
forward-looking statements may be found in "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
These forward-looking statements involve risks and uncertainties that could
cause our actual results to differ materially from those in the forward-
looking statements. We undertake no obligation to publicly release any
revisions to the forward-looking statements or reflect events or circumstances
after the date of this document. The "Certain Business Risks" section, among
other things, should be considered in evaluating our prospects and future
financial performance.

PART I

ITEM 1. BUSINESS

Overview

We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, graphics processing units ("GPUs") and related software
that set the standard for performance, quality and features for every type of
desktop personal computer ("PC") user, from professional workstations to low-
cost PCs. Our 3D graphics processors are used in a wide variety of
applications, including games, the Internet and industrial design. Our
graphics processors were the first to incorporate a 128-bit multi-texturing
graphics architecture designed to deliver to users of our products a highly
immersive, interactive 3D experience with compelling visual quality, realistic
imagery and motion, stunning effects, and complex object and scene interaction
at real-time frame rates. The NVIDIA TNT2, TNT2 M64 and Vanta graphics
processors deliver high performance 3D and 2D graphics at an affordable price,
making them the graphics hardware of choice for a wide range of applications
for both consumer and commercial use. Our graphics processors are designed to
be architecturally compatible backward and forward, giving our OEM customers
and end users a low cost of ownership. We are recognized for developing the
world's first GPU, our latest generation graphics processor, which
incorporates independent hardware transform and lighting processing units
along with a complete rendering pipeline into a single-chip architecture. Our
GPUs, the GeForce 256 and NVIDIA Quadro, process over 200 billion operations
per second and increase the PC's ability to render high-definition 3D scenes
in real-time. Our GPU family provides superior processing and rendering power
at competitive prices and is architected to deliver the maximum performance
from industry standards such as Microsoft's Direct3D application programming
interface ("API") and Silicon Graphics Inc.'s ("SGI") OpenGL API on Windows
98, Windows 2000 and Linux platforms alike. We also offer an integrated core
logic/graphics chipset called Aladdin TNT2 through a partnership with Acer
Laboratories Inc. ("ALi"), one of the leading suppliers of core logic chipsets
for the PC. The Aladdin TNT2 chipset brings NVIDIA-class graphics performance
and quality to the value PC segment.

Interactive 3D graphics technology is emerging as one of the significant
new computing developments since the introduction of the graphical user
interface. 3D graphics is a powerful digital medium that enables the
communication and visualization of the simplest information to the most
complex, whether it is professional applications like CAD/CAM and digital
content creation, commercial applications like financial analysis and
business-to-business collaboration or simply surfing the internet or playing
games. The visually engaging and interactive nature of 3D graphics responds to
consumers' demands for a convincing simulation of reality beyond what is
possible with traditional 2D graphics. The fundamental interactive capability
of 3D graphics is expected to make it the visual portal to a digitally
connected world.

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Interactive 3D graphics is required across various computing and
entertainment platforms, such as workstations, consumer and commercial desktop
PCs, Internet appliances, hand held devices and home gaming consoles.
Continuing advancements in semiconductor manufacturing have made available
more powerful and affordable microprocessors and 3D graphics processors, both
of which are essential to deliver interactive 3D graphics to the PC market.
Additionally, the industry has broadly adopted Microsoft's Direct 3D API and
SGI's OpenGL API, which serve as a common and standard language between
software applications and 3D graphics processors, allowing the development of
numerous 3D games, which has, in turn, increased consumer demand.

We believe that a PC's interactive 3D graphics capability represents one of
the primary means by which users differentiate among various systems. PC users
today can easily differentiate the quality of graphics and prefer personal
computers that provide a superior visual experience. These factors have
dramatically increased demand for 3D graphics processors. Mercury Research
estimates that 3D graphics will be standard in every PC unit shipped by 2001.
Mercury Research also estimates that 126.8 million 3D graphics processors were
sold worldwide in 1999 and 275.8 million will be sold worldwide in 2004.

We designed our GPUs and graphics processors to enable PC original
equipment manufacturers ("OEMs") and add-in board manufacturers to build
award-winning products by delivering state-of-the-art interactive 3D graphics
capability to end users while maintaining affordable prices. We believe that a
PC's interactive 3D graphics capability represents one of the primary means by
which users differentiate among various systems. PC users today can easily
differentiate the quality of graphics and prefer personal computers that
provide a superior visual experience. We believe that by developing 3D
graphics solutions that provide superior performance and address the key
requirements of the PC market, we will accelerate the adoption of 3D graphics
throughout this market. The benefits and performance of the NVIDIA family of
3D graphics processors have received significant industry validation and have
enabled our customers to win over 400 industry awards, including PC Magazine's
"Editor's Choice" award, Edge Magazine's "Hardware Innovation of the Year" and
MicroDesign Research's "1999 Analyst's Choice for Best 3D Processor", all of
which were for the GeForce processor. Our products currently are designed into
products offered by virtually every leading branded PC OEM, such as the Acer
Group ("Acer"), Compaq Computer Corporation ("Compaq"), Dell Computer
Corporation ("Dell") , eMachines, Inc. ("eMachines"), Gateway, Inc.
("Gateway"), Hewlett-Packard Company ("HP"), International Business Machines
Corporation ("IBM"), Micron Technology, Inc. ("Micron"), Packard Bell NEC,
Inc. ("Packard Bell NEC"), and Sony Corporation ("Sony") as well as leading
contract electronics manufacturers ("CEMs") including Celestica Hong Kong Ltd.
("Celestica"), Intel Corporation ("Intel"), Mitac International Corporation
("Mitac"), Micro-Star International Co., Ltd. ("MSI"), SCI Systems, Inc.
("SCI") and VisionTek, Inc. ("VisionTek") and leading add-in board
manufacturers, including ASUSTeK Computer Inc. ("ASUSTeK"), Canopus
Corporation ("Canopus"), Creative Technology Ltd. ("Creative"), ELSA AG
("ELSA") and Guillemot Corporation ("Guillemot").

Our objective is to ultimately be the leading supplier of performance
graphics processors for PCs, laptops, Internet appliances, handhelds and any
future computing device with a display. Our current focus is on the PC market
and we plan to expand into other segments. Our strategy to achieve this
objective includes the following key elements:

. build award-winning, architecturally-compatible 3D graphics product
families for the PC market;

. target leading OEMs;

. sustain technology and roadmap leadership in 3D graphics; and

. increase market share.

Current Products

NVIDIA GeForce 256 GPU

We began commercial shipment of the NVIDIA GeForce 256 GPU in August 1999.
The NVIDIA GeForce 256 is designed for the PC enthusiast and performance
markets, and is our fifth-generation graphics processor.

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The world's first GPU, GeForce 256 was the first to incorporate hardware
transform and lighting engines along with four-pixel per clock rendering
pipelines in a single chip. Fabricated on a .22 micron process technology, the
23 million transistors GeForce 256 delivers a significant increase in geometry
processing power and delivers superior performance for interactive content.
The GeForce 256 supports up to 64 megabytes of single data rate ("SDR") or
double data rate ("DDR") frame buffer memory. Increased memory results in a
higher performance solution and the ability to run at very high color depths
and resolution for outstanding quality. Other key performance features include
support for a higher bandwidth connection between the processor and the
graphics processor called accelerated graphics port ("AGP") 4X with fast write
capability. This feature is now standardized on motherboard solutions from
Intel and others.

The GeForce 256 GPU also provides support for digital flat panel displays,
DVD playback and HDTV support, the latest display technology for consumers and
businesses. Additional support for extremely high resolution (and refresh
rate) monitors is also included in the GeForce 256 GPU via a 350 MHz RAMDAC.
The GeForce 256 achieves high performance through a high frequency,
QuadEngine/QuadPipe architecture.

NVIDIA Quadro Workstation GPU

We began commercial shipment of the NVIDIA Quadro workstation GPU in
September 1999. The NVIDIA Quadro is designed for the professional
workstation, digital content creation and CAD/CAM markets. The Quadro GPU
integrates our QuadEngine/QuadPipe architecture for optimized transform and
lighting functions, critical for real-time visualization.

The Quadro is capable of processing over 200 billion operations per second,
delivering up to 17 million triangles per second and a peak texture fill rate
of 540 million pixels per second. Critical for supporting traditional
computer-aided design applications, the NVIDIA Quadro provides support for
anti-aliased points and lines and two-sided lighting as well as native support
for the OpenGL 3D API. The Quadro supports up to 128 megabytes of SDR or DDR
frame buffer memory.

NVIDIA TNT2 Graphics Processor

We began commercial shipment of the NVIDIA TNT2 graphics processor in April
1999. The NVIDIA TNT2 is designed for the mainstream PC market. The TNT2
features our fourth-generation, 128-bit multi-texturing 3D architecture. The
TNT2 extends the performance and function of the original RIVA TNT graphics
processor for PC OEMs and graphics card manufacturers. Fabricated on a .22
micron process technology, the TNT2 graphics processor delivers the highest
performance in its class through high frequency clock rates for the 3D
processor and memory. The TNT2 supports 32 megabytes of frame buffer memory.

NVIDIA TNT2 M64 and Vanta Graphics Processors

NVIDIA TNT2 M64 and Vanta graphics processors are designed for the value
and low-cost consumer and commercial desktop PC markets. Based on the award-
winning NVIDIA TNT2 architecture, these processors offer low-cost, highly
integrated choices for entry-level add-in card and motherboard solutions. The
TNT2 M64 and Vanta are manufactured on a .22 micron process technology and
offer good quality and performance at an affordable price. The TNT2 M64 and
Vanta support up to 32 and 16 megabytes of frame buffer memory, respectively.

Future Products and Projects

Aladdin TNT2 Integrated Chipset

The Aladdin TNT2 is a joint development with ALi. It combines the award
winning TNT2 core with ALi's M1631 North Bridge. This chipset comes with an
ALi M1535D South Bridge and brings NVIDIA graphics performance and quality to
the fast growing value PC segment. This chipset eliminates cost in system
design without compromising graphics performance. ALi will be responsible for
the sale of this product. To our knowledge, a commercial shipment date for
this product has not yet been announced.

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Microsoft Product

On March 5, 2000, we entered into an agreement with Microsoft Corporation
("Microsoft") in which we agreed to develop and sell graphics chips and to
license certain technology to Microsoft and its licensees for use in a product
under development by Microsoft. The agreement provides that in April 2000,
Microsoft will pay us $200 million as an advance against graphics chip
purchases and for licensing our technology. Microsoft may terminate the
agreement at any time and if termination occurs prior to offset in full of the
advance payments, we would be required to return to Microsoft up to $100
million of the prepayment and to convert the remainder into preferred stock of
NVIDIA at a 30% premium to the 30-day average trading price of our common
stock. The graphics chip contemplated by the agreement is highly complex and
development and release of the Microsoft product and its commercial success
are dependent upon a number of factors, many of which we cannot control. There
can be no assurance that we will be successful in developing the graphics chip
for use by Microsoft or that the product will be developed or released, or if
released, will be commercially successful.

Sales and Marketing

Our sales strategy is a key part of our objective to become the leading
supplier of performance 3D graphics processors for PCs. Our sales team works
closely with PC OEMs, add-in board manufacturers and industry trendsetters to
define product features, performance, price and timing of new products.
Members of our sales team have a high level of technical expertise and product
and industry knowledge to support a competitive and complex design win
process. We also employ a highly skilled team of application engineers to
assist PC OEMs and add-in board manufacturers in designing, testing and
qualifying system designs that incorporate our products. We believe that the
depth and quality of our design support are key to improving PC OEMs' and add-
in board manufacturers' time-to-market, maintaining a high level of customer
satisfaction among PC OEMs and add-in board manufacturers and fostering
relationships that encourage customers to use the next generation of our
products.

In the 3D graphics market, the sales process involves influencing leading
PC OEMs' and add-in board manufacturers' graphics processor purchasing
decisions, achieving key design wins and supporting the product design into
high volume production. These design wins in turn influence the retail and
system integrator channel that is serviced by add-in board and motherboard
manufacturers. Our distribution strategy is to work with a number of leading
CEMs and add-in board manufacturers that have relationships with a broad range
of major PC OEMs and/or strong brand name recognition in the retail channel.
Currently, we sell our entire family of graphics processors directly to CEMs
and add-in board manufacturers, which then sell boards with our graphics
processor to leading OEMs, to retail outlets and to a large number of system
integrators.

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

Backlog

Our sales are primarily made pursuant to standard purchase orders that are
cancelable without significant penalties. The quantity actually purchased by
the customer as well as shipment schedules are subject to revisions to reflect
changes in the customer's requirements and manufacturing availability. The
semiconductor industry is characterized by short lead time orders and quick
delivery schedules. In light of industry practice and experience, we do not
believe that backlog as of any particular date is indicative of future
results.

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Manufacturing

We have a "fabless" manufacturing strategy whereby we employ world class
suppliers for all phases of the manufacturing process, including fabrication,
assembly and testing. This strategy leverages the expertise of industry-
leading, ISO-certified suppliers in such areas as fabrication, assembly,
quality control and assurance, reliability and testing. In addition, we are
able to avoid the significant costs and risks associated with owning and
operating manufacturing operations. These suppliers are also responsible for
procurement of raw materials used in the production of our products. As a
result, we can focus resources on product design, additional quality
assurance, marketing and customer support.

Our graphics processors are fabricated by Taiwan Semiconductor
Manufacturing Company ("TSMC") and WaferTech, LLC (a joint venture controlled
by TSMC) and assembled and tested by Amkor Technology Inc. ("Amkor"),
Siliconware Precision Industries Company Ltd. ("Siliconware"), ChipPAC
Incorporated ("ChipPAC"), and Advanced Semiconductor Engineering, Inc.
("ASE"). We receive semiconductor products from our subcontractors, perform
incoming quality assurance, and then ship them to CEMs, motherboard and add-in
board manufacturer customers, from our Santa Clara location in the U.S. and a
third-party warehouse in Singapore. These manufacturers assemble and test the
boards based on our design kit and test specifications, then ship the products
to the retail, system integrator or OEM markets as add-in board solutions. Our
hardware and software development teams work closely with certification
agencies, Microsoft Windows Hardware Quality Labs, and our OEM customers to
ensure both our boards and software drivers are certified for inclusion in the
OEMs' products.

Research and Development

We believe that the continued introduction of new and enhanced products
designed to deliver leading 3D graphics performance and features will be
essential to our future success. Our research and development strategy is to
focus on concurrently developing multiple generations of graphics processors
using independent design teams. Our research and development efforts are
performed within specialized groups consisting of software engineering,
hardware engineering, VLSI design engineering, process engineering, and
architecture and algorithms. These groups act as a pipeline designed to allow
the efficient simultaneous development of multiple generations of products.

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

We have substantially increased our engineering and technical resources as
compared to prior years and have 214 full-time employees engaged in research
and development as of January 30, 2000, compared to 117 employees as of
January 31, 1999. Research and development expenses totaled $7.1 million in
1997, $25.1 million in the year ended January 31, 1999 and $47.4 million in
the year ended January 30, 2000.

Competition

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boards or motherboards. We expect competition to increase both from existing
competitors and new market entrants with products that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products.

Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:

. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3, Incorporated ("S3");

. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, such as
Intel, Silicon Integrated Systems, and Via Technologies;

. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., SGI, Evans and Sutherland Computer Corporation and Intergraph
Corporation; and

. companies with strength in the video game market, such as 3Dfx
Interactive, Inc. ("3Dfx") and VideoLogic Group plc.

