What changed in this filing

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Item 1A. Risk Factors

2022-05-27 compared with 2021-11-22 · 150 added, 185 removed, 9 unchanged (97% 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 Reports on Form 10-Q for the fiscal quarters ended May 2, 2021 and August 1, 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 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.

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.

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 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.

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 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;

• 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.

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.

If we fail to estimate customer demand properly, there may be a mismatch between supply and demand, and our financial results could be harmed.

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

Product transitions are complex and can negatively impact our revenue as we manage shipments of legacy prior architecture products and channel partners prepare and adjust to support new products.

We sell most of our products through channel partners, who 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 changes in end user demand for our products could impact our ability to properly forecast demand.

GPUs have use cases in addition to their designed and marketed use case, such as for digital currency mining, including blockchain-based platforms such as Ethereum.

It is difficult for us to estimate with any reasonable degree of precision the past or current impact of cryptocurrency mining, or forecast the future impact of cryptocurrency mining, on demand for our products.

Volatility in the cryptocurrency market, including new compute technologies, price changes in cryptocurrencies, government cryptocurrency policies and regulations, new cryptocurrency standards, and changes in the method of verifying blockchain transactions, have impacted and can in the future impact cryptocurrency mining and demand for our products and can further impact 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 as well as 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.

We have introduced Lite Hash Rate, or LHR, GeForce GPUs with limited Ethereum mining capability and provided CMP products in an effort to address demand from gamers and direct miners to CMP.

Attempts in the aftermarket to improve the hash rate capabilities of our LHR cards have been successful and our gaming cards may become more attractive to miners, increasing demand for our gaming GPUs and limiting our ability to supply our gaming cards to non-mining customers.

We cannot predict whether our strategy of using LHR cards and CMP will achieve our desired outcome.

In addition, our new products or previously sold products may be resold online or on the unauthorized “gray market,” which also makes demand forecasting difficult.

Gray market products or reseller marketplaces compete with our distribution channels.

Consumer and enterprise behavior during the COVID-19 pandemic, such as increased demand for our Gaming, Data Center, and workstation products, has made it more difficult for us to estimate future demand and may have changed pre-pandemic behaviors.

These challenges may be more pronounced or volatile in the future on both a global and regional basis and may continue in the future when the effects of the pandemic subside.

Restrictions that may be imposed or reinstated as the pandemic continues, such as recent lockdown measures due to COVID-19 containment efforts in China, may negatively impact customer demand for our products.

Our manufacturing lead times are very long and in some cases extend twelve months or longer, which requires us to make estimates of customers’ future demand.

These conditions could lead to a significant mismatch between supply and demand, giving rise to product shortages or excess inventory.

To shorten shipment lead times and deliver more quickly to our customers, we may build finished products and maintain inventory for anticipated demand that does not materialize.

Demand for our products may be perishable or may disappear.

We may not be able to reduce our inventory purchase commitments if customers cancel or defer orders or choose to purchase from our competitors.

We may 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.

Situations that may result in excess inventory, cancellation penalties or related impairments include:

• changes in business and economic conditions resulting in decreased consumer confidence, including downturns in our target markets and/or overall economy, rising inflation, and changes in the credit market;

• sudden or sustained government lockdowns or actions to control COVID-19 case spread;

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

• new product introductions resulting in less demand for existing products or inconsistent spikes in demand due to unexpected end use cases;

• increase in demand for competitive products, including competitive actions;

• fluctuations in demand for our products related to cryptocurrency mining;

• decrease in future demand, decrease in the cost of supply chain materials, or changes in the design of future products where we have entered into long-term supply commitments, including prepayments, particularly to the extent we are placing orders well in advance of our historical lead times and/or before the design of those products is final.

Recent COVID-19-related disruptions and lockdowns in China have created and may continue to create supply and logistics constraints.

The war in Ukraine has further strained global supply chains and could result in a shortage of key materials that our suppliers, including our foundry partners, require to satisfy our needs.

In the future, we may also face supply constraints caused by natural disasters or other events.

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, or our original equipment manufacturers may experience supply constraints.

