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Item 1A. Risk Factors

2021-11-22 compared with 2021-08-20 · 166 added, 73 removed, 28 unchanged (90% 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 and Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 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 and Item 1A of our Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 2021.

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 and Item 1A of our Quarterly Reports on Form 10-Q for the fiscal quarters ended May 2, 2021 and August 1, 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.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

The COVID-19 pandemic continues to impact our business and could materially adversely affect our financial condition and results of operations.

COVID-19 has spread worldwide, resulting in government authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

These measures have impacted, and may further impact, our workforce and operations, the operations of our customers and our partners, and those of our respective vendors and suppliers (including our subcontractors and third-party contract manufacturers).

Our critical business operations, including our headquarters, most of our finished goods inventory and many of our key suppliers, are located in regions which have been impacted by COVID-19.

Our customers and suppliers worldwide have also been affected and may continue to be affected by COVID-19 related restrictions and closures.

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 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.

The reopening of offices may also generate demand for our products that may be temporary.

Additionally, stronger demand globally has limited the availability of capacity and components in our supply chain, particularly in Gaming, which could cause us to order an excess amount if demand changes, pay higher prices, or limit our ability to obtain supply at necessary levels or at all.

As the COVID-19 pandemic continues, the timing and overall demand from customers and the availability of supply chain, logistical services and component supply may have a material net negative impact on our business and financial results.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including Taiwan, China, Hong Kong, Israel and Korea.

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

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.

There is considerable uncertainty regarding the impact of such measures and potential future measures.

Such measures, as well as restrictions on or disruptions of transportation, such as reduced availability or increased cost of air transport, port closures and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, mandatory work-from-home policies and cancellation of physical participation in meetings, events and conferences), and we may take further actions as required by government authorities and regulations or that we determine are in the best interests of our employees, customers, partners and suppliers.

Some regions are easing COVID-19 related restrictions;

however, most of our employees continue to work remotely and we continue to temporarily prohibit most business travel.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the disease, and our ability to perform critical functions could be harmed.

As our offices begin to reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs, which could adversely impact our results of operations.

While the extent and duration of the COVID-19 pandemic on the global economy and our business is difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity.

A recession or financial market correction resulting from the lack of containment and spread of COVID-19 could impact overall technology spending, adversely affecting demand for our products, our business and the value of our common stock.

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 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.

Risks Related to Our Supply and Manufacturing

We depend on third parties and their technology to manufacture, assemble, test and/or package our products, which reduces our control over product quantity and quality, manufacturing yields, development, enhancement and product delivery schedule and could harm our business.

We do not manufacture the silicon wafers used for our products and do not own or operate a wafer fabrication facility.

Instead, we are dependent on industry-leading foundries, such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co.

Ltd., to manufacture our semiconductor wafers using their fabrication equipment and techniques.

Similarly, we do not directly assemble, test or package our products, but instead rely on independent subcontractors.

We must continue to scale and adapt our supply chain or it could have an adverse impact on our business.

While we may enter into long-term supply and capacity commitments as our business grows or in periods with limited availability of capacity and components in our supply chain, we may not be able to secure sufficient commitments to address our business needs or at all.

As a result, we face several significant risks which could have an adverse effect on our ability to meet customer demand and scale our supply chain and/or negatively impact longer-term demand for our products and services, our business operations, gross margin, revenue and/or financial results, including:

• a lack of guaranteed supply of wafers, components and capacity and potential higher wafer and component prices, which could be impacted by our failure to correctly estimate demand and to place orders with our suppliers in sufficient quantities and/or in a timely manner;

• a failure by our foundries or contract manufacturers to procure raw materials or to provide or allocate adequate, or any, manufacturing or test capacity for our products;

• a failure by our foundries to develop, obtain or successfully implement high quality, leading-edge process technologies, including transitions to smaller geometry process technologies such as advanced process node technologies and memory designs needed to manufacture our products profitably or on a timely basis;

• a limited number of suppliers, including foundries, contract manufacturers, assembly and test providers, and memory manufacturers;

• loss of a supplier and additional expense and/or production delays as a result of qualifying a new foundry or subcontractor and commencing volume production or testing in the event of a loss of or a decision to add or change a supplier;

• a lack of direct control over delivery schedules or product quantity and quality;

• delays in product shipments, shortages, a decrease in product quality and/or higher expenses in the event our subcontractors or foundries prioritize our competitors’ orders over our orders or otherwise.

In addition, low manufacturing yields could have an adverse effect on our ability to meet customer demand, increase manufacturing costs, harm customer or partner relationships, and/or negatively impact our business operations, gross margin, revenue and/or financial results.

Manufacturing yields for our products are a function of product design, which is developed largely by us, and process technology, which typically is proprietary to the foundry.