Patents and Proprietary Rights

We rely primarily on a combination of patent, trademarks, copyrights, trade
secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued patents,
have 4 United States patent applications allowed, have 25 United States patent
applications pending and have 15 United States patent applications being
drafted for filing. Our issued patents have expiration dates from April 14,
2015 to March 30, 2018. Our issued patents and pending patent applications
relate to technology developed by us in connection with the development of our
3D graphics processors. We have no foreign patents or patent applications. We
seek patents that have broad application in the semiconductor industry and
that we believe will provide a competitive advantage. However, our pending
patent applications or any future applications may not be approved, and any
issued patents may not provide us with competitive advantages or may be
challenged by third parties. We have licensed technology from third parties
for incorporation in our graphics processors and expect to continue to enter
into agreements like this for future products. These licenses may result in
royalty payments to third parties, the cross-license of technology by us or
payment of other consideration. If these arrangements are not concluded on
commercially reasonable terms, our business could suffer. We attempt to
protect our trade secrets and other proprietary information through
confidentiality agreements with manufacturers and other partners, proprietary
information agreements with employees and consultants and other security
measures. We also rely on trademarks and trade secret laws to protect our
intellectual property.

Employees

As of January 30, 2000 we had 392 employees, 214 of whom were engaged in
engineering and 178 of whom were engaged in sales, marketing, operations and
administrative positions. None of our employees is covered by collective
bargaining agreements, and we believe our relationship with our employees is
good.

ITEM 2. PROPERTIES

We lease approximately 117,000 square feet for our headquarters in Santa
Clara, California, under leases expiring in 2002. We also lease a design
center consisting of approximately 2,900 square feet in one building in
Durham, North Carolina, pursuant to a lease that expires in March 2002. In
addition, we lease sales and administrative offices in Texas, Washington,
Arizona, Singapore and the United Kingdom to support our customers. We believe
that, while we currently have sufficient facilities to conduct our operations
for the next twelve months, we will continue to lease facilities throughout
the world as our business requires. In February 2000, we signed a letter of
intent to enter into an agreement with a developer to lease a larger facility
for our headquarters in fiscal 2002. There is no assurance that adequate space
would be available on favorable terms to meet our needs.

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ITEM 3. LEGAL PROCEEDINGS

On April 9, 1998, we were notified that SGI had filed a patent infringement
lawsuit against us in the United States District Court for the District of
Delaware. The suit alleged that the sale and use of our RIVA family of 3D
graphics processors infringed a United States patent held by SGI. The suit
sought unspecified damages (including treble damages), an order permanently
enjoining further alleged infringement and attorneys' fees. In July 1999, the
matter settled during trial and it has been dismissed. As part of the
settlement, we entered into agreements with SGI to create a broad strategic
alliance to collaborate on future graphics technologies. As part of the
agreements, SGI dismissed its patent infringement suit against us and we
licensed SGI's 3D graphics patent portfolio. Additionally, SGI agreed to
incorporate our graphics technology into new desktop graphics systems and
transfer engineering personnel to us during the third quarter of fiscal 2000.
We agreed to pay SGI a total of $3.0 million in nine quarterly installments
with the final payment due in May 2001.

On May 11, 1998, S3 filed a patent infringement suit against us in the
United States District Court for the Northern District of California. The suit
alleged that our sale of RIVA 128, 128ZX and TNT graphics processors infringed
three United States patents owned by S3. The suit sought unspecified damages
(including treble damages), an order permanently enjoining further alleged
infringement and attorneys' fees. S3 and NVIDIA agreed to settle this case on
February 1, 2000, on the basis of mutual patent cross-licenses and on February
7, 2000, the District Court entered a final judgment in our favor, dismissing
all of S3's claims.

On September 21, 1998, 3Dfx filed a patent infringement lawsuit against us
in the United States District Court for the Northern District of California
alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added a second
patent to the suit and on May 24, 1999, 3Dfx added a third patent to the suit.
The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA TNT2 Ultra
products infringe the patents in suit and seeks unspecified compensatory and
trebled damages and attorney's fees. Our current generation of products is not
identified as infringing any of the patents in suit. We have filed an answer
and counter-claims asserting that the patents in suit are invalid and not
infringed. These assertions are supported by our investigations to date and an
opinion from our patent counsel in this suit. We anticipate that the trial
date will be set by the District Court after it rules on claims construction
issues. We have and will continue to defend vigorously this suit. In the event
of an adverse result in the 3Dfx suit, we might be required to do one or more
of the following: (i) pay substantial damages (including treble damages); (ii)
permanently cease the manufacture and sale of any of the infringing products;
(iii) expend significant resources to develop non-infringing products; or (iv)
obtain a license from 3Dfx for infringing products.

In addition to the above litigation, from time to time we are subject to
claims in the ordinary course of business, none of which in our view would
have a material adverse impact on our business or financial position if
resolved unfavorably.

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

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the Nasdaq National Market under the symbol
NVDA. Public trading of our stock began on January 22, 1999. Prior to that,
there was no public market for our stock. We have never paid cash dividends on
our capital stock and do not anticipate paying cash dividends for the
foreseeable future. As of January 30, 2000, we had approximately 351
stockholders of record, not including those shares held in street or nominee
name.

The following table sets forth for the periods indicated the high and low
sales price for the common stock as quoted on the Nasdaq National Market:

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High Low
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<S> <C> <C>
Year ended January 31, 1999
Fourth Quarter (beginning January 22, 1999)........................ 23.44 18.63
Year ended January 30, 2000
First Quarter...................................................... 26.25 16.00
Second Quarter..................................................... 23.13 16.38
Third Quarter...................................................... 28.38 16.75
Fourth Quarter..................................................... 48.25 21.75
Year ended January 28, 2001
First Quarter (through March 9, 2000).............................. 108.00 35.00
</TABLE>

Use of Proceeds from Sales of Registered Securities

We commenced our initial public offering on January 21, 1999 pursuant to a
Registration Statement on Form S-1 (File No. 333-47495). The managing
underwriters of the public offering were Morgan Stanley & Co., Hambrecht &
Quist and Prudential Securities (the Underwriters). In the offering, we sold
an aggregate of 3.5 million shares of our common stock for an initial price of
$12.00 per share. On February 2, 1999, we sold an additional 525,000 shares of
our common stock at a price of $12.00 per share pursuant to the exercise of
the Underwriters' over-allotment option. The aggregate proceeds from the
offering were $48.3 million. We paid expenses of approximately $5.0 million,
of which approximately $3.4 million represented underwriting discounts and
commissions and approximately $1.6 million represented expenses related to the
offering. Net proceeds from the offering were $43.3 million. Of the net
proceeds, as of January 30, 2000, $5.0 million had been used to repay in full
amounts outstanding under a bank line of credit. The use of the proceeds from
the offering does not represent a material change in the use of proceeds
described in our Registration Statement. As of January 30, 2000, the remainder
of the net proceeds was invested in money market funds or held as cash.

8
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
our financial statements and the notes thereto, and with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
statement of operations data for the years ended December 31, 1997, the one
month ended January 31, 1998, the year ended January 31, 1999 and the year
ended January 30, 2000 and the balance sheet data as of December 31, 1997,
January 31, 1998 and 1999 and January 30, 2000 have been derived from and
should be read in conjunction with our audited financial statements and the
notes included thereto. The statement of operations data for the years ended
December 31, 1995 and 1996 are derived from audited financial statements and
the notes thereto not included. The balance sheet data as of December 31, 1995
and 1996 are derived from audited financial statements and the notes thereto
not included.

<TABLE>
<CAPTION>
Year Ended December 31, Month Ended Year Ended Year Ended
------------------------- January 31, January 31, January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Product................ $ 1,103 $ 3,710 $27,280 $11,420 $151,413 $374,505
Royalty................ 79 202 1,791 1,911 6,824 --
------- ------- ------- ------- -------- --------
Total revenue......... 1,182 3,912 29,071 13,331 158,237 374,505
Cost of revenue......... 1,549 3,038 21,244 10,071 109,746 235,575
------- ------- ------- ------- -------- --------
Gross profit (loss)..... (367) 874 7,827 3,260 48,491 138,930
------- ------- ------- ------- -------- --------
Operating expenses:
Research and
development........... 2,426 1,218 7,103 1,121 25,073 47,439
Sales, general and
administrative........ 3,677 2,649 4,183 640 18,902 37,079
------- ------- ------- ------- -------- --------
Total operating
expenses............. 6,103 3,867 11,286 1,761 43,975 84,518
------- ------- ------- ------- -------- --------
Operating income
(loss)............... (6,470) (2,993) (3,459) 1,499 4,516 54,412
Interest and other
income (expense), net.. 93 (84) (130) (18) (29) 1,754
------- ------- ------- ------- -------- --------
Income (loss) before
income tax expense..... (6,377) (3,077) (3,589) 1,481 4,487 56,166
Income tax expense...... -- -- -- 134 357 18,068
------- ------- ------- ------- -------- --------
Net income (loss)..... $(6,377) $(3,077) $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======= ======= ======== ========
Basic net income (loss)
per share.............. $ (.56) $ (.27) $ (.28) $ .10 $ .28 $ 1.28
======= ======= ======= ======= ======== ========
Diluted net income
(loss) per share....... $ (.56) $ (.27) $ (.28) $ .05 $ .15 $ 1.06
======= ======= ======= ======= ======== ========
Shares used in basic per
share
computation............ 11,365 11,383 12,677 14,141 14,565 29,872
Shares used in diluted
per share
computation (1)........ 11,365 11,383 12,677 26,100 27,393 36,098
<CAPTION>
December 31, January 31,
------------------------- ----------------------- January 30,
1995 1996 1997 1998 1999 2000
------- ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 3,872 $ 3,133 $ 6,551 $ 7,984 $ 50,257 $ 61,560
Total assets............ 6,793 5,525 25,039 30,172 113,332 202,250
Capital lease
obligations, less
current portion........ 1,137 617 1,891 1,756 1,995 962
Total stockholders'
equity................. 4,013 1,037 6,897 8,610 64,209 124,563
</TABLE>
- --------
(1) See Note 1 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share computations.

9
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
our financial statements and notes thereto. Our fiscal years ended on December
31 from 1993 to 1997. Effective January 31, 1998, we changed our fiscal year-
end financial reporting period to a 52- or 53- week year ending on the last
Sunday in January. We elected not to restate the previous reporting periods
ending December 31. As a result, the first and fourth quarters of fiscal 1999
(year ended January 31, 1999) are 12- and 14-week periods, respectively, with
the remaining quarters being 13-week periods. All four quarters of fiscal 2000
(year ended January 30, 2000) are 13-week periods.

Overview

We design, develop and market a "top-to-bottom" family of award-winning 3D
graphics processors, GPUs and related software that set the standard for
performance, quality and features for every type of desktop PC user, from
professional workstations to low-cost PCs. In the first quarter of fiscal
2000, we began commercial shipment of the RIVA TNT2 family of graphics
processors. During the third quarter, we launched the NVIDIA GeForce 256 and
NVIDIA Quadro, the industry's first GPUs, which are the first products to
incorporate transform and lighting into a single chip. The GeForce 256 and
Quadro GPUs are graphics processors capable of building a new generation of e-
commerce, e-business, education and entertainment applications. We expect that
a significant portion of our revenue for the foreseeable future will be
derived from the sale of our 3D graphics processors in the PC market. We
recognize product sales revenue upon shipment, net of appropriate allowances.
Our policy on sales to distributors is to defer recognition of sales and
related gross profit until the distributors resell the product. Royalty
revenue is generally recognized upon shipment of product to the licensee's
customers. Currently, all of our product sales and our arrangements with
third-party manufacturers provide for pricing and payment in U.S. dollars. We
have not engaged in any foreign currency hedging activities, although we may
do so in the future. Since we have no other product line, our business would
suffer if for any reason our graphics processors do not achieve widespread
acceptance in the PC market.

A majority of our sales have been to a limited number of customers and
sales are highly concentrated. We sell graphics processors to add-in board and
motherboard manufacturers, primarily ASUSTeK, Canopus, Creative, ELSA and
Guillemot and CEMs, including Celestica, Intel, Mitac, MSI, SCI and VisionTek.
These manufacturers incorporate our processors in the boards they sell to PC
OEMs, retail outlets and systems integrators. The ASPs for our products, as
well as our customers' products, vary by distribution channel. Our four
largest customers accounted for approximately 57% of revenues for fiscal 2000.
Sales to Creative accounted for 17%, sales to Edom Technology Co., Ltd., an
Asian distributor, accounted for 15%, sales to Diamond Multimedia Systems,
Inc. ("Diamond") accounted for 15%, and sales to ASUSTeK accounted for 10% of
our total revenue for fiscal 2000. Sales to STB Systems, Inc. ("STB")
accounted for 35%, sales to Diamond accounted for 27%, sales to Creative
accounted for 13% and sales to Intel accounted for 12% of our total revenue
for fiscal 1999. The number of potential customers for our products is
limited, and we expect sales to be concentrated to a few major customers for
the foreseeable future. In October 1999, S3 Incorporated, a supplier of
graphics processors and a competitor, completed the acquisition of Diamond.
Our sales to Diamond declined significantly to only 3% of total revenue in the
fourth quarter of fiscal 2000 from 24% of total revenue in the second quarter
of fiscal 2000 and Diamond is no longer one of our significant customers. 3Dfx
, a 3D graphics company and a competitor, completed the acquisition of STB in
May 1999. Sales to STB declined significantly from prior levels following the
merger and our relationship terminated in the fourth quarter of fiscal 2000.
Currently, the loss of business from Diamond and STB did not have a material
impact on our revenues and profitability due to our ability to expand product
sales to other customers.

As markets for our 3D graphics processors develop and competition
increases, we anticipate that product life cycles in the high end will remain
short and ASPs will continue to decline. In particular, ASPs and gross margins
are expected to decline as each product matures. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year for the high end, typically

10
<PAGE>

based on spring and fall design cycles. Accordingly, our existing products
must have competitive performance levels in order to be included in new system
configurations, or we must timely introduce new products with such performance
characteristics at costs and in sufficient volumes to maintain overall average
selling prices and gross margins. Failure to achieve necessary costs and
volume shipments with respect to future products or product enhancements could
result in rapidly declining ASPs, reduced margins, reduced demand for products
or loss of market share.

We currently utilize TSMC and WaferTech to produce semiconductor wafers,
and utilize independent contractors to perform assembly, test and packaging.
We depend on these suppliers to allocate to us a portion of their
manufacturing capacity sufficient to meet our needs, to produce products of
acceptable quality and at acceptable manufacturing yields, and to deliver
those products to us on a timely basis. These manufacturers may not always be
able to meet our near-term or long-term manufacturing requirements. Yields or
product performance could suffer due to difficulties associated with adapting
our technology and product design to the proprietary process technology and
design rules of a new manufacturer. The level of finished goods inventory we
maintain may fluctuate and therefore a manufacturing disruption experienced by
these manufacturers would impact the production of our products, which could
harm our business. In addition, as the complexity of our products and the
accompanying manufacturing process increases, there is an increasing risk that
we will experience problems with the performance of new products and that
there will be yield problems or other delays in the development or
introduction of these products.

Substantially all of our sales are made on the basis of purchase orders
rather than long-term agreements. As a result, we may commit resources to the
production of products without having received advance purchase commitments
from customers. Any inability to sell products to which we have devoted
significant resources could harm our business. In addition, cancellation or
deferral of product orders could result in our holding excess inventory, which
could adversely affect our profit margins and restrict our ability to fund
operations. Product returns or delays or difficulties in collecting accounts
receivable could result in significant charges against income, which could
harm our business.