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 harmed.

In periods of shortages impacting the semiconductor industry and/or limited supply or capacity in our supply chain, as we are in today, we have placed orders for certain supply in advance of our historical lead times, paid premiums and provided deposits to secure future supply and capacity, and may need to continue to do so in the future.

For example, while we previously placed orders with approximately six months’ lead time, we have begun placing orders at least twelve months in advance.

Our inventory and purchase commitments reflect our demand expectations for our future quarters and long-term supply and capacity needs.

However, we may not be able to accurately predict when such periods of shortage will end, nor do we know whether those inventory orders accurately address our current and future demand needs.

These actions may increase our product costs, in addition to increased costs we have experienced driven by rising inflation, and result in excess inventory, cancellation penalties or other charges if there is a partial or complete reduction in long-term demand for our products, negatively impacting our gross margins and our overall financial results.

Our supply deliveries and production may be non-linear within a quarter or year which could cause changes to expected revenue or cash flows.

We are subject to risks and uncertainties associated with international operations, including adverse economic conditions, which may harm our business.

We conduct our business and have offices worldwide.

Our semiconductor wafers are manufactured, assembled, tested and packaged by third parties located outside of the United States and we generated 77% of our revenue for the first quarter of fiscal year 2023 from sales outside of the United States.

The global nature of our business subjects us to a number of risks and uncertainties, which could have a material adverse effect on our business, financial condition and results of operations, including:

• domestic and international economic and political conditions between countries in which we do business;

• government lockdowns to control COVID-19 cases;

• differing legal standards with respect to protection of IP and employment practices;

• domestic and international business and cultural practices that differ;

• disruptions to capital markets and/or currency fluctuations;

• natural disasters, acts of war or other military actions, terrorism, public health issues, and other catastrophic events.

Adverse changes in global, regional or local economic conditions, including recession or slowing growth, the COVID-19 pandemic or other global or local health issues, changes or uncertainty in fiscal, monetary, or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses including on IT infrastructure, increases in unemployment, and lower consumer confidence and spending, periodically occur.

Increased costs for wafers, components, logistics, and other supply chain expenses, driven in part by inflation, have negatively impacted our gross margin and may continue to impact our gross margin.

Inflation may also continue to cause increased supply, employee, facilities and infrastructure costs, decreased demand for our products, and volatility in the financial markets.

To the extent such inflation continues, increases or both, it may reduce our margins and have a material adverse effect on our financial performance.

Economic and industry uncertainty or changes could have adverse, wide-ranging effects on our business and financial results, including:

• decrease in demand for our products, services and technologies and those of our customers or licensees;

• the inability of our suppliers to deliver on their supply commitments to us;

• our customers’ or our licensees’ inability to supply products to customers and/or end users;

• the insolvency of key suppliers, distributors, customers or licensees;

• limits on our ability to forecast operating results and make business decisions;

• difficulties in obtaining capital;

• reduced profitability may also cause some customers to scale back operations, exit businesses, merge with other manufacturers, or file for bankruptcy protection and potentially cease operations;

• lead to consolidation or strategic alliances among other equipment manufacturers, which could adversely affect our ability to compete effectively;

• increased credit and collectability risks, higher borrowing costs or reduced availability of capital markets, reduced liquidity, adverse impacts on our suppliers, failures of counterparties including financial institutions and insurers, asset impairments, and declines in the value of our financial instruments.

We have engineering, sales support operations and manufacturing located in Israel.

The State of Israel and companies with business in Israel have been and could in future be the subject of an economic boycott.

Other countries have and may continue in the future restrict business with the State of Israel and companies with Israeli operations.

Such laws and policies may have adverse effect on our business, financial condition and results of operations.

Business disruptions could harm our operations, lead to a decline in revenue and increase our costs.

Our worldwide operations could be disrupted by natural disasters and extreme weather conditions, power or water shortages, telecommunications failures, cloud service provider outages, terrorist attacks, or acts of violence, political and/or civil unrest, acts of war or other military actions, epidemics or pandemics and other natural or man-made disasters and catastrophic events.