Low yields may result from either product design or process technology failure.

We do not know whether a yield problem will exist until our design is actually manufactured by the foundry.

As a result, yield problems may not be identified until well into the manufacturing process and require us and the foundry to cooperate to resolve the problem.

We also rely on third-party software development tools to assist us in the design, simulation and verification of new products or product enhancements, and to bring such new products and enhancements to market in a timely manner.

In the past, we have experienced delays in the introduction of products and enhancements 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 our products may exceed the capabilities of available software development tools.

If we miss design cycles or lose design wins due to the unavailability of such software development tools, we could lose market share and our revenues could decline.

If we fail to achieve design wins for our products, our business will be harmed.

Risks Related to Our Operating Business

If we fail to estimate customer demand properly or if demand exceeds supply, our financial results could be harmed.

Our products are manufactured based on estimates of customers’ future demand and our manufacturing lead times are very long.

This could lead to a significant mismatch between supply and demand, giving rise to product shortages or excess inventory, and make our demand forecast more uncertain.

We sell many of our products through a channel model, and our channel customers sell to retailers, distributors, and/or end customers.

As a result, the decisions made by our channel partners, retailers, and distributors in response to changing market conditions and the changing demand for our products could impact our ability to properly forecast demand.

To have shorter shipment lead times and quicker delivery schedules for our customers, we may build finished products and maintain in inventory for anticipated periods of growth which do not occur, anticipating demand that does not materialize, or for what we believe is pent-up demand.

In periods with limited availability of capacity and components in our supply chain, we have placed and may continue to place non-cancellable inventory orders in advance of our normal lead times, pay premiums and/or provide deposits to secure normal and incremental future supply and capacity.

Ordering product in advance of our normal lead times to secure supply in a constrained environment may trigger excess inventory or other charges if there is a partial or complete reduction in long term demand for our products or if such demand is served by our competitors, which could negatively impact our financial results.

Given our long lead times on inventory purchasing, demand may be perishable or may disappear.

Demand for our products is based on many factors, including our product introductions, time to market, and transitions, competitor product releases and announcements, and competing technologies, all of which can impact the timing and volume of our revenue.

GPUs have many use cases including their intended marketed use case and other uses.

For example, GPUs can be used for digital currency mining, though we do not have visibility into how much of our GPU usage is for cryptocurrency nor the past or future demand for GPU usage in cryptocurrency mining.

Volatility in the cryptocurrency market, including new compute technologies, price changes in cryptocurrencies, changes in government cryptocurrency policies and regulations, and new cryptocurrency standards can impact cryptocurrency demand, and further impact demand for our products and our ability to estimate demand for our products.

Changes to cryptocurrency standards and processes including, but not limited to, the pending Ethereum 2.0 standard may decrease the usage of GPUs for Ethereum mining and may also create increased aftermarket resales of our GPUs, impact retail prices for our GPUs, increase returns of our products in the distribution channel, and may reduce demand for our new GPUs.

Although we have introduced LHR GeForce GPUs with limited Ethereum mining capability in order to address demand from gamers, if attempts in the aftermarket to improve the hash rate capabilities of our LHR cards are successful, our gaming cards may become attractive to miners and increase demand for our GPUs, and therefore exacerbate our ability to supply our cards to gamers or other customers.

Additionally, consumer and enterprise behavior during the COVID-19 pandemic, such as increased demand for our Gaming, Data Center and mobile workstation and laptop products and suppressed corporate demand for desktop workstations, has made it more difficult for us to estimate future demand, and these challenges may be more pronounced in the future if and when the effects of the pandemic subside.

In estimating demand, we make multiple assumptions, any of which may prove to be incorrect.

If we are unable to accurately anticipate demand for our products, our business and financial results could be adversely impacted.

Situations that may result in excess or obsolete inventory include:

• changes in business and economic conditions, including downturns in our target markets and/or overall economy;

• changes in consumer confidence caused by changes in market conditions, including changes in the credit market;

• a sudden and significant decrease in demand for our products;

• a higher incidence of inventory obsolescence because of rapidly changing technology or customer requirements;

• our introduction of new products resulting in lower demand for older products;

• less demand than expected for newly-introduced products;

• increased competition, including competitive pricing actions.

The cancellation or deferral of customer purchase orders could result in our holding excess inventory, which could adversely affect our gross margins.

In addition, because we often sell a substantial portion of our products in the last month of each quarter, we may not be able to reduce our inventory purchase commitments in a timely manner in response to customer cancellations or deferrals.

We could be required to write-down our inventory to the lower of cost

or net realizable value or excess inventory, and we could experience a reduction in average selling prices if we incorrectly forecast product demand, any of which could harm our financial results.