Results of Operations

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

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product.................... 93.8% 85.7% 95.7% 100.0%
Royalty.................... 6.2 14.3 4.3 --
----- ----- ----- -----
Total revenue............. 100.0 100.0 100.0 100.0
Cost of revenue............. 73.1 75.5 69.4 62.9
----- ----- ----- -----
Gross profit................ 26.9 24.5 30.6 37.1
Operating expenses:
Research and development... 24.4 8.4 15.8 12.7
Sales, general and
administrative............ 14.4 4.8 12.0 9.9
----- ----- ----- -----
Total operating expenses.. 38.8 13.2 27.8 22.6
----- ----- ----- -----
Operating income (loss)... (11.9) 11.3 2.8 14.5
Interest and other income
(expense), net............. (0.4) (0.1) -- 0.5
----- ----- ----- -----
Income (loss) before income
tax expense................ (12.3) 11.2 2.8 15.0
Income tax expense.......... -- 1.0 0.2 4.8
----- ----- ----- -----
Net income (loss)......... (12.3)% 10.2% 2.6% 10.2%
===== ===== ===== =====
</TABLE>

11
<PAGE>

Calendar Year Ended December 31, 1997 and Fiscal Years Ended January 31, 1999
and January 30, 2000

Revenue

Product Revenue. Product revenue was $27.3 million in 1997, $151.4 million
in fiscal 1999 and $374.5 million in fiscal 2000. Product revenues increased
by 455% from 1997 to fiscal 1999 and by 147% from fiscal 1999 to 2000. The
growth in both periods was primarily the result of increased sales of our
graphics processors and the strong demand for new products at higher unit
ASPs. Revenue derived from the bundling of DDR memories with a portion of our
new GeForce 256 GPU totaled $22.1 million in the second half of fiscal 2000.
Revenue from sales outside of the U.S. accounted for 72% and 24% of total
revenue for fiscal 2000 and 1999, respectively. Our international revenue
increased 623% to $270.9 million in fiscal 2000 from $37.4 million a year ago.
This increase in revenue from sales outside of the U.S. is primarily
attributable to (i) the geographic limitation of the worldwide license
agreement with ST Microelectronics, Inc. ("ST") with respect to sales of the
RIVA 128 and RIVA 128ZX graphics processors, which agreement did not restrict
the sales of the RIVA TNT, RIVA TNT2 and GeForce families of processors in
fiscal 2000, (ii) increased demand for our products in the Asia Pacific and
European regions, and (iii) expanded use of CEMs and add-in board
manufacturers located outside the US. Revenues by geographical region are
allocated to individual countries based on the location to which the products
are initially shipped. The portion of revenue derived from foreign CEMs and
add-in board manufacturers that are attributable to end customers in the U.S
is not separately disclosed. Substantially all of our revenue from product
sales in 1997 was derived from sales in the U.S. Although we achieved
substantial growth in product revenue from fiscal 1999 to 2000, we do not
expect to sustain this rate of growth in future periods. In addition, we
expect that the ASPs of our products will decline over the lives of the
products. The declines in ASPs of 3D graphics processors generally may also
accelerate as the market develops and competition increases.

Royalty Revenue. ST has a worldwide license to sell the RIVA 128 and RIVA
128ZX graphics processors. Royalty revenue from sales by ST of the RIVA 128
graphics processor and a derivative of the RIVA 128ZX graphics processor
decreased to zero in fiscal 2000 due primarily to reduced sales of such
products and disputes with ST regarding payment. Royalty revenue from sales by
ST of the RIVA128 graphics processor represented approximately 6% of our total
revenue in 1997, and royalty revenue from sales by ST of the RIVA128 graphics
processor and a derivative of the RIVA128ZX graphics processor represented 4%
of our total revenue in fiscal 1999. We do not expect to record or receive
royalty revenue from ST in the future.

Gross Profit

Gross profit consists of total revenue net of allowances less cost of
revenue. Cost of revenue consists primarily of the costs of semiconductors
purchased from contract manufacturers (including assembly, test and
packaging), manufacturing support costs (labor and overhead associated with
such purchases), inventory provisions and shipping costs. Our gross profit
margin in any period varies depending on the mix of types of graphics
processors sold. Gross profit increased 187% from fiscal 1999 to 2000,
primarily due to significant increases in unit shipments and the favorable
impact of the higher margin RIVA TNT2 and GeForce graphics processors,
partially offset by declining profit margins in our older product families.
From 1997 to fiscal 1999, gross profit grew by 520% primarily due to the sales
of the higher margin RIVA TNT graphics processor and reductions to costs of
the RIVA128 graphics processor. Excluding royalty revenue, gross margin on
product revenue was 22% in 1997, 28% in fiscal 1999 and 37% in fiscal 2000. In
the second half of fiscal 2000, the inclusion of the DDR memories has reduced
the gross margin percentage but has no incremental impact on absolute margin
dollars as they are sold at cost. We expect to continue bundling DDR memories
with some of our high-performance products for at least the next six months.
Although we achieved substantial growth in gross profit and gross profit
margin from fiscal 1999 to 2000, we do not expect to sustain these rates of
growth in future periods.

Operating Expenses

Research and Development. Research and development expenses consist of
salaries and benefits, cost of development tools and software, costs of
prototypes of new products and consultant costs. Research and

12
<PAGE>

development expenses increased by 89% from fiscal 1999 to 2000 and by 253%
from 1997 to 1999, primarily due to additional personnel and related
engineering costs to support our next generation products, such as
depreciation charges incurred on capital expenditures and software license and
maintenance fees. We anticipate that we will continue to devote substantial
resources to research and development, and we expect these expenses to
increase in absolute dollars in the foreseeable future. Research and
development expenses are likely to fluctuate from time to time to the extent
we make periodic incremental investments in research and development and our
level of revenue fluctuates.

As part of a strategic collaboration agreement with ST, we received
contract funding in support of research and development and marketing efforts
for the RIVA 128 and RIVA 128ZX graphics processors. Accordingly, we recorded
approximately $2.3 million and $2.3 million in 1997 and fiscal 1999,
respectively, as a reduction primarily to research and development, and to a
lesser extent, sales, general and administrative expenses. We were obligated
to provide continued development and support to ST through the end of calendar
1998.

Sales, General and Administrative. Sales, general and administrative
expenses consist primarily of salaries, commissions and bonuses earned by
sales, marketing and administrative personnel, promotional and advertising
expenses, travel and entertainment expenses and legal and accounting expenses.
Sales, general and administrative expenses increased 96% from fiscal 1999 to
2000, primarily due to additional personnel and commissions and bonuses on
sales of the RIVA TNT2 and GeForce 256 graphics processors, legal expenses
associated with patent litigation and costs of being a public company. From
1997 to fiscal 1999, sales, general and administrative expenses grew 352%,
primarily due to increased promotional expenses, additional personnel and
commissions and bonuses on sales of the RIVA128 and RIVA TNT graphics
processors. We expect sales and marketing expenses to continue to increase in
absolute dollars as we expand sales and marketing efforts and increase
promotional activities. While we expect sales, general and administrative
expenses to continue to increase in absolute dollars as we expand our
operations, we do not expect significant changes in these expenses as a
percentage of revenue in future periods.

Interest and Other Income (Expense), Net

Interest income primarily consists of interest earned on cash and cash
equivalents. Interest expense primarily consists of interest incurred as a
result of capital lease obligations, and in fiscal 1999, in part, to interest
on borrowings under our line of credit agreement. Interest expense remained
unchanged and interest and other income increased $1.8 million from fiscal
1999 to 2000 due to higher average cash balances as a result of cash proceeds
received from the initial public offering of our common stock in January 1999.
For fiscal 1999 compared to 1997, interest expense was essentially unchanged,
and interest and other income increased slightly by $0.1 million.

Income Taxes

We recorded no income taxes in 1997. The income taxes for the one month
ended January 31, 1998, consisted entirely of current federal tax expense.
Income taxes for the year ended January 31, 1999 of $357,000 consisted of
$583,000 current federal tax expense and $226,000 deferred federal tax
benefit. We had an effective tax rate of 32% in fiscal 2000. We anticipate our
income tax rates for fiscal 2001 to be relatively constant, depending on the
income tax attributable to foreign operations and availability of research and
experimentation credits. See Note 5 of Notes to Financial Statements.

Stock-Based Compensation

With respect to stock options granted to employees, we recorded deferred
compensation of $4.3 million in 1997 and $361,000 in the one month ended
January 31, 1998. These amounts are being amortized over the vesting period of
the individual options, generally four years. We amortized approximately
$961,000 in 1997, $2.5 million in fiscal 1999 and $662,000 in fiscal 2000. We
anticipate total amortization of approximately $113,000 in fiscal 2001. See
Note 3 of Notes to Financial Statements.

13
<PAGE>

Liquidity and Capital Resources

As of January 30, 2000, we had $61.6 million in cash and cash equivalents,
an increase of $11.3 million over the same balance at the end of fiscal 1999.
We historically have held our cash balances in cash equivalents such as money
market funds or as cash. We place the money market funds with high-quality
financial institutions and limit the amount of exposure with any one financial
institution. We had $124.6 million of noncancelable manufacturing commitments
outstanding at January 30, 2000. See Note 4 of Notes to Financial Statements.

In July 1999, we entered into an amended loan and security agreement with a
bank, which included a $10.0 million revolving loan agreement with a borrowing
base equal to 80% of eligible accounts. Borrowings under the line of credit
bear interest at the prime rate and are due in July 2000. Covenants governing
the loan agreement require the maintenance of certain financial ratios. As of
January 30, 2000, we had no outstanding borrowings against the line of credit.

Operating activities generated cash of $15.9 million during fiscal 2000 and
used cash of $1.9 million and $1.2 million, during fiscal 1999 and 1997,
respectively. The increase from fiscal 1999 to 2000 was due to a substantial
increase in net income, offset by changes in operating assets and liabilities.
Our accounts receivable are highly concentrated. At January 30, 2000, the four
largest customers accounted for approximately 37% of accounts receivable.
Although we have not experienced any significant bad debt write-offs to date,
we may be required to write off bad debt in the future, which could harm our
business. In June 1999, we repurchased 428,572 shares of our common stock from
a major customer in settlement for a portion of then outstanding accounts
receivable in the amount of $7.5 million.

To date, our investing activities have consisted primarily of purchases of
property and equipment. Our capital expenditures, including capital leases,
increased from $5.8 million in 1997 to $10.1 million in fiscal 1999, and to
$22.9 million in fiscal 2000. The increase from fiscal 1999 to 2000 was
primarily attributable to a $10.0 million obligation pursuant to a long-term
licensing agreement with a supplier. For fiscal 1999 compared to 1997, the
increase was primarily due to additional capital leases and purchases of
computer equipment, including workstations and servers to support increased
research and development activities. We expect capital expenditures to
increase as we further expand research and development initiatives and as our
employee base grows. The timing and amount of future capital expenditures will
depend primarily on our future growth. We expect to spend approximately $30.0
million for capital expenditures in fiscal 2001, primarily for software
licenses, emulation equipment, purchase of computer and engineering
workstations, and enterprise resource planning system implementation.

Financing activities provided cash of $7.0 million during fiscal 2000,
compared to $52.0 million and $7.3 million during fiscal 1999 and 1997,
respectively, due primarily to proceeds of $37.5 million from the initial
public offering of 3.5 million shares of common stock in January 1999 and
$11.0 million in subordinated non-interest bearing notes issued in July and
August 1998. In March 1999, we used $5.0 million to repay in full amounts
outstanding under a bank line of credit. On March 5, 2000, we entered into an
agreement with Microsoft in which we agreed to develop and sell graphics chips
and to license certain technology to Microsoft and its licensees for use in a
product under development by Microsoft. The agreement provides that in April
2000, Microsoft will pay us $200 million as an advance against graphics chip
purchases and for licensing our technology. Microsoft may terminate the
agreement at any time and if termination occurs prior to offset in full of the
advance payments, we would be required to return to Microsoft up to $100
million of the prepayment and to convert the remainder into preferred stock of
NVIDIA at a 30% premium to the 30-day average trading price of our common
stock.

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

14
<PAGE>

Year 2000 Compliance

The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have date-sensitive software like this may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.

Through the first two months of the year 2000, our operations are fully
functioning and have not experienced any significant issues associated with
the Year 2000 problem. At our offices worldwide, we have not experienced any
significant Year 2000-related issue that would affect our ability to ship,
sell or service our products and our customers have not reported any
consequential Year 2000 incidents. While we are encouraged by the success of
our Year 2000 efforts and that of our customers and partners, we will continue
to offer Year 2000 support to customers and monitor our own operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from the investments
without significantly increasing risk. To minimize potential loss arising from
adverse changes in interest rates, we maintain a portfolio of cash and cash
equivalents primarily in highly rated domestic money market funds. In general,
money market funds are not subject to market risk because the interest paid on
such funds fluctuates with the prevailing interest rate. See Note 1 of Notes
to Financial Statements.

Exchange Rate Risk

We consider our exposure to foreign exchange rate fluctuations to be
minimal. Currently, all of our product sales and arrangements with third-party
manufacturers provide for pricing and payment in U.S. dollars, and, therefore,
are not subject to exchange rate fluctuations. To date, we have not engaged in
any currency hedging activities, although we may do so in the future.
Fluctuations in currency exchange rates could harm our business in the future.

Certain Business Risks

In addition to the risks discussed in "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," our
business is subject to the risks set forth below.

Our operating results are unpredictable and may fluctuate.

Many of our revenue components fluctuate and are difficult to predict, and
our operating expenses are largely independent of revenue in any particular
period. It is therefore difficult for us to accurately forecast revenue and
profits or losses. We believe that our quarterly and annual results of
operations will be affected by a variety of factors that could adversely
affect our revenue, gross profit and results of operations.

Factors that have affected our results of operations in the past, and could
affect our results of operations in the future, include the following:

. demand and market acceptance for our products and/or our customers'
products;

. the successful development and volume production of next-generation
products;

. new product announcements or product introductions by our competitors;

. our ability to introduce new products in accordance with OEM design
requirements and design cycles;

15
<PAGE>

. changes in the timing of product orders due to unexpected delays in the
introduction of our customers' products;

. fluctuations in the availability of manufacturing capacity or
manufacturing yields;

. competitive pressures resulting in lower than expected average selling
prices;

. rates of return in excess of those forecasted or expected;

. the rescheduling or cancellation of customer orders;

. the loss of a key customer or the termination of a strategic
relationship;

. seasonal fluctuations associated with the PC market;

. substantial disruption in our suppliers' operations, either as a result
of a natural disaster, equipment failure or other cause;

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

. our ability to reduce the manufacturing costs of our products;

. legal and other costs related to intellectual property matters;

. unexpected inventory write-downs; and

. introductions of enabling technologies to keep pace with faster
generations of processors and controllers.

Any one or more of the factors discussed above could prevent us from
achieving our expected future revenue or net income.

Because most operating expenses are relatively fixed in the short term, we
may be unable to adjust spending sufficiently in a timely manner to compensate
for any unexpected sales shortfall. We may be required to reduce prices in
response to competition or to pursue new market opportunities. If new
competitors, technological advances by existing competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could suffer. Accordingly, we believe that period-to-period
comparisons of our results of operations should not be relied upon as an
indication of future performance. In addition, the results of any quarterly
period are not indicative of results to be expected for a full fiscal year.

Our 3D graphics solution may not continue to be accepted by the PC market.