Our corporate headquarters, a large portion of our current data center capacity, and a portion of our research and development activities are located in California, and other critical business operations, finished goods inventory, and some of our suppliers are located in Asia, making our operations vulnerable to natural disasters such as earthquakes, wildfires, or other business disruptions occurring in these geographical areas.

Catastrophic events can also have an impact on third-party vendors who provide us critical infrastructure services for IT and research and development systems and personnel.

Geopolitical and domestic political developments and other events beyond our control, can increase economic volatility globally.

Political instability, changes in government or adverse political developments in or around any of the major countries in which we do business would also likely harm our business, financial condition and results of operations.

Our operations could be harmed and our costs could increase if manufacturing, logistics or other operations are disrupted for any reason, including natural disasters, high heat events or water shortages, information technology system failures, military actions or economic, business, labor, environmental, public health, or political issues.

For example, the war in Ukraine has had and will likely continue to have a negative impact on our employees or operations both within and outside Russia and Ukraine.

Additionally, the ongoing war could result in a shortage of key materials that our suppliers, including our foundry partners, require to satisfy our needs.

The ultimate impact on us, our third-party foundries and other suppliers of being located and consolidated in certain geographical areas is unknown.

In the event a disaster, war or catastrophic event affects us, the third-party systems on which we rely, or our customers, our business could be harmed as a result of declines in revenue, increases in expenses, and substantial expenditures and time spent to fully resume operations.

All of these risks and conditions could materially adversely affect our future sales and operating results.

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

The COVID-19 pandemic has impacted, and continues to impact, our workforce and operations and those of our customers, partners, vendors and suppliers.

As the pandemic continues to evolve, the increased duration and impact of economic and demand uncertainty, and the limited availability of our supply chain, logistical services and component supply, may have a material net negative impact on our business and financial results.

While COVID-19 has driven an increase in sales for certain of our products, the demand may not be sustainable if conditions change.

COVID-19 containment around the world has put restrictions on, among other areas, manufacturing facilities, commerce, and support operations, which could limit our capacity to meet customer demand.

For example, recent lockdown measures due to COVID-19 containment efforts in China have impacted end customer sales, disrupted our partners’ operations, created logistics and delivery bottlenecks, and further curtailed supply, and may continue to do so in the future.

At the same time, stronger demand globally has limited the availability of capacity and components in our supply chain, which could increase our costs, limit our ability to obtain supply at necessary levels or at all, or cause us to hold excess inventory if demand changes.

COVID-19’s effect on the global economy and our business is difficult to assess or predict.

It has resulted in, and may continue to result in, disruption of global financial markets, which could negatively affect our stock price and liquidity.

Volatility in the financial markets could impact overall technology spending, adversely affecting demand for our products, our business and the value of our common stock.

We have modified our business and workforce practices in response to COVID-19, and we may take further actions as required by government regulations or in the best interests of our employees, customers, partners and suppliers.

There is no certainty that our actions 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.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance and our ability to timely execute our business strategies may continue to be difficult to measure and predict.

We have experienced supply chain and economic disruption, in part as a result of the COVID-19 pandemic which has negatively impacted and could have a material negative impact on our business, results of operations, financial condition, and access to sources of liquidity.

Our operations could be affected by the complex laws, rules and regulations to which our business is subject, and political and other actions may adversely impact our business.

We are subject to laws and regulations domestically and worldwide, affecting our operations in areas including, but not limited to, IP ownership and infringement;

import and export requirements and tariffs;

anti-corruption;

business acquisitions;

foreign exchange controls and cash repatriation restrictions;

data privacy requirements;

competition and antitrust;

product regulations;

cybersecurity;

environmental, health, and safety requirements;

the responsible use of AI;

climate change;

cryptocurrency;

and consumer laws.

Compliance with such requirements can be onerous and expensive, could impact our competitive position, and may impact our business operations negatively.

For example, the Foreign Corrupt Practices Act and other anti-corruption laws and regulations prohibit us from engaging in certain business practices.

