What changed in this filing

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Item 1A. Risk Factors

2021-08-20 compared with 2021-05-26 · 75 added, 32 removed, 26 unchanged (80% of the section changed)

Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Before you buy our common stock, you should know that making such an investment involves some risks including, but not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021.

Additionally, any one of those risks could harm our business, financial condition and results of operations, which could cause our stock price to decline.

6 unchanged sentences

The COVID-19 pandemic continues to evolve and affect our business and financial results and it has increased the duration and impact of economic and demand uncertainty.

In the first quarter of fiscal year 2022, our Gaming and Data Center market platforms benefited from stronger demand as people continue to work, learn, and play from home.

In Professional Visualization, notebook workstations continue to benefit from work-from-home trends and desktop workstations have started to recover as employees return onsite in certain markets.

In some regions, markets, or industries, where COVID-19 has driven an increase in sales for our products, the demand may not be sustainable if conditions change.

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A significant portion of our finished goods product distribution occurs through Hong Kong, Israel and Taiwan.

Additionally, our headquarters is in California.

Additionally, our headquarters

is in California.

Each of these countries and locations has been affected by the pandemic and has taken measures to try to contain it, including restrictions on manufacturing facilities, commerce, travel, on our support operations or workforce, or on our customers, partners, vendors and suppliers.

9 unchanged sentences

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including, but not limited to, the duration and continued spread of the pandemic, its severity, the emergence and spread of new and more contagious or deadly variants or mutant strains of the COVID-19 virus that may render vaccines ineffective or decrease their efficacy, the future spikes of COVID-19 infections or the existence of any additional waves of the COVID-19 pandemic and the severity of breakthrough cases, the actions to contain the disease or treat its impact, the development, distribution, availability and widespread acceptance of effective vaccines or other treatments and the timing of vaccine rollouts and herd immunity globally, further related restrictions on travel, and the duration, timing and severity of the impact on customer spending, including any recession resulting from the pandemic, all of which are uncertain and cannot be predicted.

An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain.

Our operating results have in the past fluctuated and may in the future fluctuate, and if our operating results are below the expectations of securities analysts or investors, our stock price could decline.

Our operating results have in the past fluctuated and may in the future continue to fluctuate due to numerous factors.

Therefore, investors should not rely on quarterly comparisons of our results of operations as an indication of our future performance.

Additional factors, other than or in addition to those described elsewhere in these risk factors, that could affect our results of operations in the future include, but are not limited to:

• our ability to achieve volume production of our next-generation products;

• our inability to adjust spending to offset revenue shortfalls due to the multi-year development cycle for some of our products and services;

• fluctuations in the demand for our products related to cryptocurrencies and COVID-19, as discussed further in the risk factor “If we fail to estimate customer demand properly, our financial results could be harmed” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021;

• changes in the timing of product orders due to unexpected delays in the introduction of our partners’ products;

• our ability to cover the manufacturing and design costs of our products through competitive pricing;

• our ability to comply and continue to comply with our customers’ contractual obligations;

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

• our ability to secure appropriate safety certifications and meet industry safety standards;

• supply constraints for and changes in the cost of the other components incorporated into our products;

• inventory write-downs;

• our ability to continue generating revenue from our partner network, including by generating sales within our partner network and ensuring our products are incorporated into our partners product ecosystems, and our partner network’s ability to sell products that incorporate our technologies;

• our dependence on third party vendors and end users to adopt our products, including InfiniBand;

• the inability of certain of our customers to make required payments to us, and our ability to obtain credit insurance over the purchasing credit extended to these customers;

• customer bad debt write-offs;

• any unanticipated costs associated with environmental liabilities;

• unexpected costs related to our ownership of real property;

• our ability to maintain and scale our business processes, information systems and internal controls;

• increases in our future tax rates, as discussed further in the risk factor “We may have exposure to additional tax liabilities and our operating results may be adversely impacted by higher than expected tax rates” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021;

• changes in financial accounting standards or interpretations of existing standards;

• general macroeconomic or industry events and factors affecting the overall market and our target markets, including global and domestic inflation rates.