Our success will depend in part upon continued broad adoption of our 3D
graphics processors for high performance 3D graphics in PC applications. The
market for 3D graphics processors has been characterized by unpredictable and
sometimes rapid shifts in the popularity of products, often caused by the
publication of competitive industry benchmark results, changes in dynamic
random memory devices pricing and other changes in the total system cost of
add-in boards, as well as by severe price competition and by frequent new
technology and product introductions. Only a small number of products have
achieved broad market acceptance and such market acceptance, if achieved, is
difficult to sustain due to intense competition. Since we have no other
product line, our business would suffer if for any reason our current or
future 3D graphics processors do not continue to achieve widespread acceptance
in the PC market. If we are unable to complete the timely development of or
successfully and cost-effectively manufacture and deliver products that meet
the requirements of the PC market, our business would be harmed.

Our integrated graphics product may not be accepted by the PC market.

We expect that integrated graphics chipset products will become an
increasing part of the lower cost segment of the PC graphics market. We have
only recently introduced a 3D graphics processor targeted at this segment. If
this product is not competitive in this segment and the integrated chipset
segment continues to account for an increasing percentage of the units sold in
the PC market, our business may suffer.

16
<PAGE>

We need to develop new products and to manage product transitions in order
to succeed.

Our business will depend to a significant extent on our ability to
successfully develop new products for the 3D graphics market. Our add-in board
manufacturers and major OEM customers typically introduce new system
configurations as often as twice per year, typically based on spring and fall
design cycles. Accordingly, our existing products must have competitive
performance levels or we must timely introduce new products with such
performance characteristics in order to be included in new system
configurations. This requires that we do the following:

. anticipate the features and functionality that consumers will demand;

. incorporate those features and functionality into products that meet the
exacting design requirements of PC OEMs and add-in board manufacturers
or CEMs;

. price our products competitively; and

. introduce the products to the market within the limited window for PC
OEM and add-in board manufacturer.

As a result, we believe that significant expenditures for research and
development will continue to be required in the future. The success of new
product introductions will depend on several factors, including the following:

. proper new product definition;

. timely completion and introduction of new product designs;

. the ability of TSMC, our primary manufacturer, WaferTech, and any
additional third-party manufacturers to effectively manufacture our new
products;

. the quality of any new products;

. differentiation of new products from those of our competitors; and

. market acceptance of our and our customers' products.

Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes has in the past resulted in initial yield problems. New
products that we introduce may not incorporate the features and functionality
demanded by PC OEMs, add-in board manufacturers and consumers of 3D graphics.
In addition, we may not successfully develop or introduce new products in
sufficient volumes within the appropriate time to meet both the PC OEMs'
design cycles and market demand. We have in the past experienced delays in the
development of some new products. Our failure to successfully develop,
introduce or achieve market acceptance for new 3D graphics products would harm
our business.

Our failure to identify new product opportunities or develop new products
may result in production delays.

As markets for our 3D graphics processors develop and competition
increases, we anticipate that product life cycles at the high end will remain
short and ASPs will continue to decline. In particular, we expect ASPs and
gross margins for our 3D graphics processors to decline as each product
matures and as unit volume increases. As a result, we will need to introduce
new products and enhancements to existing products to maintain overall ASPs
and gross margins. In order for our 3D graphics processors to achieve high
volumes, leading PC OEMs and add-in board manufacturers must select our 3D
graphics processor for design into their products, and then successfully
complete the designs of their products and sell them. We may be unable to
successfully identify new product opportunities or to develop and bring to
market in a timely fashion any new products. In addition, we cannot guarantee
that any new products we develop will be selected for design into PC OEMs' and
add-in board manufacturers' products, that any new designs will be
successfully completed or that any new products will be sold. As the
complexity of our products and the manufacturing process for products
increases, there is an increasing risk that we will experience problems with
the performance of products and that there will be delays

17
<PAGE>

in the development, introduction or volume shipment of our products. We may
experience difficulties related to the production of current or future
products or other factors may delay the introduction or volume sale of new
products we developed. In addition, we may be unable to successfully manage
the production transition risks with respect to future products. Failure to
achieve any of the foregoing with respect to future products or product
enhancements could result in rapidly declining ASPs, reduced margins, and
reduced demand for products or loss of market share. In addition, technologies
developed by others may render our 3D graphics products non-competitive or
obsolete or result in our holding excess inventory, either of which would harm
our business.

We rely on third-party vendors to supply us tools for the development of
our new products and we may be unable to obtain the tools necessary to develop
these products.

In the design and development of new products and product enhancements, we
rely on third-party software development tools. While we currently are not
dependent on any one vendor for the supply of these tools, some or all of
these tools may not be readily available in the future. For example, we have
experienced delays in the introduction of products in the past as a result of
the inability of then available software development tools to fully simulate
the complex features and functionalities of our products. The design
requirements necessary to meet consumer demands for more features and greater
functionality from 3D graphics products in the future may exceed the
capabilities of the software development tools available to us. If the
software development tools we use become unavailable or fail to produce
designs that meet consumer demands, our business could suffer.

Our industry is characterized by vigorous protection and pursuit of
intellectual property rights or positions that could result in substantial
costs to us.

The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights or positions, which has resulted in
protracted and expensive litigation. The 3D graphics market in particular has
been characterized recently by the aggressive pursuit of intellectual property
positions, and we expect our competitors to continue to pursue aggressive
intellectual property positions. In addition, from time to time we receive
notices alleging that we have infringed patents or other intellectual property
rights owned by third parties. We expect that, as the number of issued
hardware and software patents increases, and as competition in our markets
intensifies, the volume of intellectual property infringement claims will
increase. If infringement claims are made against us, we may seek licenses
under the claimant's patents or other intellectual property rights. However,
licenses may not be offered at all or on terms acceptable to us. The failure
to obtain a license from a third party for technology used by us could cause
us to incur substantial liabilities and to suspend the manufacture of
products. Furthermore, we may initiate claims or litigation against third
parties for infringement of our proprietary rights or to establish the
validity of our proprietary rights. We have agreed to indemnify certain
customers for claims of infringement arising out of sale of our products.
Litigation by or against us or our customers concerning infringement would
likely result in significant expense to us and divert the efforts of our
technical and management personnel, whether or not the litigation results in a
favorable determination for us.

We are subject to a patent infringement lawsuit that could divert our
resources and result in the payment of substantial damages.

On September 21, 1998, 3Dfx filed a patent infringement suit against us in
the United States District Court for the Northern District of California
alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx added a second
patent to the suit and on May 24, 1999, 3Dfx added a third patent to the suit.
The amended complaint alleges that our RIVA TNT, RIVA TNT2 and RIVA TNT2 Ultra
products infringe the patents in suit and seeks unspecified compensatory and
trebled damages and attorney's fees. Our current generation of products is not
identified as infringing any of the patents in suit. We have filed an answer
and counter-claims asserting that the patents in suit are invalid and not
infringed. These assertions are supported by our investigations to date and an
opinion from our patent counsel in this suit. We anticipate that the trial
date will be set by the District Court after it rules on claims construction
issues. We have and will continue to defend vigorously this suit. The
litigation with 3Dfx has resulted, and we expect that the 3Dfx litigation will
continue to result, in significant

18
<PAGE>

legal expenses, whether or not the litigation results in a favorable
determination for us. In the event of an adverse result in the 3Dfx suit, we
might be required to do one or more of the following: (i) pay substantial
damages (including treble damages); (ii) permanently cease the manufacture and
sale of any of the infringing products; (iii) expend significant resources to
develop non-infringing products; or (iv) obtain a license from 3Dfx for
infringing products. We have in the past been subject to patent infringement
suits with SGI and S3, both of which were settled and resulted in cross-
licenses and, in the case of SGI, payments by us. See Part I, Item 3--Legal
Proceedings.

Our failure to achieve one or more design wins would harm our business.

Our future success will depend in large part on achieving design wins,
which entails having our existing and future products chosen as the 3D
graphics processors for hardware components or subassemblies designed by PC
OEMs and add-in board manufacturers. Our add-in board manufacturers and major
OEM customers typically introduce new system configurations as often as twice
per year, generally based on spring and fall design cycles. Accordingly, our
existing products must have competitive performance levels or we must timely
introduce new products with such performance characteristics in order to be
included in new system configurations. Our failure to achieve one or more
design wins would harm our business. The process of being qualified for
inclusion in a PC OEM's product can be lengthy and could cause us to miss a
cycle in the demand of end users for a particular product feature, which also
could harm our business.

Our ability to achieve design wins also depends in part on our ability to
identify and ensure compliance with evolving industry standards. Unanticipated
changes in industry standards could render our products incompatible with
products developed by major hardware manufacturers and software developers,
including Intel and Microsoft. This would require us to invest significant
time and resources to redesign our products to ensure compliance with relevant
standards. If our products are not in compliance with prevailing industry
standards for a significant period of time, our ability to achieve design wins
could suffer.

We are dependent on the PC market, which may not continue to grow.

In fiscal 2000, we derived all of our revenue from the sale of products for
use in PCs. We expect to continue to derive substantially all of our revenue
from the sale or license of products for use in PCs in the next several years.
The PC market is characterized by rapidly changing technology, evolving
industry standards, frequent new product introductions and significant price
competition. These factors result in short product life cycles and regular
reductions of ASPs over the life of a specific product. Although the PC market
has grown substantially in recent years, this growth may not continue. A
reduction in sales of PCs, or a reduction in the growth rate of PC sales,
would likely reduce demand for our products. Moreover, changes in demand could
be large and sudden. Since PC manufacturers often build inventories during
periods of anticipated growth, they may be left with excess inventories if
growth slows or if they have incorrectly forecast product transitions. In
these cases, PC manufacturers may abruptly suspend substantially all purchases
of additional inventory from suppliers like us until the excess inventory has
been absorbed. Any reduction in the demand for PCs generally, or for a
particular product that incorporates our 3D graphic processors, could harm our
business.

The acceptance of next generation products in business PC 3D graphics may
not continue to develop.

Our success will depend in part upon the demand for performance 3D graphics
for business PC applications. The market for performance 3D graphics on
business PCs has only recently begun to emerge and is dependent on the future
development of, and substantial end-user and OEM demand for, 3D graphics
functionality. As a result, the market for business PC 3D graphics computing
may not continue to develop or may not grow at a rate sufficient to support
our business. The development of the market for performance 3D graphics on
business PCs will in turn depend on the development and availability of a
large number of business PC software applications that support or take
advantage of performance 3D graphics capabilities. Currently there are only a
limited number of software applications like this, most of which are games,
and a broader base of software applications may not develop in the near term
or at all. Consequently, a broad market for full function performance 3D
graphics on business PCs may not develop. Our business prospects will suffer
if the market for business PC 3D graphics fails to develop or develops more
slowly than expected.

19
<PAGE>

We are dependent on a small number of customers and we are subject to order
and shipment uncertainties.

We have only a limited number of customers and our sales are highly
concentrated. We primarily sell our products to add-in board and motherboard
manufacturers and CEMs, which incorporate graphics products in the boards they
sell to PC OEMs. Sales to add-in board manufacturers and CEMs are primarily
dependent on achieving design wins with leading PC OEMs. We believe that a
substantial portion of our revenue in fiscal 2000 was attributable to products
that ultimately were incorporated into PCs sold by Compaq, Dell, Gateway, HP,
IBM and Micron. The number of add-in board manufacturers and CEMs and leading
PC OEMs is limited. We expect that a small number of add-in board
manufacturers and CEMs directly, and a small number of PC OEMs indirectly,
will continue to account for a substantial portion of our revenue for the
foreseeable future. As a result, our business could be harmed by the loss of
business from PC OEMs or add-in board manufacturers and CEMs. In addition,
revenue from add-in board manufacturers, motherboard manufacturers, CEMs and
PC OEMs that have directly or indirectly accounted for significant revenue in
past periods, individually or as a group, may not continue, or may not reach
or exceed historical levels in any future period. In October 1999, S3, a
supplier of graphics processors and a competitor, completed the acquisition of
Diamond, one of our largest customers. In the fourth quarter of fiscal 2000,
following the consummation of the acquisition, our sales to Diamond declined
significantly to only 3% of total revenue from 24% of total revenue in the
second quarter of fiscal 2000. 3Dfx, a 3D graphics company and a competitor,
completed the acquisition of STB in May 1999. Sales to STB, another one of our
largest customers, declined significantly from prior levels following the
acquisition and our relationship with STB terminated in the fourth quarter of
fiscal 2000.

We may be unable to manage our growth and, as a result, may be unable to
successfully implement our strategy.

Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, operational and financial resources. As
of January 30, 2000, we had 392 employees as compared to 248 employees as of
January 31, 1999. We expect that the number of our employees will increase
substantially over the next 12 months. Our future growth, if any, will depend
on our ability to continue to implement and improve operational, financial and
management information and control systems on a timely basis, as well as our
ability to maintain effective cost controls. Further, we will be required to
manage multiple relationships with various customers and other third parties.
Our systems, procedures or controls may not be adequate to support our
operations and our management may be unable to achieve the rapid execution
necessary to successfully implement our strategy.

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

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

We depend on third-party fabrications to produce our products.

We do not manufacture the semiconductor wafers used for our products and do
not own or operate a wafer fabrication facility. Our products require wafers
manufactured with state-of-the-art fabrication equipment and techniques. We
utilize TSMC and WaferTech to produce our semiconductor wafers and utilize
independent contractors to perform assembly, test and packaging. We depend on
these suppliers to allocate to us a portion of their manufacturing capacity
sufficient to meet our needs, to produce products of acceptable quality and at
acceptable manufacturing yields, and to deliver those products to us on a
timely basis. These manufacturers may

20
<PAGE>

be unable to meet our near-term or long-term manufacturing requirements. We
obtain manufacturing services on a purchase order basis and TSMC has no
obligation to provide us with any specified minimum quantities of product.
TSMC fabricates wafers for other companies, including certain of our
competitors, and could choose to prioritize capacity for other users or reduce
or eliminate deliveries to us on short notice. Because the lead time needed to
establish a strategic relationship with a new manufacturing partner could be
several months, there is no readily available alternative source of supply for
any specific product. We believe that long-term market acceptance for our
products will depend on reliable relationships with TSMC and any other
manufacturers used by us to ensure adequate product supply to respond to
customer demand.

In September 1999, the earthquake in Taiwan contributed to a temporary
shortage of graphics processors in the third and fourth quarters of fiscal
2000. Any substantial disruption in our suppliers' operations, either as a
result of a natural disaster, equipment failure or other cause, could harm our
business.

We are dependent primarily on TSMC and we expect in the future to continue
to be dependent upon third-party manufacturers to do the following:

. produce wafers of acceptable quality and with acceptable manufacturing
yields;

. deliver those wafers to us and our independent assembly and testing
subcontractors on a timely basis and;

. allocate to us a portion of their manufacturing capacity sufficient to
meet our needs.

Our wafer requirements represent a significant portion of the total
production capacity of TSMC. Although our products are designed using TSMC's
process design rules, TSMC may be unable to achieve or maintain acceptable
yields or deliver sufficient quantities of wafers on a timely basis or at an
acceptable cost. Additionally, TSMC may not continue to devote resources to
the production of our products, or to advance the process design technologies
on which the manufacturing of our products are based. Any difficulties like
these would harm our business.

Failure to achieve expected manufacturing yields would reduce our product
supply and harm our business.

Semiconductor manufacturing yields are a function both of product design,
which is developed largely by us, and process technology, which typically is
proprietary to the manufacturer. Since low yields may result from either
design or process technology failures, yield problems may not be effectively
determined or resolved until an actual product exists that can be analyzed and
tested to identify process sensitivities relating to the design rules that are
used. As a result, yield problems may not be identified until well into the
production process, and resolution of yield problems would require cooperation
by and communication between us and the manufacturer. The risk of low yields
is compounded by the offshore location of most of our manufacturers,
increasing the effort and time required to identify, communicate and resolve
manufacturing yield problems. Because of our potentially limited access to
wafer fabrication capacity from our manufacturers, any decrease in
manufacturing yields could result in an increase in our per unit costs and
force us to allocate our available product supply among our customers. This
could potentially harm customer relationships as well as revenue and gross
profit. Our wafer manufacturers may be unable to achieve or maintain
acceptable manufacturing yields in the future. Our inability to achieve
planned yields from our wafer manufacturers could harm our business. We also
face the risk of product recalls or product returns resulting from design or
manufacturing defects that are not discovered during the manufacturing and
testing process. In the event of a significant number of product returns due
to a defect or recall, our business could suffer.

Failure to transition to new manufacturing process technologies could
affect our ability to compete effectively.

Our strategy is to utilize the most advanced process technology appropriate
for our products and available from commercial third-party foundries. Use of
advanced processes may have greater risk of initial yield problems.
Manufacturing process technologies are subject to rapid change and require
significant expenditures

21
<PAGE>

for research and development. We continuously evaluate the benefits of
migrating to smaller geometry process technologies in order to improve
performance and reduce costs. We have migrated to the .22 micron technology
with the RIVA TNT2 and GeForce families of graphics processors, and we believe
that the transition of our products to increasingly smaller geometries will be
important to our competitive position. Other companies in the industry have
experienced difficulty in migrating to new manufacturing processes and,
consequently, have suffered reduced yields, delays in product deliveries and
increased expense levels. We may experience similar difficulties and the
corresponding negative effects. Moreover, we are dependent on our
relationships with our third-party manufacturers to migrate to smaller
geometry processes successfully. We may be unable to migrate to new
manufacturing process technologies successfully or on a timely basis.

The 3D graphics industry is highly competitive and we may be unable to
compete.

The market for 3D graphics processors for PCs in which we compete is
intensely competitive and is characterized by rapid technological change,
evolving industry standards and declining ASPs. We believe that the principal
competitive factors in this market are performance, breadth of product
offerings, access to customers and distribution channels, backward-forward
software support, conformity to industry standard APIs, manufacturing
capabilities, price of graphics processors and total system costs of add-in
boards and motherboards. We expect competition to increase both from existing
competitors and new market entrants with products that may be less costly than
our 3D graphics processors or may provide better performance or additional
features not provided by our products. We may be unable to compete
successfully in the emerging PC graphics market.

Our primary source of competition is from companies that provide or intend
to provide 3D graphics solutions for the PC market. Our competitors include
the following:

. suppliers of graphics add-in boards that utilize their internally
developed graphics chips, such as ATI Technologies Inc., Matrox
Electronics Systems Ltd. and S3;

. suppliers of integrated core logic chipsets that incorporate 2D and 3D
graphics functionality as part of their existing solutions, primarily
Intel, and to a lesser extent, Silicon Integrated Systems and Via
Technologies;

. companies that have traditionally focused on the professional market and
provide high end 3D solutions for PCs and workstations, including 3Dlabs
Inc., Ltd., SGI, Evans and Sutherland Computer Corporation and
Intergraph Corporation; and

. companies with strength in the video game market, such as 3Dfx and
VideoLogic Group plc.

We may compete with Intel in the integrated low-cost chipset market.

In June 1999, Intel began shipping the Intel 810, a 3D graphics chipset
that is targeted at the low-cost PC market. Intel has significantly greater
resources than we do, and our products may not compete effectively against
future products introduced by Intel. In addition, we may be unable to compete
effectively against Intel or Intel may introduce additional products that are
competitive with our products in either performance or price or both. We
expect Intel to continue to do the following:

. invest heavily in research and development and new manufacturing
facilities;

. maintain its position as the largest manufacturer of PC microprocessors
and one of the largest manufacturers of motherboards;

. increasingly dominate the PC platform; and

. promote its product offerings through advertising campaigns designed to
engender brand loyalty among PC users.

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<PAGE>

Intel may in the future develop graphics add-in cards or graphics-enabled
motherboards that could directly compete with graphics add-in cards or
graphics-enabled motherboards that our customers may develop. In addition, due
to the widespread industry acceptance of Intel's microprocessor architecture
and interface architecture, including its AGP, and Intel's intellectual
property position with respect to such architecture, Intel exercises
significant influence over the PC industry generally. Any significant
modifications by Intel to the AGP, the microprocessor or core logic components
or other aspects of the PC microprocessor architecture could result in
incompatibility with our technology, which would harm our business. In
addition, any delay in the public release of information relating to
modifications like this could harm our business.

We are dependent on third parties for assembly and testing of our products.

Our graphics processors are assembled and tested by Amkor, Siliconware,
ChipPAC and ASE. We do not have long-term agreements with any of these
subcontractors. As a result of our dependence on third-party subcontractors
for assembly and testing of our products, we do not directly control product
delivery schedules or product quality. Any product shortages or quality
assurance problems could increase the costs of manufacture, assembly or
testing of our products and could harm our business. Due to the amount of time
typically required to qualify assemblers and testers, we could experience
significant delays in the shipment of our products if we are required to find
alternative third parties to assemble or test our products or components. Any
delays in delivery of our products could harm our business.

We may be unable to adequately protect our intellectual property.

We rely primarily on a combination of patents, trademarks, copyrights,
trade secrets, employee and third-party nondisclosure agreements and licensing
arrangements to protect our intellectual property. We own 28 issued United
States patents, have 4 United States patent applications allowed, 25 United
States patent applications pending and have 15 United States patent
applications being drafted for filing. Our issued patents have expiration
dates from April 14, 2015 to March 30, 2018. Our issued patents and pending
patent applications relate to technology developed by us in connection with
the development of our 3D graphics processors. Our pending patent applications
and any future applications may not be approved. In addition, any issued
patents may not provide us with competitive advantages or may be challenged by
third parties. The enforcement of patents of others may harm our ability to
conduct our business. Others may independently develop substantially
equivalent intellectual property or otherwise gain access to our trade secrets
or intellectual property, or disclose our intellectual property or trade
secrets. Our failure to effectively protect our intellectual property could
harm our business. We have licensed technology from third parties for
incorporation in our graphics processors, and expect to continue to enter into
license agreements for future products. These licenses may result in royalty
payments to third parties, the cross-license of technology by us or payment of
other consideration. If these arrangements are not concluded on commercially
reasonable terms, our business could suffer.

We are subject to risks associated with product defects and
incompatibilities.

Products as complex as those offered by us may contain defects or failures
when introduced or when new versions or enhancements to existing products are
released. We have in the past discovered software defects and
incompatibilities with customers' hardware in certain of our products and may
experience delays or lost revenue to correct any new defects in the future.
Errors in new products or releases after commencement of commercial shipments
could result in loss of market share or failure to achieve market acceptance.
Our products typically go through only one verification cycle prior to
beginning volume production and distribution. As a result, our products may
contain defects or flaws that are undetected prior to volume production and
distribution. The widespread production and distribution of defective products
could harm our business.

We are subject to risks associated with international operations.

Our reliance on foreign third-party manufacturing, assembly and testing
operations subjects us to a number of risks associated with conducting
business outside of the United States, including the following:

. unexpected changes in, or impositions of, legislative or regulatory
requirements;

23
<PAGE>

. delays resulting from difficulty in obtaining export licenses for
certain technology, tariffs, quotas and other trade barriers and
restrictions;

. longer payment cycles;

. potentially adverse taxes;

. the burdens of complying with a variety of foreign laws; and

. other factors beyond our control.

We also are subject to general political risks in connection with our
international trade relationships. In addition, the laws of certain foreign
countries in which our products are or may be manufactured or sold, including
various countries in Asia, may not protect our products or intellectual
property rights to the same extent as do the laws of the United States. This
makes the possibility of piracy of our technology and products more likely.
Currently, all of our arrangements with third-party manufacturers provide for
pricing and payment in U.S. dollars, and to date we have not engaged in any
currency hedging activities, although we may do so in the future. Fluctuations
in currency exchange rates could harm our business in the future.

The semiconductor industry is cyclical in nature.

The semiconductor industry historically has been characterized by the
following factors:

. rapid technological change;

. cyclical market patterns;

. significant ASP erosion;

. fluctuating inventory levels;

. alternating periods of overcapacity and capacity constraints;

. variations in manufacturing costs and yields and significant
expenditures for capital equipment and product development.

In addition, the industry has experienced significant economic downturns at
various times, characterized by diminished product demand and accelerated
erosion of ASPs. We may experience substantial period-to-period fluctuations
in results of operations due to general semiconductor industry conditions.

Failure in implementation of our enterprise resource planning system could
adversely affect our operations.

In December 1999, we began the implementation of an SAP system as our
enterprise resource planning ("ERP") system to replace our information systems
in business, finance, operations and service. We are heavily dependent upon
the proper functioning of our internal systems to conduct our business. There
is no assurance that we will be successful in the implementation of our ERP
system. Delays in the implementation, system failure or malfunctioning may
result in disruptions of operations and inability to process transactions. Our
results of operations and financial position could be adversely affected if we
encounter unforeseen problems with respect to this implementation.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required by this item are submitted as a separate
section of this Form 10-K. See Item 14.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

24
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following set forth certain information regarding the Company's
executive officers as of February 29, 2000:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jen-Hsun Huang.............. 37 President, Chief Executive Officer and Director
Jeffrey D. Fisher........... 41 Executive Vice President, Worldwide Sales
Christine B. Hoberg......... 44 Chief Financial Officer
Chris A. Malachowsky........ 40 Vice President, Hardware Engineering
Curtis R. Priem............. 40 Chief Technical Officer
</TABLE>

Jen-Hsun Huang co-founded NVIDIA in April 1993 and has served as our
President, Chief Executive Officer and a member of the Board of Directors
since its inception. From 1985 to 1993, Mr. Huang was employed at LSI Logic
Corporation ("LSI"), a computer chip manufacturer, where he held a variety of
positions, most recently as Director of Coreware, the business unit
responsible for LSI's "system-on-a-chip" strategy. From 1983 to 1985, Mr.
Huang was a microprocessor designer for Advanced Micro Devices, a
semiconductor company. Mr. Huang holds a B.S.E.E. degree from Oregon State
University and an M.S.E.E. degree from Stanford University.

Jeffrey D. Fisher has been Executive Vice President, Worldwide Sales for
NVIDIA since July 1994. From September 1988 to July 1994, Mr. Fisher held
various positions at Weitek Corporation, a semiconductor technology company,
where his last position was as Director of Worldwide Sales. Mr. Fisher holds a
B.S.E.E. degree from Purdue University and an M.B.A. degree from Santa Clara
University.

Christine B. Hoberg has been Chief Financial Officer of NVIDIA since
December 1998. From June 1992 to December 1998, Ms. Hoberg held various
positions at Quantum Corporation, a mass storage company, where her last
position was as Vice President, Corporate Controller. Ms. Hoberg holds a B.A.
in German Studies from Stanford University and is a certified public
accountant.

Chris A. Malachowsky co-founded NVIDIA in April 1993 and has been our Vice
President, Hardware Engineering since that time. From 1987 until April 1993,
Mr. Malachowsky was a Senior Staff Engineer for Sun Microsystems, Inc., a
supplier of enterprise network computing products. From 1980 to 1986, Mr.
Malachowsky was a manufacturing design engineer at Hewlett-Packard Company.
Mr. Malachowsky was a co-inventor of Sun Microsystems' GX graphics
architecture and has authored 43 patents, most of which relate to graphics.
Mr. Malachowsky holds a B.S.E.E. degree from the University of Florida and an
M.S.C.S. degree from Santa Clara University.

Curtis R. Priem co-founded our company in April 1993 and has been our Chief
Technical Officer since that time. From 1986 to January 1993, Mr. Priem was
Senior Staff Engineer at Sun Microsystems where he architected the GX graphics
products, including the world's first single chip GUI accelerator. From 1984
to 1986, Mr. Priem was a hardware engineer at GenRad, Inc., a supplier of
diagnostic equipment for electronic products. From 1982 to 1984, Mr. Priem was
a staff engineer for Vermont Microsystems, Inc., a personal computer company,
where he architected IBM's Professional Graphics Adapter, the PC industry's
first graphics processor. Mr. Priem has authored 87 U.S. and international
patents, all of which relate to graphics and Input/Output Systems . Mr. Priem
holds a B.S.E.E. degree from Rensselaer Polytechnic Institute.

Reference is made to the information regarding Directors appearing under
the heading "Election of Directors" in the 2000 Proxy Statement which
information is hereby incorporated by reference.

25
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the information appearing under the heading "Executive
Compensation," in the 2000 Proxy Statement, which information is incorporated
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Reference is made to information appearing in the 2000 Proxy Statement,
under the heading "Security Ownership of Certain Beneficial Owners and
Management," which information is hereby incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to information appearing in the 2000 Proxy Statement,
under the heading "Certain Transactions," which information is hereby
incorporated by reference.

26
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
Page
----
<C> <C> <S> <C>
(a) 1. Financial Statements
Report of KPMG LLP, Independent Auditors........................ 29
Balance Sheets as of January 31, 1999 and January 30, 2000...... 30
Statements of Operations for the year ended December 31, 1997,
one month ended January 31, 1998, year ended January 31, 1999
and year ended January 30, 2000................................. 31
Statements of Stockholders' Equity for the year ended December
31, 1997, one month ended January 31, 1998, year ended January
31, 1999 and year ended January 30, 2000........................ 32
Statements of Cash Flows for the year ended December 31, 1997,
one month ended January 31, 1998, year ended January 31, 1999
and year ended January 30, 2000................................. 33
Notes to Financial Statements................................... 34
(a) 2. Financial Statement Schedules
II--Valuation and Qualifying Accounts........................... 47
All other schedules are omitted because they are not required,
or are not applicable, or the required information is shown in
the financial statements or notes thereto.
(a) 3. Exhibits
The exhibits listed in the accompanying index to exhibits are
filed or incorporated by reference as a part of this annual
report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter
ended January 30, 2000.
</TABLE>

27
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation. (1)

3.2 Bylaws. (1)

4.1 Reference is made to Exhibits 3.1 and 3.2.

4.2 Specimen Stock Certificate. (2)

4.3 Second Amended and Restated Investors' Rights Agreement, dated August
19, 1997 between the Company and the parties indicated thereto and
First Amendment to Second Amended and Restated Investors' Rights
Agreement, dated July 22, 1998. (2)

4.4 Second Amendment to Second Amended and Restated Investors' Rights
Agreement, dated April 12, 1999. (3)

10.1 Form of Indemnity Agreement between the Company and each of its
directors and officers. (2)

10.2 1998 Equity Incentive Plan. (2)

10.3 Form of Incentive Stock Option Agreement under the 1998 Equity
Incentive Plan. (2)

10.4 Form of Nonstatutory Stock Option Agreement under the 1998 Equity
Incentive Plan. (2)

10.5 1998 Employee Stock Purchase Plan. (2)

10.6 Form of Employee Stock Purchase Plan Offering. (2)

10.7 1998 Non-Employee Directors' Stock Option Plan. (2)

10.8 Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Initial Grant). (2)

10.9 Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Annual Grant). (2)

10.10 Form of Nonstatutory Stock Option Agreement under the 1998 Non-
Employee Directors' Stock Option Plan (Committee Grant). (2)

10.11 Sublease dated April 2, 1998 between Apple Computer, Inc. and the
Company. (2)

10.12 Loan and Security Agreement, dated September 3, 1998, between the
Company and Imperial Bank, as amended by letter agreement dated
November 2, 1998. (2)

10.13 Stock Purchase Agreement dated April 12, 1999 between the Company and
Synopsys, Inc. (3)

10.14 Stock Repurchase Agreement dated June 9, 1999 between the Company and
Diamond Multimedia Systems, Inc. (3)

10.15 Amendment to Loan and Security Agreement, dated July 30, 1999, between
the Company and Imperial Bank. (4)

23.1 Consent of Independent Auditors

27.1 Financial Data Schedule
</TABLE>
- --------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-8
filed on March 23, 1999 (Registration No. 333-74905) and incorporated
herein by reference.
(2) Filed as an exhibit to the Company's Registration Statement on Form S-1
filed on March 6, 1998 (Registration No. 333-47495) and incorporated
herein by reference.
(3) Filed as an exhibit to the Company's Form 10-Q for the quarter ended May
2, 1999 as filed on June 15, 1999 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Form 10-Q for the quarter ended
August 1, 1999 as filed on September 10, 1999 and incorporated herein by
reference.