Conversely, if we underestimate our customers' demand for our products, our foundry partners may not have adequate lead-time or capacity to increase production and we may not be able to obtain sufficient inventory to fill customers' orders on a timely basis.

We may also face supply constraints caused by natural disasters or other events.

In such cases, even if we are able to increase production levels to meet customer demand, we may not be able to do so in a cost-effective or timely manner.

If we fail to fulfill our customers' orders on a timely basis, or at all, our customer relationships could be damaged, we could lose revenue and market share and our reputation could be damaged.

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 continue to become more prevalent and sophisticated.

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, attackers 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.

Attackers may also develop and deploy viruses, worms and other malicious software that attacks or otherwise exploits security vulnerabilities in our products and services, including consumer, enterprise and automotive products.

For portions of our critical infrastructure, including business management and communication software products, we rely on products and services provided by third parties, potentially exposing us to supply-chain attacks which may impact our systems.

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.

Reported or perceived vulnerabilities, even if not exploited, can cause us harm.

Our efforts to prevent and overcome these and similar 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.

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” above;

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

• 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;

• rising inflation and our ability to control costs, including our operating expenses;

• 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” below;

• 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.

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.

We may not be able to realize the potential 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.

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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.

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

The actual valuation of the transaction will likely differ significantly from the estimated amount due to the significant increase in the price of our common stock since entry into the Purchase Agreement.

We are seeking regulatory approval for our proposed acquisition of Arm in the United States, the United Kingdom, the European Union, China and other jurisdictions.

Regulators at the FTC have expressed concerns regarding the transaction, and we are engaged in discussions with the FTC regarding remedies to address those concerns.

The transaction has been under the review of China’s antitrust authority, pending the formal case initiation.

Regulators in the United Kingdom and the European Union declined to clear the transaction in Phase 1 of their review processes, expressed numerous concerns, and began a more in-depth Phase 2 review on the transactions impact on competition, and, in the United Kingdom, a Phase 2 review of the impact on the United Kingdom’s national security interests.

We are in discussions with regulators in the United States, United Kingdom and European Union regarding our proposed remedies.

Unless regulators accept our proposed remedies and approve the transaction, the regulatory process is likely to extend beyond September 2022, which may result in the termination of the Purchase Agreement and the failure to close the transaction.

If the transaction does not close due to failure to receive regulatory approval, and all other

covenants have been met, we will not be refunded $1.25 billion of the advanced consideration for the acquisition we paid at signing.

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.

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• 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;

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

• the impact on our stock price and financial results or reputation 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, including any negative publicity associated with any of these events;

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

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

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.

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.

Climate change may have a long-term impact on our business.

Climate change may have an increasingly adverse impact on our business and those of our customers, partners and vendors.

While we seek to mitigate the risks associated with climate change on our operations, there are inherent climate-related risks globally.

Water and energy availability and reliability in the communities where we conduct business is critical.

We have facilities in regions that may be vulnerable to the impacts of extreme weather events.

For example, extreme heat in Northern California combined with concerns about wildfire risk have led to, and in the future may lead to, several prolonged power safety shut offs that have had, and in the future may have, adverse implications for our Santa Clara, California headquarter operations.

Severe weather events such as these may impair the ability of our employees to work effectively.

Climate change, including the increasing frequency of extreme weather, its impact on our supply chain and critical infrastructure worldwide and its potential to increase political instability in regions where we, our customers, partners and our vendors do business, may disrupt our business and may cause us to experience higher attrition, losses and costs to maintain or resume operations.

Although we maintain a program of insurance coverage for a variety of property, casualty, and other risks, the types and amounts of insurance we obtain vary depending on availability and cost.

Some of our policies have large deductibles and broad exclusions.

In addition, one or more of our insurance providers may be unable or unwilling to pay a claim.

Losses not covered by insurance may be large, which could harm our results of operations and financial condition.

Our operations, products and services, as well as those of our suppliers and customers, may also be subject to climate-related laws, regulations and lawsuits.

Regulations such as carbon taxes, fuel or energy taxes, and pollution limits could result in greater direct costs, including manufacturing costs such as costs associated with changes to manufacturing processes or the procurement of raw materials used in manufacturing processes, increased levels of capital expenditures to improve facilities and equipment, and higher compliance and energy costs to reduce emissions, as well as greater indirect costs resulting from our customers, suppliers or both incurring additional compliance costs that are passed on to us.

These costs and restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our operations and product design activities.

Furthermore, while we have endeavored to provide transparency by disclosing our environmental, social and governance efforts, it is possible that if we are deemed by one or more stakeholder groups to be insufficiently responsive to the implications of climate change to our business or insufficiently forthcoming about our practices, we could face legal action or reputational harm.