There can be no assurance that our employees, contractors, suppliers, or agents will not violate policies, controls, and procedures that we have designed to help ensure compliance with applicable laws.

Violations of these laws and regulations can result in fines;

criminal sanctions against us, our officers, or our employees;

prohibitions on the conduct of our business;

and damage to our reputation.

Should any of these laws, rules and regulations be amended or expanded, or new ones enacted, we could incur materially greater compliance costs and/or restrictions on our ability to manufacture our products and operate our business.

For example, we may face increased compliance costs as a result of changes or increases in anti-competition legislation, regulation, administrative rule making, and enforcement activity resulting from growing public concern over concentration of economic power in corporations.

Government actions, including trade protection and national security policies of U.S.

and foreign government bodies, such as tariffs, import or export regulations, including deemed export restrictions, trade and economic sanctions, decrees, quotas or other trade barriers and restrictions could affect our ability to ship products, provide services to our customers and employees, do business without an export license with entities on the U.S.

Department of Commerce’s U.S.

Entity List or other U.S.

government restricted parties lists (which is expected to change from time to time), and generally fulfill our contractual obligations and have a material adverse effect on our business.

For example, in response to the war in Ukraine, the United States and certain allies have imposed economic sanctions and export control measures and may impose additional sanctions or export control measures, which have and could in the future result in, among other things, severe or complete restrictions on exports to and other commerce and business dealings involving Russia, Belarus, certain regions of Ukraine, and/or particular entities and individuals.

Such actions have limited or blocked, or could in the future limit or block the passage of our products, services and support into Russia, Belarus, and certain regions of Ukraine or other regions determined to be supporting Russia, and restrict access by our Russian or Ukrainian employees (both within and outside of Russia and Ukraine) to our systems, negatively impacting productivity.

Given these recent sanctions and export restrictions imposed by the United States and foreign government bodies, during the first quarter of fiscal year 2023, we paused all direct sales and support in Russia.

Concurrently, the war in Ukraine has impacted end customer sales in EMEA and may continue to do so in the future.

While we have policies and procedures in place to ensure compliance with sanctions and trade restrictions, our employees, contractors, partners, and agents may take actions in violations of such policies and applicable law, for which we may be ultimately held responsible.

If we were ever found to have violated U.S.

export control laws, we may be subject to various penalties available under the laws, any of which could have a material and adverse impact on our business, operating results and financial condition.

Additionally, changes in the public perception of governments in the regions where we operate or plan to operate could negatively impact our business and results of operations.

Geopolitical tensions and conflicts worldwide, including but not limited to Taiwan, China, Hong Kong, Israel and Korea where the manufacture of our product components and final assembly of our products are concentrated, may result in changing regulatory requirements, trade policies, export controls, import duties and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability.

The increasing focus on the strategic importance of AI technologies may result in additional regulatory restrictions that target products and services capable of enabling or facilitating AI, including some or all of our product and service offerings.

Such restrictions could include additional unilateral or multilateral export controls on certain products or technology, prohibiting us from exporting those products to customers in one or more markets, including but not limited to China, or could impose other conditions that limit our ability to serve demand abroad and could negatively impact our business and financial results.

Export controls may be imposed on our technology, products, or services even though competitors are not subject to similar restrictions, creating a competitive disadvantage for us and negatively impacting our business and financial results.

Increasing use of economic sanctions may also impact demand for our products or services, negatively impacting our business and financial results.

Deemed export control limitations could negatively impact the ability of our research and development teams to execute our roadmap or other objectives in a timely manner.

Recent restrictions imposed by the Chinese government on the duration of gaming activities and access to games may adversely affect our Gaming revenue, and increased oversight of digital platform companies may adversely affect our Data Center revenue.

Additionally, revisions to laws or regulations or their interpretation and enforcement could result in increased taxation, trade sanctions, the imposition of import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans or impact the timing of our shipments.

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

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.

5 unchanged sentences

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.

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 volatility in our stock price affecting 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.

For example, a decline in our stock price may result in reduced future tax benefits or in tax deficiencies from stock-based compensation.

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

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What changed 10-Q

Item 1A. Risk Factors