28
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
NVIDIA Corporation:

We have audited the accompanying balance sheets of NVIDIA Corporation (the
Company) as of January 31, 1999 and January 30, 2000 and the related
statements of operations, stockholders' equity and cash flows for the year
ended December 31, 1997, the one-month period ended January 31, 1998, and each
of the years in the two-year period ended January 30, 2000. In connection with
our audits of the financial statements, we have also audited the accompanying
financial statement schedule. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NVIDIA Corporation as of
January 31, 1999 and January 30, 2000 and the results of its operations and
its cash flows for the year ended December 31, 1997, the one-month period
ended January 31, 1998, and each of the years in the two-year period ended
January 30, 2000, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Mountain View, California
March 6, 2000

29
<PAGE>

NVIDIA CORPORATION

BALANCE SHEETS

(in thousands, except share data)

<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 50,257 $ 61,560
Accounts receivable, less allowances of $2,627 and
$6,443 in 1999 and 2000, respectively............... 20,633 67,224
Inventory............................................ 28,623 37,631
Prepaid expenses and other current assets............ 1,599 6,760
-------- --------
Total current assets............................... 101,112 173,175
Property and equipment, net............................ 11,650 25,886
Deposits and other assets.............................. 570 3,189
-------- --------
$113,332 $202,250
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 35,730 $ 64,910
Line of credit....................................... 5,000 --
Accrued liabilities.................................. 5,012 9,529
Current portion of capital lease obligations......... 1,386 1,786
-------- --------
Total current liabilities.......................... 47,128 76,225
Capital lease obligations, less current portion........ 1,995 962
Long-term payable...................................... -- 500
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares
authorized; 28,743,001 and 31,100,157 shares issued
and outstanding in 1999 and 2000, respectively...... 29 31
Additional paid-in capital........................... 74,372 95,964
Deferred compensation................................ (780) (118)
Retained earnings (accumulated deficit).............. (9,412) 28,686
-------- --------
Total stockholders' equity......................... 64,209 124,563
-------- --------
$113,332 $202,250
======== ========
</TABLE>

See accompanying notes to financial statements.

30
<PAGE>

NVIDIA CORPORATION

STATEMENTS OF OPERATIONS

(in thousands, except per share data)

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product.................... $27,280 $11,420 $151,413 $374,505
Royalty.................... 1,791 1,911 6,824 --
------- ------- -------- --------
Total revenue............ 29,071 13,331 158,237 374,505
Cost of revenue.............. 21,244 10,071 109,746 235,575
------- ------- -------- --------
Gross profit................. 7,827 3,260 48,491 138,930
------- ------- -------- --------
Operating expenses:
Research and development... 7,103 1,121 25,073 47,439
Sales, general and
administrative............ 4,183 640 18,902 37,079
------- ------- -------- --------
Total operating
expenses................ 11,286 1,761 43,975 84,518
------- ------- -------- --------
Operating income (loss).. (3,459) 1,499 4,516 54,412
Interest and other income
(expense), net.............. (130) (18) (29) 1,754
------- ------- -------- --------
Income (loss) before tax
expense..................... (3,589) 1,481 4,487 56,166
Income tax expense........... -- 134 357 18,068
------- ------- -------- --------
Net income (loss)........ $(3,589) $ 1,347 $ 4,130 $ 38,098
======= ======= ======== ========
Basic net income (loss) per
share....................... $ (.28) $ .10 $ .28 $ 1.28
======= ======= ======== ========
Diluted net income (loss) per
share....................... $ (.28) $ .05 $ .15 $ 1.06
======= ======= ======== ========
Shares used in basic per
share computation........... 12,677 14,141 14,565 29,872
Shares used in diluted per
share computation........... 12,677 26,100 27,393 36,098
</TABLE>

See accompanying notes to financial statements.

31
<PAGE>

NVIDIA CORPORATION

STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except share data)

<TABLE>
<CAPTION>
Retained
Earnings
Preferred Stock Common Stock Additional Deferred (Accumu- Total
------------------ ------------------ Paid-in Compen- lated Stockholders'
Shares Amount Shares Amount Capital sation Deficit) Equity
----------- ------ ---------- ------ ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1996................... 7,888,275 $ 8 11,567,374 $12 $12,317 -- $(11,300) $ 1,037
Issuance of Series D
preferred stock, net of
issuance costs of $30.. 1,438,812 1 -- -- 7,537 -- -- 7,538
Grant of common stock
options for lease
financing and
consulting services.... -- -- -- -- 120 -- -- 120
Issuance of common stock
upon exercise of stock
options................ -- -- 2,573,211 2 828 -- -- 830
Deferred compensation
related to grant of
common stock options... -- -- -- -- 4,277 (4,277) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 961 -- 961
Net loss................ -- -- -- -- -- -- (3,589) (3,589)
----------- --- ---------- --- ------- ------ -------- --------
Balances, December 31,
1997................... 9,327,087 9 14,140,585 14 25,079 (3,316) (14,889) 6,897
Issuance of common stock
upon exercise of stock
options................ -- -- 1,125 -- 6 -- -- 6
Deferred compensation
related to grant of
common stock options... -- -- -- -- 361 (361) -- --
Amortization of deferred
compensation........... -- -- -- -- -- 360 -- 360
Net income.............. -- -- -- -- -- -- 1,347 1,347
----------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1998................... 9,327,087 9 14,141,710 14 25,446 (3,317) (13,542) 8,610
Issuance of common stock
upon exercise of stock
options................ -- -- 202,775 -- 348 -- -- 348
Tax benefit from stock
options................ -- -- -- -- 45 -- -- 45
Sale of common stock
under public offering,
net of issuance costs
of $4.5 million........ -- -- 3,500,000 4 37,535 -- -- 37,539
Issuance and conversion
of mandatorily
convertible notes into
common stock........... -- -- 1,571,429 2 10,998 -- -- 11,000
Conversion of preferred
stock into common
stock.................. (9,327,087) (9) 9,327,087 9 -- -- -- --
Amortization of deferred
compensation........... -- -- -- -- -- 2,537 -- 2,537
Net income.............. -- -- -- -- -- -- 4,130 4,130
----------- --- ---------- --- ------- ------ -------- --------
Balances, January 31,
1999................... -- -- 28,743,001 $29 $74,372 $ (780) $ (9,412) $ 64,209
Sale of common stock
under public offering
(over-allotment), net
of issuance costs of
$0.6 million........... -- -- 525,000 1 5,740 -- -- 5,741
Issuance of common stock
in connection with
long-term software
license................ -- -- 243,902 -- 5,000 -- -- 5,000
Repurchase of common
stock in settlement of
accounts receivable.... -- -- (438,572) -- (7,452) -- -- (7,452)
Issuance of common stock
from stock plans....... -- -- 2,016,826 1 7,676 -- -- 7,677
Tax benefit from stock
plans.................. -- -- -- -- 10,613 -- -- 10,613
Grant of common stock
options for consulting
services............... -- -- -- -- 15 -- -- 15
Amortization of deferred
compensation........... -- -- -- -- -- 662 -- 662
Net income.............. -- -- -- -- -- -- 38,098 38,098
----------- --- ---------- --- ------- ------ -------- --------
Balances, January 30,
2000................... -- -- 31,100,157 $31 $95,964 $ (118) $ 28,686 $124,563
=========== === ========== === ======= ====== ======== ========
</TABLE>

See accompanying notes to financial statements.

32
<PAGE>

NVIDIA CORPORATION

STATEMENTS OF CASH FLOWS

(in thousands)

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............. $(3,589) $1,347 $ 4,130 $38,098
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization................ 1,363 219 4,006 9,006
Stock options granted in
exchange for lease
financing and services...... 120 -- -- 15
Amortization of deferred
compensation................ 961 360 2,537 662
Tax benefit from employee
stock plans................. -- -- 45 10,613
Changes in operating assets
and liabilities:
Accounts receivable......... (11,446) (2,912) (5,234) (54,043)
Inventory................... 38 (496) (28,102) (9,008)
Prepaid expenses and other
current assets............. (237) (316) (1,005) (5,161)
Deposits and other assets... (59) -- (408) (3,008)
Accounts payable............ 11,295 3,740 20,418 24,180
Accrued liabilities......... 373 21 1,746 4,517
------- ------ ------- -------
Net cash provided by (used
in) operating
activities............... (1,181) 1,963 (1,867) 15,871
------- ------ ------- -------
Cash flows used in investing
activities:
Purchase of property and
equipment.................... (2,732) (163) (7,899) (11,589)
------- ------ ------- -------
Cash flows from financing
activities:
Borrowings (payments) under
line of credit............... -- -- 5,000 (5,000)
Common stock issued under
employee stock plans......... 830 6 348 7,677
Sale of common stock under
public offering, net of
issuance costs -- -- 37,539 5,741
Issuance and conversion of
mandatorily convertible
notes into common stock...... -- -- 11,000 --
Long-term payable related to
patent license agreement..... -- -- -- 500
Net proceeds from sale of
preferred stock.............. 7,538 -- -- --
Payments under capital
leases....................... (1,037) (373) (1,848) (1,897)
------- ------ ------- -------
Net cash provided by (used
in) financing
activities............... 7,331 (367) 52,039 7,021
------- ------ ------- -------
Change in cash and cash
equivalents................... 3,418 1,433 42,273 11,303
Cash and cash equivalents at
beginning of period........... 3,133 6,551 7,984 50,257
------- ------ ------- -------
Cash and cash equivalents at
end of period................. $ 6,551 $7,984 $50,257 $61,560
======= ====== ======= =======
Cash paid for interest......... $ 267 $ 31 $ 471 $ 332
======= ====== ======= =======
Cash paid for taxes............ $ -- $ -- $ -- $15,965
======= ====== ======= =======
Noncash financing and investing
activities:
Assets recorded under capital
lease........................ $ 3,023 $ 32 $ 2,245 $ 1,264
======= ====== ======= =======
Deferred compensation related
to grant of common stock
options...................... $ 4,277 $ 361 $ -- $ --
======= ====== ======= =======
Repurchase of common stock in
settlement of accounts
receivable................... $ -- $ -- $ -- $ 7,452
======= ====== ======= =======
Issuance of common stock in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
Liabilities assumed in
connection with long-term
software license............. $ -- $ -- $ -- $ 5,000
======= ====== ======= =======
</TABLE>

See accompanying notes to financial statements.

33
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS

(1) Organization and Significant Accounting Policies

Organization

NVIDIA Corporation (the "Company") designs, develops and markets 3D
graphics processors for the PC market. The Company operates primarily in one
industry segment in the United States, Asia and Europe. In April 1998, the
Company was reincorporated as a Delaware corporation.

Fiscal Year

Effective January 1, 1998, the Company changed its fiscal year-end
financial reporting period to January 31. The Company elected not to restate
its previous reporting periods ending December 31. In addition, effective
February 1, 1998, the Company changed its fiscal year end from January 31 to a
52- or 53- week year ending on the last Sunday in January. As a result, the
first and fourth quarters of fiscal 1999 are 12- and 14-week periods,
respectively, with the remaining quarters being 13-week periods. All four
quarters of fiscal 2000 are 13-week periods.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a
maturity of three months or less at the time of purchase to be cash
equivalents. Currently, the Company's cash equivalents consist of $54.3
million invested in money market funds.

Inventories

Inventories are stated at the lower of first-in first-out, cost or market.
Write-downs to reduce the carrying value of obsolete, slow moving and non-
usable inventory to net realizable value are charged to cost of revenue.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives, generally three to
four years. Depreciation expense includes the amortization of assets recorded
under capital leases. Leasehold improvements and assets recorded under capital
leases are amortized over the shorter of the lease term or the estimated
useful life of the asset.

Software Development Costs

Software development costs are expensed as incurred until the technological
feasibility of the related product has been established. After technological
feasibility is established, any additional software development costs would be
capitalized in accordance with Financial Accounting Standards Board Statement
of Financial Accounting Standards ("SFAS") No. 86, Capitalization of Software
Development Costs. Through January 30, 2000, the Company's process for
developing software was completed concurrently with the establishment of
technological feasibility, and, accordingly, no software costs have been
capitalized to date. Software development costs incurred prior to achieving
technological feasibility are charged to research and development expense as
incurred.

Revenue Recognition

Revenue from product sales to all customers (excluding distributors) is
recognized upon shipment, net of appropriate allowances. The Company's policy
on sales to distributors is to defer recognition of sales and related gross
profit until the distributors resell the product. Royalty revenue is
recognized upon shipment of product by the licensee to its customers. The
Company believes that the software sold with its products is incidental to the
product as a whole.

34
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents and trade
accounts receivable. The Company invests primarily in money market funds and
limits the amount of exposure to any one financial institution. Four customers
accounted for approximately 37% of the Company's accounts receivable balance
at January 30, 2000. The Company performs ongoing credit evaluations of its
customers' financial condition and maintains an allowance for potential credit
losses.

Research and Development Arrangements

The Company entered into contractual agreements to provide design,
development and support services on a best efforts basis. All amounts funded
to the Company under these agreements are non-refundable once paid. The
Company recorded reductions to research and development expense after the
services were performed based on the achievement of contractually specified
milestones and the collectability of amounts was assured.

Accounting for Stock-Based Compensation

The Company uses the intrinsic value method to account for its stock-based
employee compensation plans. Deferred compensation arising from stock-based
awards is amortized in accordance with Financial Accounting Standards Board
Interpretation No. 28.

Income Taxes

The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recorded or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.

Fair Value of Financial Instruments

The carrying value of cash, cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair value due to the short
maturity of those instruments.

Comprehensive Income

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components in financial
statements. The Company had no other components of comprehensive income other
than the reported amounts of net income (loss) in all periods presented.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the recorded amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

Reclassifications

Certain prior year amounts in the financial statements have been
reclassified to conform to the current year presentation. Such
reclassifications had no effect on net income (loss) or stockholders' equity.

35
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

New Accounting Pronouncement

In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the costs of computer software intended for
internal use. Effective February 1, 1999, the Company adopted SOP 98-1. There
was no material change to the Company's results of operations or financial
position as a result of the adoption of SOP 98-1.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during the period. Diluted net income
(loss) per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period, using either
the as-if-converted method for mandatorily convertible notes and convertible
preferred stock or the treasury stock method for options and warrants. The
following is a reconciliation of the numerators and denominators of the basic
and diluted net income (loss) per share computations for the periods
presented:

<TABLE>
<CAPTION>
Income/(Loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------ ---------
<S> <C> <C> <C>
(in thousands)
Year ended December 31, 1997
Basic and diluted net loss............ $(3,589) 12,677 $(0.28)
======= ====== ======
One month ended January 31, 1998
Basic net income...................... $ 1,347 14,141 $ 0.10
Effect of dilutive securities:
Stock options outstanding.......... 2,531
Warrants........................... 101
Convertible preferred stock........ 9,327
------- ------
Diluted net income.................... $ 1,347 26,100 $ 0.05
======= ====== ======
Year ended January 31, 1999
Basic net income...................... $ 4,130 14,565 $ 0.28
Effect of dilutive securities:
Stock options outstanding.......... 2,906
Warrants........................... 116
Mandatorily convertible notes...... 717
Convertible preferred stock........ 9,089
------
Diluted net income.................... $ 4,130 27,393 $ 0.15
======= ====== ======
Year ended January 30, 2000
Basic net income...................... $38,098 29,872 $ 1.28
Effect of dilutive securities:
Stock options outstanding.......... 6,003
Warrants........................... 71
Common stock issuable in connection
with long-term software license.... 152
------- ------
Diluted net income.................... $38,098 36,098 $ 1.06
======= ====== ======
</TABLE>

As of January 31, 1999 and 1998, options to acquire 642,750 and 149,032
shares of common stock with weighted-average exercise prices of $8.86 and
$5.50, respectively, were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the

36
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Company's common shares and, therefore, the effect would be antidilutive.
Options to purchase 3,735,458 shares of common stock with a weighted-average
exercise price of $1.78, warrants to purchase 158,806 shares of common stock
as well as 9,327,087 shares of convertible preferred stock were outstanding
for the year ended December 31, 1997 but were not included in the calculation
of diluted earnings per share because the Company had a net loss for that year
and to do so would have been antidilutive.

(2) Balance Sheet Components

Certain balance sheet components are as follows:

<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Inventory:
Work in-process......................................... $15,385 $ 6,446
Finished goods.......................................... 13,238 31,185
------- -------
Total inventory....................................... $28,623 $37,631
======= =======
</TABLE>

At January 30, 2000, the Company had noncancelable inventory purchase
commitments totaling $124.6 million.

<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
<S> <C> <C>
(in thousands)
Property and Equipment:
Purchased engineering software.......................... $ 4,102 $17,013
Test equipment.......................................... 3,625 8,103
Computer equipment...................................... 9,028 14,194
Leasehold improvements.................................. 475 878
Office furniture and equipment.......................... 1,361 1,142
------- -------
18,591 41,330
Accumulated depreciation and amortization............... (6,941) (15,444)
------- -------
Property and equipment, net............................. $11,650 $25,886
======= =======
</TABLE>

Assets recorded under capital leases included in property and equipment
were $6,637,000 and $6,892,000 as of January 31, 1999 and January 30, 2000,
respectively. Accumulated amortization thereon was $3,238,000 and $5,285,000
as of January 31, 1999 and January 30, 2000, respectively.

<TABLE>
<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Accrued Liabilities:
Accrued sales and marketing allowances.................. $1,973 $5,377
Other................................................... 3,039 4,152
------ ------
Total accrued liabilities............................. $5,012 $9,529
====== ======
</TABLE>

37
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

(3) Stockholders' Equity

Mandatorily Convertible Notes

Convertible subordinated non-interest bearing notes were issued to three
major customers in July and August 1998 for a total of $11.0 million. The
notes were subordinated to certain senior indebtedness. On January 15, 1999,
the outstanding principal balance of these notes automatically converted into
1,571,429 shares of common stock of the Company at a conversion price equal to
$7.00 per share.

Convertible Preferred Stock

On January 22, 1999, 9,327,087 shares of preferred stock were automatically
converted into common stock upon the completion of the initial public offering
of common stock. As of January 31, 2000, there are no shares of preferred
stock outstanding and the Company has no current plans to issue any of the
authorized preferred stock.

1998 Equity Incentive Plan

The Equity Incentive Plan (the "Plan"), as amended and restated on February
17, 1998, provides for the issuance of up to 15,000,000 shares of the
Company's common stock to directors, employees and consultants. The Plan
provides for the issuance of stock bonuses, restricted stock purchase rights,
incentive stock options or nonstatutory stock options. Each year on the last
day of each fiscal year, starting with the year ending January 31, 1999, the
aggregate number of shares of common stock that are available for issuance
will automatically be increased by a number of shares equal to five percent
(5%) of the Company's outstanding common stock on such date, including on an
as-if-converted basis preferred stock and convertible notes, and outstanding
options and warrants, calculated using the treasury stock method. In January
2000, the shares of common stock available for issuance were increased by
1,930,962 shares pursuant to this provision.

Pursuant to the Plan, the exercise price for incentive stock options is at
least 100% of the fair market value on the date of grant or for employees
owning in excess of 10% of the voting power of all classes of stock, 110% of
the fair market value on the date of grant. For nonstatutory stock options,
the exercise price is no less than 85% of the fair market value on the date of
grant.

Options generally expire in 10 years. Vesting periods are determined by the
Board of Directors. However, options generally vest ratably over a four year
period, with 25% becoming vested approximately one year from the date of grant
and the remaining 75% vesting on a quarterly basis over the next three years.
Options granted prior to December 1997 could be exercised prior to full
vesting. Any unvested shares so purchased were subject to a repurchase right
in favor of the Company at a repurchase price per share that was equal to the
original per share purchase price. The right to repurchase at the original
price would lapse at the rate of 25% per year over the four-year period from
the date of grant. As of January 30, 2000, there were 499,611 such shares
subject to repurchase.

The Company accounts for the plan using the intrinsic value method. As
such, compensation expense is recorded if on the date of grant the current
fair value per share of the underlying stock exceeds the exercise price per
share. With respect to certain options granted during 1997 and the one month
ended January 31, 1998, the Company recorded deferred compensation of
$4,277,000 and $361,000, respectively, for the difference at the grant date
between the exercise price per share and the fair value per share, based upon
independent valuations and management's estimate of the fair value of the
Company's stock on the various grant dates of the common stock underlying the
options. This amount is being amortized over the vesting period of the
individual options, generally four years.

38
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

Non-Employee Directors' Stock Option Plan

In February 1998, the Board adopted the 1998 Non-Employee Directors' Stock
Option Plan (the "Directors' Plan") to provide for the automatic grant of
options to purchase shares of common stock to directors of the Company who are
not employees of or consultants to the Company or an affiliate of the Company
(a "Non-Employee Director"). The Compensation Committee administers the
Directors' Plan. The aggregate number of shares of common stock that may be
issued pursuant to options granted under the Directors' Plan is 300,000
shares.

Stock-Based Compensation

As permitted under Statement of Financial Accounting Standards No. 123,
("SFAS 123"), the Company has elected to follow Accounting Principles Board
Opinion No. 25 ("APB 25") and related Interpretations in accounting for stock-
based awards to employees. Compensation cost for the Company's stock-based
compensation plans as determined consistent with SFAS 123, would have
increased net loss and would have decreased net income to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Year Ended Year Ended
Year Ended Month Ended January January
December 31, January 31, 31, 30,
1997 1998 1999 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss)--as
reported...................... $(3,589) $1,347 $4,130 $38,098
Net income (loss)--pro forma... $(3,694) $1,046 $ (256) $30,697
Basic net income (loss) per
share--as reported............ $ (0.28) $ 0.10 $ 0.28 $ 1.28
Basic net income (loss)--pro
forma......................... $ (0.29) $ 0.07 $(0.02) $ 1.03
Diluted net income (loss) per
share--as reported............ $ (0.28) $ 0.05 $ 0.15 $ 1.06
Diluted net income (loss)--pro
forma......................... $ (0.29) $ 0.04 $(0.01) $ 0.85
</TABLE>

The fair value of options granted in fiscal 2000 has been estimated at the
date of grant using the Black-Scholes option pricing model with the following
weighted-average assumptions: no dividend yield, risk free interest rate of
5.84% , expected life for the option of five years and volatility of 70%. The
fair value of options granted prior to the initial public offering is
estimated on the date of grant using the minimum value method with the
following weighted-average assumptions: no dividend yield; risk free interest
rate of 5.0% to 6.5%; expected life for the option of five years; and
volatility of 0%. The weighted-average per share fair value of options granted
during the year ended 1997, the one month ended January 31, 1998, the years
ended January 31, 1999 and January 30, 2000 was approximately $.08, $1.43,
$1.74, $1.45 and $13.53, respectively.

39
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following summarizes the transactions under the equity incentive and non-
employee director plans:
<TABLE>
<CAPTION>
Shares
Number Weighted
Available of Shares Average Price
for Grant Under Option Per Share
---------- ------------ -------------
<S> <C> <C> <C>
Balances, December 31, 1996............. 3,506,606 2,176,020 0.27
Authorized............................. 2,000,000 -- --
Granted................................ (4,950,857) 5,000,857 1.43
Exercised.............................. -- (2,603,836) 0.32
Cancelled.............................. 868,208 (837,583) 0.29
---------- ----------
Balances, December 31, 1997............. 1,423,957 3,735,458 1.78
Authorized............................. -- -- --
Granted................................ (605,000) 605,000 5.01
Exercised.............................. -- (1,125) 3.15
---------- ----------
Balances, January 31, 1998.............. 818,957 4,339,333 2.23
Authorized............................. 6,878,606 -- --
Granted................................ (6,592,550) 6,612,550 7.22
Exercised.............................. -- (202,775) 1.91
Cancelled.............................. 1,692,688 (1,692,688) 6.35
---------- ----------
Balances, January 31, 1999.............. 2,797,701 9,056,420 5.12
Authorized............................. 1,930,962 -- --
Granted................................ (3,394,600) 3,394,600 21.60
Exercised.............................. -- (1,789,469) 3.57
Cancelled.............................. 815,751 (815,751) 6.34
---------- ----------
Balances, January 30, 2000.............. 2,149,814 9,845,800 10.97
---------- ----------
</TABLE>

In July 1998, the Board of Directors adopted a resolution allowing
employees to exchange some or all of their existing unvested options to
purchase common stock of the Company for options having an exercise price of
$6.30 per share. The repriced options retain the same vesting schedule as the
originally issued options, but the repriced options did not become exercisable
until July 1999. Options to purchase approximately 1,253,500 shares of common
stock were repriced under this program. Stock options held by executive
officers and directors were not eligible for such repricing.

During 1997 and fiscal 2000, the Company granted common stock options
within the Plan to consultants for services rendered. The fair value of all
option grants to non-employees has been estimated using the Black-Scholes
option pricing model using the following assumptions: dividend yield--none;
expected life--contractual term; risk free interest rates--6.0% to 6.5%;
volatility-- 60%. The estimated fair value of these options was $120,000 and
$22,000 in 1997 and fiscal 2000, respectively.

In 1997, options to purchase 50,000 shares of common stock were granted to
an outside investor during the Series D preferred stock offering. In 1998,
options to purchase 20,000 shares of common stock were granted to an outside
investor. As of January 30, 2000, options to purchase 35,625 shares of common
stock were outstanding, of which 2,500 shares were vested.

40
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding as
of January 30, 2000:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted Average Weighted Weighted
Range of Exercise Number Remaining Average Number Average
Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
----------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.18 -- $ 1.30 832,798 7.26 $ 0.80 339,708 $ 0.68
2.64 -- 3.15 955,650 7.85 2.83 349,461 2.87
4.15 -- 6.30 2,006,818 8.45 6.08 537,108 5.98
6.65 -- 9.00 2,720,340 8.52 7.48 838,525 7.60
16.38 -- 20.13 1,820,194 9.43 17.93 45,901 17.01
20.50 -- 23.50 1,023,500 9.75 21.45 38,591 20.50
34.63 -- 37.38 486,500 9.89 35.98 -- --
--------- ---------
$ 0.18 -- $37.38 9,845,800 8.70 $10.97 2,149,294 $ 5.77
--------- ---------
</TABLE>

Employee Stock Purchase Plan

In February 1998, the Board approved the 1998 Employee Stock Purchase Plan
(the "Purchase Plan"), covering an aggregate of 500,000 shares of common
stock. The Purchase Plan is intended to qualify as an "employee stock purchase
plan" within the meaning of Section 423 of the Code. Under the Purchase Plan,
the Board may authorize participation by eligible employees, including
officers, in periodic offerings following the adoption of the Purchase Plan.
Under the Purchase Plan, the offering period for any offering will be no
longer than 27 months. Under the plan offering adopted pursuant to the
Purchase Plan, each offering period has been set at six months. In June 1999,
the plan was amended to increase the number of shares reserved for issuance
automatically each year at the end of the Company's fiscal year for the next
10 years (commencing at the end of fiscal 2000 and ending 10 years later in
2009) by an amount equal to 2% of the outstanding shares of the Company on
each date, including on an as-if-converted basis preferred stock and
convertible notes, and outstanding options and warrants, calculated using the
treasury stock method, up to a maximum aggregate increase of 6 million shares
over the 10-year period. In January 2000, the shares of common stock available
for issuance were increased by 772,385 shares pursuant to this provision.

Employees are eligible to participate if they are employed by the Company
or an affiliate of the Company designated by the Board. Employees who
participate in an offering generally can have up to 10% of their earnings
withheld pursuant to the Purchase Plan and applied, on specified dates
determined by the Board, to the purchase of shares of common stock. The Board
may increase this percentage at its discretion, up to 15%. The price of common
stock purchased under the Purchase Plan will be equal to 85% of the lower of
the fair market value of the common stock on the commencement date of each
offering period or the relevant purchase date. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment with the
Company. At January 30, 2000, 128,827 shares have been issued under the
Purchase Plan and 1,143,558 shares have been reserved for further issuance.

The fair value of options granted under the Purchase Plan in fiscal 2000
has been estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions: no dividend yield, risk
free interest rate of 5.21% , expected life for the option of 0.5 years and
volatility of 70%. The weighted-average fair value of shares granted under the
Purchase Plan during the year ended January 30, 2000 was approximately $3.92
per share.

41
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

(4) Financial Arrangements, Commitments and Contingencies

Short-term Borrowings

In July 1999, the Company entered into an amended loan and security
agreement with a bank, which included a $10.0 million revolving loan agreement
with a borrowing base equal to 80% of eligible accounts. Borrowings under the
line of credit bear interest at the prime rate, which was 8.5% at January 30,
2000, and are due in July 2000. Covenants governing the loan agreement require
the maintenance of certain financial ratios. As of January 30, 2000, the
Company had no outstanding borrowings against the line of credit.