For example, we may not achieve our goal to source 65% of our global electricity use from renewable energy by the end of fiscal year 2025, which could harm our reputation, or we may incur additional, unexpected costs to achieve such a goal, which could affect our business and financial condition in an adverse manner.

We may also experience contractual disputes due to supply chain delays arising from climate change-related disruptions, which could result in increased litigation and costs.

We also face risks related to business trends that may be influenced by climate change concerns.

For example, decreased consumer or customer demand for computationally powerful but energy intensive products, such as our GPUs, despite their energy efficient design, and/or increased consumer or customer expectations around the energy efficiency of our products, could negatively impact our business and financial performance.

We may also face increased competition to develop additional products and services with a lower carbon impact, and our investments in new technologies may not be successful.

Additionally, these changing trends related to climate change may negatively affect our attractiveness to existing and prospective employees, which may make it difficult for us to attract and/or retain critical personnel.

Our business is dependent upon the proper functioning of our business processes and information systems and modification or interruption of such systems may disrupt our business, processes and internal controls.

We rely upon a number of internal business processes and information systems to support key business functions, including our assessment of internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act.

The efficient operation of these processes and systems is critical to our business.

Our business processes and information systems need to be scalable to support our growth, including for acquisitions of other businesses.

We will need to make modifications and upgrades from time to time in order to meet our business needs.

We expect in the first quarter of fiscal year 2023 to commence implementation of accounting and consolidation functionality related to a new enterprise resource planning, or ERP, system.

Any ERP system problems upon implementation, such as quality issues or programming errors, could impact our continued ability to successfully operate our business or to timely and accurately report our financial results.

These changes may be costly and disruptive to our operations and could impose substantial demands on management time.

Failure to implement new or updated controls, or difficulties encountered in the implementation of such controls, either in our existing business or in businesses that we acquire, could harm our operating results or cause us to fail to meet our reporting obligations.

If we identify material weaknesses in our internal controls, the disclosure of that fact, even if quickly remediated, may cause investors to lose confidence in our financial statements and the trading price of our common stock may decline.

Remediation of any material weakness could require us to incur significant expenses and if we fail to remediate any material weakness, our financial statements may be inaccurate, we may be required to restate our financial statements, our ability to report our financial results on a timely and accurate basis may be adversely affected, our access to the capital markets may be restricted, the trading price of our common stock may decline, and we may be subject to sanctions or investigation by regulatory authorities.

Risks Related to Regulatory, Legal, Our Common Stock and Other Matters

We may have exposure to additional tax liabilities and our operating results may be adversely impacted by higher than expected tax rates.

As a multinational corporation, we are subject to income taxes as well as non-income based taxes, such as payroll, sales, use, value-added, net worth, property and goods and services taxes, in both the United States and various foreign jurisdictions.

Our domestic and international tax liabilities are subject to the allocation of revenue and expenses in different jurisdictions.

Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities.

We are regularly under audit by tax authorities in different jurisdictions.

For example, we are currently under examination by the Internal Revenue Service for our fiscal years 2018 and 2019 and under audit in Germany, Israel and India.

Although we believe our tax estimates are reasonable, tax authorities may disagree with certain positions we have taken, and any adverse outcome of such a review or audit could increase our worldwide effective tax rate, increase the amount of non-income taxes imposed on our business, and harm our financial position, results of operations, and cash flows.

Further, changes in United States federal, and state or international tax laws applicable to multinational corporations or other fundamental law changes, including proposed changes to existing tax rules and regulations under the current U.S.

administration and Congress and as a result of recommendations from intergovernmental economic organizations such as the Organization for Economic Cooperation and Development, may materially impact our tax expense and cash flows, as we experienced in fiscal year 2018 with the passage of the Tax Cuts and Jobs Act.

Our future effective tax rate may also be affected by such factors as changes in our business or statutory rates, changes in jurisdictions in which our profits are determined to be earned and taxed, changes in available tax credits, the resolution of issues arising from tax audits, changes in United States generally accepted accounting principles, adjustments to income taxes upon finalization of tax returns, increases in expenses not deductible for tax purposes, changes in the valuation of our deferred tax assets and liabilities and in deferred tax valuation allowances, changing interpretation of existing laws or regulations, the impact of accounting for stock-based compensation and the recognition of excess tax benefits and tax deficiencies within the income tax provision in the period in which they occur, the impact of accounting for business combinations, shifts in the amount of earnings in the United States compared with other regions in the world and overall levels of income before tax, changes in the domestic or international organization of our business and structure, as well as the expiration of statute of limitations and settlements of audits.

Any changes in our effective tax rate may reduce our net income.

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