Any one or more of the factors discussed above could prevent us from achieving our expected future financial results.

Any such failure to meet our expectations or the expectations of our investors or security analysts could cause our stock price to decline or experience substantial price volatility.

Our indebtedness could adversely affect our financial position and cash flows from operations, and prevent us from implementing our strategy or fulfilling our contractual obligations.

As of August 1, 2021, we had outstanding a total of $12 billion in notes due between 2021 and 2060.

As each series of senior notes matures, unless earlier redeemed or repurchased, we may have to expend significant resources to either repay or refinance notes.

If we decide to refinance the notes, we may be required to do so on different or less favorable terms or we may be unable to refinance the notes at all, both of which may adversely affect our financial condition.

We also have entered into a credit agreement that expires in October 2021 under which we may borrow up to $575 million and, subject to obtaining new commitments from lenders under the credit agreement, may borrow up to an additional $425 million under revolving loan commitments.

We also have a $575 million commercial paper program.

As of August 1, 2021, we had not borrowed any amounts under the credit agreement or issued any commercial paper.

Maintenance of our indebtedness, contractual restrictions, and additional issuances of indebtedness could:

• cause us to dedicate a substantial portion of our cash flows from operations towards debt service obligations and principal repayments;

• increase our vulnerability to adverse changes in general economic, industry and competitive conditions;

• limit our flexibility in planning for, or reacting to, changes in our business and our industry;

• impair our ability to obtain future financing for working capital, capital expenditures, acquisitions, general corporate or other purposes;

• due to limitations within the debt instruments, restrict our ability to grant liens on property, enter into certain mergers, dispose of all or substantially all of the assets of us and our subsidiaries, taken as a whole, materially change our business or incur subsidiary indebtedness, subject to customary exceptions.

We are required to comply with the covenants set forth in our indenture and credit agreement.

Our ability to comply with these covenants may be affected by events beyond our control.

If we breach any of the covenants and do not obtain a waiver from the note holders or lenders, then, subject to applicable cure periods, any outstanding indebtedness may be declared immediately due and payable.

In addition, changes by any rating agency to our credit rating may negatively impact the value and liquidity of our securities, could restrict our ability to obtain additional financing in the future and could affect the terms of any such financing.

We may not be able to realize the potential financial or strategic benefits of business acquisitions or investments, including the Mellanox acquisition and the planned Arm acquisition, and we may not be able to successfully integrate acquisition targets, which could hurt our ability to grow our business, develop new products or sell our products.

We hold and may in the future hold investments in publicly traded companies which could create volatility in our results and may generate losses up to the value of the investment.

We have in the past acquired and invested in, and may continue to acquire and invest in, other businesses that offer products, services and technologies that we believe will help expand or enhance our existing products, strategic objectives and business.

We completed our acquisition of Mellanox for approximately $7 billion in April 2020.

In September 2020, we announced our agreement to acquire all allotted and issued ordinary shares of Arm in a transaction valued at $40 billion.

We are working through the regulatory process in the United States, the United Kingdom, the European Union, China and other jurisdictions.

Discussions with regulators are taking longer than initially thought and it is it is difficult to predict when the regulatory process will conclude.

If the Purchase Agreement is terminated under certain circumstances, we will be refunded $1.25 billion of the Signing Consideration.

The Mellanox acquisition, the planned Arm acquisition and future acquisitions or investments involve significant challenges and risks, and could impair our ability to grow our business, develop new products or sell our products, and ultimately could have a negative impact on our growth or our financial results.

Given that our resources are limited, our decision to pursue a transaction has opportunity costs;

accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our strategic objectives.

Furthermore, if we are unable to complete acquisitions in a timely manner, including due to delays in obtaining regulatory approvals, such as with respect to the planned Arm acquisition, we may be unable to pursue other transactions, we may not be able to retain critical talent from the target company, technology may evolve, making the acquisition less attractive, and other changes can take place which could jeopardize or reduce the anticipated benefits of the transaction and negatively impact our business.