Lease Obligations

The Company leases certain office facilities under operating leases
expiring through 2003. Future minimum lease payments under the Company's
noncancelable capital and operating leases as of January 30, 2000, are as
follows (in thousands):

<TABLE>
<CAPTION>
Year ending January Operating Capital
------------------- ----------- -----------
<S> <C> <C>
2001............................................... $ 2,614 $2,000
2002............................................... 2,722 705
2003............................................... 2,431 418
------- ------
Total payments..................................... $ 7,767 3,123
=======
Less amount representing interest, at rates ranging
from 8% to 10%.................................... 375
------
Present value of minimum debt payments............. 2,748
Less current portion............................... 1,786
------
Long term portion.................................. $ 962
======

The following is an analysis of the property and equipment under capital
leases by major classes:

<CAPTION>
January 31, January 30,
1999 2000
----------- -----------
(in thousands)
<S> <C> <C>
Classes of Property and Equipment:
Computer equipment................................. $ 4,450 $4,192
Test equipment..................................... 1,192 1,915
Software and other................................. 995 785
------- ------
6,637 6,892
Accumulated depreciation and amortization.......... (3,238) (5,285)
------- ------
Leased property and equipment, net................. $ 3,399 $1,607
======= ======
</TABLE>

Rent expense for 1997, one month ended January 31, 1998, the years ended
January 31, 1999 and January 30, 2000 was approximately $425,000, $52,000,
$1,555,000 and $2,501,000, respectively.

Litigation

On April 9, 1998, the Company was notified that SGI had filed a patent
infringement lawsuit against it in the United States District Court for the
District of Delaware. The suit alleged that the sale and use of the Company's
RIVA family of 3D graphics processors infringed a United States patent held by
SGI. The suit sought unspecified damages (including treble damages), an order
permanently enjoining further alleged infringement and attorneys' fees. In
July 1999, the matter settled during trial and it has been dismissed. As part
of the settlement, the Company entered into agreements with SGI to create a
broad strategic alliance to collaborate on future graphics technologies. As
part of the agreements, SGI dismissed its patent infringement suit against the
Company

42
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

and the Company licensed SGI's 3D graphics patent portfolio. Additionally, SGI
agreed to incorporate the Company's graphics technology into new desktop
graphics systems and transfer engineering personnel to the Company during the
third quarter of fiscal 2000. The Company agreed to pay SGI a total of $3.0
million in nine quarterly installments with the final payment due in May 2001.
The rights to patents recorded under other assets are amortized using the
straight-line method over five years.

On May 11, 1998, S3 filed a patent infringement suit against the Company in
the United States District Court for the Northern District of California. The
suit alleged that the Company's sale of RIVA 128, 128ZX and TNT graphics
processors infringed three United States patents owned by S3. The suit sought
unspecified damages (including treble damages), an order permanently enjoining
further alleged infringement and attorneys' fees. The Company and S3 agreed to
settle this case on February 1, 2000, on the basis of mutual patent cross-
licenses and on February 7, 2000, the District Court entered a final judgment
in the Company's favor, dismissing all of S3's claims.

On September 21, 1998, 3Dfx filed a patent infringement lawsuit against the
Company in the United States District Court for the Northern District of
California alleging infringement of a 3Dfx patent. On March 2, 1999, 3Dfx
added a second patent to the suit and on May 24, 1999, 3Dfx added a third
patent to the suit. The amended complaint alleges that the Company's RIVA TNT,
RIVA TNT2 and RIVA TNT2 Ultra products infringe the patents in suit and seeks
unspecified compensatory and trebled damages and attorney's fees. The
Company's current generation of products is not identified as infringing any
of the patents in suit. The Company has filed an answer and counter-claims
asserting that the patents in suit are invalid and not infringed. These
assertions are supported by the Company's investigations to date and an
opinion from the Company's patent counsel in this suit. The Company
anticipates that the trial date will be set by the District Court after it
rules on claims construction issues. The Company has and will continue to
defend vigorously this suit. In the event of an adverse result in the 3Dfx
suit, the Company might be required to do one or more of the following: (i)
pay substantial damages (including treble damages); (ii) permanently cease the
manufacture and sale of any of the infringing products; (iii) expend
significant resources to develop non-infringing products; or (iv) obtain a
license from 3Dfx for infringing products.

In addition to the above litigation, from time to time the Company is
subject to claims in the ordinary course of business, none of which in the
Company's view, would have a material adverse impact on the Company's business
or financial position if resolved unfavorably.

(5) Income Taxes

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January 31, January 30,
1997 1998 1999 2000
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal.................... $-- $134 $538 $11,624
State...................... -- -- -- 824
--- ---- ---- -------
Total current.............. -- 134 538 12,448
Deferred:
Federal.................... -- -- (226) (3,923)
State...................... -- -- -- (1,070)
--- ---- ---- -------
Total deferred............. -- -- (226) (4,993)
Charge in lieu of taxes
attributable to employer
stock option plans.......... -- -- 45 10,613
--- ---- ---- -------
Total income taxes......... $-- $134 $357 $18,068
=== ==== ==== =======
</TABLE>

43
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

The provision for income taxes differs from the amount computed by applying
the federal statutory income tax rate of 35% to income before taxes as
follows:

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Tax expense (benefit)
computed at federal
statutory rate............ $(1,256) $518 $ 1,570 $19,658
Loss carryforward.......... 1,256 (518) (1,570) --
Alternate Minimum Tax...... -- 134 357 --
State income taxes, net of
federal tax benefit....... -- -- -- 1,531
Research and
experimentation credit.... -- -- -- (1,389)
Change in valuation
allowance................. -- -- -- (4,784)
Other...................... -- -- -- 3,052
------- ---- ------- -------
Total income taxes....... $ -- $134 $ 357 $18,068
======= ==== ======= =======
</TABLE>

The tax effect of temporary differences that gives rise to significant
portions of the deferred tax assets are presented below:

<TABLE>
<CAPTION>
January 31, January 31, January 30,
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards....... $3,380 $ -- $ --
Accruals and reserves, not currently
taken for tax purposes................ 228 2,323 4,996
Research credit carryforwards.......... 1,095 1,775 --
Advances on development contract....... 996 138 --
Other.................................. 383 774 223
------ ------ ------
Total gross deferred tax assets........ 6,082 5,010 5,219
Less valuation allowance............... (6,082) (4,784) --
------ ------ ------
Net deferred tax assets................ $ -- $ 226 $5,219
====== ====== ======
</TABLE>

The valuation allowance had decreases of $1,298,000 and $4,784,000 for the
year ended January 31, 1999 and the year ended January 30, 2000, respectively.
Management believes that it is more likely than not that future operations
will generate sufficient taxable income to realize the deferred tax assets.

(6) Development Agreement

The Company had a strategic collaboration agreement with ST for the
manufacture, marketing, and sale of certain of the Company's products. In
1996, ST paid the Company $2,500,000 for advanced royalty payments and agreed
to partially support the research and development and marketing efforts for
certain of the Company's products. In connection with this agreement, the
Company recorded royalty revenue of $1,791,000, $1,911,000, and $6,824,000, in
1997, the one month ended January 31, 1998, and the year ended January 31,
1999, respectively. Royalty revenue decreased to zero in fiscal 2000 due
primarily to reduced sales of RIVA 128 graphics processor and derivative
products and disputes with ST regarding payment. The Company does not expect
to record or receive royalty revenue from ST in the future. The Company also
recorded a reduction to research and development cost of $1,936,000 and a
reduction to sales, general and administrative expense of $314,000 in 1997. In
January of 1998, ST agreed to forgive the $2,500,000 in advanced royalty
payments in exchange for the Company's obligation to provide ST continued
development and support on certain products developed through December 31,
1998 which was recorded as a reduction to research and development expense in
fiscal 1999. Accordingly, $2,500,000 is included in accrued liabilities at
December 31, 1997. The costs incurred under the development agreement
approximated the amounts recorded as reduction to expenses.

44
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

(7) Long-term Software Licensing Agreement

On April 12, 1999, the Company entered into a $10.0 million five-year
software licensing agreement with a supplier in the electronic design
automation industry. Under this agreement, the $10.0 million is due in two
installments. The first installment was settled in June 1999 for 243,902
shares of the Company's common stock valued at $5.0 million. The second
installment is due on or before March 31, 2000 and may be settled in cash or
in stock at the option of the Company.

(8) Stock Repurchase Agreement

In June 1999, the Company repurchased 428,572 shares of the Company's
common stock from a major customer in settlement for a portion of then
outstanding accounts receivable, in the amount of $7.5 million.

(9) Segment Information

The Company operates in a single industry segment: the design, development
and marketing of 3D graphics processors for the PC market. The Company's chief
operating decision maker, the Chief Executive Officer, reviews financial
information presented on a consolidated basis for purposes of making operating
decisions and assessing financial performance. The following table summarizes
geographic information on net sales:

<TABLE>
<CAPTION>
Year Ended Year Ended
Year Ended Month Ended January January
December 31, January 31, 31, 30,
1997 1998 1999 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
U.S.......................... $29,071 $13,331 $120,788 $103,609
Asia Pacific................. -- -- 29,649 208,832
Europe....................... -- -- 7,800 62,064
------- ------- -------- --------
Total revenue................ $29,071 $13,331 $158,237 $374,505
======= ======= ======== ========
</TABLE>

Revenues to significant customers, those representing approximately 10% or
more of total revenue for the respective periods, are summarized as follows:

<TABLE>
<CAPTION>
Year Ended Month Ended Year Ended Year Ended
December 31, January 31, January January
1997 1998 31, 1999 30, 2000
------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Sales
Customer A.................. 63% 59% 35% 3%
Customer B.................. 31% 39% 27% 15%
Customer C.................. -- -- 13% 17%
Customer D.................. -- -- 12% 2%
Customer E.................. -- -- -- 15%
Customer F.................. -- -- 4% 10%
</TABLE>

<TABLE>
<CAPTION>
As of As of As of
January 31, 1998 January 31, 1999 January 30, 2000
---------------- ---------------- ----------------
<S> <C> <C> <C>
Accounts Receivable
Customer A.............. 57% 19% --
Customer B.............. 43% 28% 4%
Customer C.............. -- 18% 15%
Customer D.............. -- 14% --
Customer E.............. -- -- 12%
Customer F.............. -- -- 6%
Customer G.............. -- -- 13%
</TABLE>

45
<PAGE>

NVIDIA CORPORATION

NOTES TO FINANCIAL STATEMENTS--(Continued)

(10) Quarterly Summary (Unaudited)
(in thousands, except per share data)

<TABLE>
<CAPTION>
Quarters Ended
------------------------------------------------------------------
April July Oct. Jan. Oct.
26, 26, 25, 31, May 2, Aug. 1, 31, Jan. 30,
1998 1998 1998 1999 1999 1999 1999 2000
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................. $28,263 $12,134 $52,303 $65,537 $71,018 $78,017 $97,015 $128,455
Cost of revenue......... 20,873 12,961 33,566 42,346 45,946 49,625 60,195 79,809
Gross profit (loss)..... 7,390 (827) 18,737 23,191 25,072 28,392 36,820 48,646
Net income (loss)....... (1,021) (9,652) 7,141 7,662 6,261 6,686 10,564 14,587
Basic net income (loss)
per share.............. $ (.07) $ (.68) $ .50 $ .48 $ .21 $ .23 $ .35 $ .47
Diluted net income
(loss)
per share.............. $ (.07) $ (.68) $ .26 $ .27 $ .18 $ .19 $ .29 $ .39
</TABLE>

(11) Subsequent Events

On March 5, 2000, the Company entered into an agreement with Microsoft in
which the Company agreed to develop and sell graphics chips and to license
certain technology to Microsoft and its licensees for use in a product under
development by Microsoft. The agreement provides that in April 2000, Microsoft
will pay the Company $200 million as an advance against graphics chip
purchases and for licensing the Company's technology. Microsoft may terminate
the agreement at any time and if termination occurs prior to offset in full of
the advance payments, the Company would be required to return to Microsoft up
to $100 million of the prepayment and to convert the remainder into preferred
stock of the Company at a 30% premium to the 30-day average trading price of
the common stock. The graphics chip and the game console contemplated by the
agreement is highly complex and development and release of the Microsoft
product and its commercial success are dependent upon a number of factors,
many of which the Company cannot control. There can be no assurance that the
Company will be successful in developing the graphics chip for use by
Microsoft or that the product will be developed or released, or if released,
will be commercially successful.

46
<PAGE>

NVIDIA CORPORATION

SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

<TABLE>
<CAPTION>
Additions
Charged Balance
Balance to Costs Charged at End
Beginning and to Other of
of Period Expenses Accounts Deductions Period
Description --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year ended January 30, 2000
Allowance for sales returns
and allowances............... $2,627 4,546 -- 3,081(1) $4,092
====== ===== ==== ===== ======
Allowance for doubtful
accounts..................... $ -- 2,395 -- 44(2) $2,351
====== ===== ==== ===== ======
Year ended January 31, 1999
Allowance for sales returns
and allowances............... $ 349 6,261 -- 3,983(1) $2,627
====== ===== ==== ===== ======
One Month ended January 31,
1998
Allowance for sales returns
and allowances............... $ 100 249 -- -- $ 349
====== ===== ==== ===== ======
Year ended December 31, 1997
Allowance for sales returns
and allowances............... $ -- 100 -- -- $ 100
====== ===== ==== ===== ======
</TABLE>
- --------
(1) Represents amounts written off against the allowance for sales returns.
(2) Uncollectible accounts written off.

47
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 10, 2000.

NVIDIA Corporation

/s/ Jen-Hsun Huang
By: _________________________________
Jen-Hsun Huang
President, Chief Executive Officer
and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Jen-Hsun Huang President, Chief Executive March 10, 2000
____________________________________ Officer and Director
Jen-Hsun Huang (Principal Executive
Officer)
/s/ Christine B. Hoberg Chief Financial Officer March 10, 2000
____________________________________
Christine B. Hoberg
/s/ Tench Coxe Director March 10, 2000
____________________________________
Tench Coxe
/s/ James C. Gaither Director March 10, 2000
____________________________________
James C. Gaither
/s/ Harvey C. Jones, Jr. Director March 10, 2000
____________________________________
Harvey C. Jones, Jr.
/s/ William J. Miller Director March 10, 2000
____________________________________
William J. Miller
/s/ A. Brooke Seawell Director March 10, 2000
____________________________________
A. Brooke Seawell
/s/ Mark A. Stevens Director March 10, 2000
____________________________________
Mark A. Stevens
</TABLE>

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
NVIDIA Corporation:

We consent to incorporation by reference in the registration statement (No.
333-74905) on Form S-8 of NVIDIA Corporation of our report dated March 6,
2000, relating to the balance sheets of NVIDIA Corporation as of January 30,
2000 and January 31, 1999, and the related statements of operations,
stockholders' equity, and cash flows for the year ended December 31, 1997, the
one-month period ended January 31, 1998, and each of the years in the two-year
period ended January 30, 2000, and the related schedule, which report appears
in the January 30, 2000 annual report on Form 10-K of NVIDIA Corporation.

/s/ KPMG LLP

Mountain View, California
March 10, 2000

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JANUARY 30, 2000 AND THE STATEMENT OF INCOME FOR THE YEAR ENDED
JANUARY 30, 2000. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-30-2000
<CASH> 61,560
<SECURITIES> 0
<RECEIVABLES> 73,667
<ALLOWANCES> 6,443
<INVENTORY> 37,631
<CURRENT-ASSETS> 173,175
<PP&E> 41,330
<DEPRECIATION> 15,444
<TOTAL-ASSETS> 202,250
<CURRENT-LIABILITIES> 76,225
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 124,532
<TOTAL-LIABILITY-AND-EQUITY> 202,250
<SALES> 374,505
<TOTAL-REVENUES> 374,505
<CGS> 235,575
<TOTAL-COSTS> 235,575
<OTHER-EXPENSES> 84,518
<LOSS-PROVISION> 993
<INTEREST-EXPENSE> 332
<INCOME-PRETAX> 56,166
<INCOME-TAX> 18,068
<INCOME-CONTINUING> 38,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,098
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.06

</TABLE>