In addition, we have made and may in the future make strategic investments in private companies and may not realize a return on our investments.

Additional risks related to the Mellanox acquisition, the planned Arm acquisition and other acquisitions or strategic investments include, but are not limited to:

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

• difficulty in integrating and retaining the acquired workforce, including key employees;

• diversion of capital and other resources, including management’s attention;

• assumption of liabilities and incurring amortization expenses, impairment charges to goodwill or write-downs of acquired assets;

• integrating financial forecasting and controls, procedures and reporting cycles;

• coordinating and integrating operations in countries in which we have not previously operated;

• acquiring business challenges and risks, including, but not limited to, disputes with management and integrating international operations and joint ventures;

• difficulty in realizing a satisfactory return, if any return at all;

• difficulty in obtaining or inability to obtain governmental and regulatory consents and approvals, other approvals or financing;

• the potential impact of with complying with governmental or other regulatory restrictions placed on an acquisition;

• the potential impact on our stock price and financial results if we are unable to obtain regulatory approval for an acquisition, are required to pay reverse breakup fees or are otherwise unable to close an acquisition;

• failure and costs associated with the failure to consummate a proposed acquisition or other strategic investment;

• legal proceedings initiated as a result of an acquisition or investment;

• the potential for our acquisitions to result in dilutive issuances of our equity securities;

• the potential variability of the amount and form of any performance-based consideration;

• uncertainties and time needed to realize the benefits of an acquisition or strategic investment, if at all;

• negative changes in general economic conditions in the regions or the industries in which we or our target operate;

• the need to determine an alternative strategy if an acquisition does not meet our expectations;

• potential failure of our due diligence processes to identify significant issues with the acquired assets or company;

• impairment of relationships with, or loss of our or our target’s employees, vendors and customers, as a result of our acquisition or investment.

System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our stock price and damage our reputation.

Security breaches, computer malware, phishing, and cyber-attacks have become more prevalent and sophisticated in recent years.

These threats are constantly evolving, making it increasingly difficult to successfully defend against them or implement adequate preventative measures.

These attacks have occurred on our systems in the past and are expected to occur in the future.

Experienced computer programmers, hackers and employees may penetrate our security controls and misappropriate or compromise our confidential information, or that of our employees or third parties.

These attacks may create system disruptions or cause shutdowns.

These hackers may also develop and deploy viruses, worms and other malicious software programs that attack or otherwise exploit security vulnerabilities in our products, including consumer and automotive products, where we utilize over-the-air updates to improve functionality over time.

For portions of our IT infrastructure, including business management and communication software products, we rely on products and services provided by third parties.

These providers may also experience breaches and attacks to their products which may impact our systems.

For example, in 2020, SolarWinds Inc., one of our third party software service providers, was subject to a data security breach.

We have completed our investigations of this breach, which were supported by a third party expert, and concluded that there was no adverse impact to NVIDIA.

Data security breaches may also result from non-technical means, such as actions by an employee with access to our systems.

To defend against security threats, both to our internal systems and those of our customers, we must continuously engineer more secure products and enhance security and reliability features, which may result in increased expenses.

We must also continue to develop security measures within NVIDIA, ensure our suppliers have appropriate security measures in place, and continue to meet the evolving security requirements of our customers or our business could be negatively impacted.

Actual or perceived breaches of our security measures or the accidental loss, inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us, our partners, our customers or third parties could expose us and the parties affected to a risk of loss or misuse of this information, resulting in litigation and potential liability, paying damages, regulatory inquiries or actions, damage to our brand and reputation or other harm to our business.

Our efforts to prevent and overcome these challenges could increase our expenses and may not be successful.

We may experience interruptions, delays, cessation of service and loss of existing or potential customers.

Such disruptions could adversely impact our ability to fulfill orders and interrupt other critical functions.

Delayed sales, lower margins or lost customers as a result of these disruptions could adversely affect our financial results, stock price and reputation.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors