What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-28 compared with 2023-05-26 · 155 added, 121 removed, 134 unchanged (67% of the section changed)

17 unchanged sentences

Our Company and Our Businesses

NVIDIA pioneered accelerated computing to help solve the most challenging computational problems.

Since our original focus on PC graphics, we have expanded to several other large and important computationally intensive fields.

Fueled by the sustained demand for exceptional 3D graphics and the scale of the gaming market, NVIDIA has leveraged its GPU architecture to create platforms for scientific computing, AI, data science, autonomous vehicles, robotics, metaverse and 3D internet applications.

Since our founding in 1993, NVIDIA has been a pioneer in accelerated computing.

Our invention of the GPU in 1999 has sparked the growth of the PC gaming market, redefined computer graphics, ignited the era of modern AI and has fueled industrial digitalization across markets.

NVIDIA is now a full-stack computing company with data-center-scale offerings that are reshaping industry.

Our two operating segments are "Compute & Networking" and "Graphics," as described in Note 15 of the Notes to Condensed Consolidated Financial Statements.

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Recent Developments, Future Objectives and Challenges

Supply, Products Transitions, and New Products and Business Models

Our supply, which includes inventory on hand, purchase obligations and prepaid supply and capacity agreements, has grown significantly due to recent supply chain conditions and long lead times, complexity of our products, and changes in demand.

We have entered and expect to continue to enter into supplier and capacity prepayment arrangements.

We have procured substantially higher Data Center supply for the second half compared to the first half of fiscal year 2024.

We may incur inventory provisions or impairments if our inventory or supply or capacity commitments are misaligned with demand for our products.

Demand and Supply, Product Transitions, and New Products and Business Models

Demand for our data center systems and products has surged over the last two quarters and our demand visibility extends into next year.

In order to meet this demand, we have increased our purchase obligations with existing suppliers, added new suppliers and entered into prepaid supply and capacity agreements.

These increased purchase volumes and number of suppliers may create more supply chain complexity and execution risk.

We expect our supply to increase each quarter through next year.

We have entered and expect to continue to enter into supplier and capacity arrangements.

Product transitions are complex as we often ship both new and prior architecture products simultaneously and we and our channel partners prepare to ship and support new products.

We are currently transitioning the architecture of our Data Center, Professional Visualization, and Gaming products.

Qualification time for

new products, customers anticipating product transitions and channel partners reducing channel inventory of prior architectures ahead of new product introductions can create reductions or volatility in our revenue.

We are in various stages of transitioning the architecture of our Data Center, Professional Visualization, and Gaming products.

Qualification time for new products, customers anticipating product transitions and channel partners

reducing channel inventory of prior architectures ahead of new product introductions can create reductions or volatility in our revenue.

In addition, the bring up of new product architectures is complex due to functionality challenges and quality concerns not identified in manufacturing testing.

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We build technology and products for use cases and applications that may be new or may not yet exist such as our Omniverse platform, third-party large language models, and generative AI models.

Our demand estimates for these use cases and applications can be incorrect and create volatility in our revenue or supply levels, and we may not be able to generate significant revenue from these use cases and applications.

New technologies such as generative AI models have emerged, and while they have driven increased demand for compute infrastructure, the long-term trajectory is unknown.

NVIDIA AI Cloud Service Offerings

We offer enterprise customers NVIDIA AI cloud services directly and through our network of partners.

Examples of these services include NVIDIA DGX Cloud, which includes cloud-based infrastructure and software for training and deploying AI models, and NVIDIA AI Foundations for customizable pretrained AI models.

We have partnered with cloud service providers to host these services in their data centers.

We entered and may continue to enter into multi-year cloud service agreements to support these offerings and our research and development activities.

The timing and availability of these cloud services has changed and may continue to change, impacting revenue, expenses and development timelines.

We also offer or plan to offer standalone software solutions including NVIDIA AI Enterprise, NVIDIA Omniverse, NVIDIA DRIVE, and several other software solutions.

We have recently begun offering enterprise customers NVIDIA DGX cloud services directly and through our network of partners, which includes cloud-based infrastructure and software and services for training and deploying AI models, and NVIDIA AI Foundations for customizable pretrained AI models.

Our demand estimates for new use cases, applications, and services can be incorrect and create volatility in our revenue or supply levels, and we may not be able to generate significant revenue from these use cases, applications, and services.

New technologies such as generative AI models have emerged, and while they have driven increased demand for Data Center compute infrastructure, the long-term trajectory is unknown.

During the third quarter of fiscal year 2023, the U.S.

government, or the USG, announced license requirements that, with certain exceptions, impact exports to China (including Hong Kong and Macau) and Russia of our A100 and H100 integrated circuits, DGX or any other systems or boards which incorporate A100 or H100 integrated circuits.

Following the 2022 export controls, we transitioned some operations, including certain testing, validation, and supply and distribution operations out of China and Hong Kong.

During the second quarter of fiscal year 2024, the USG informed us of an additional licensing requirement for a subset of A100 and H100 products destined to certain customers and other regions, including some countries in the Middle East.

We have sold alternative products in China not subject to the license requirements, such as our A800 or H800 offerings.

Management of these new license and other requirements is complicated and time consuming.

Our results and competitive position may be harmed and we may be effectively excluded from all or part of the China market if there are further changes in the USG’s export controls, if customers in China do not want to purchase our alternative product offerings, if customers purchase product from competitors, if customers develop their own internal solution, if the USG does not grant licenses in a timely manner or denies licenses to significant customers, or if we incur significant transition costs.

Any new control that impacts a wide range of our products would likely have a disproportionate impact on NVIDIA and may disadvantage us against certain of our competitors that sell chips that are outside the scope of such control.

In addition to USG export controls, the Chinese government may also impose restrictions that impact our ability to sell our products.

New export controls or changes to existing controls could negatively impact our business, revenue or supply chain.

While we work through the resiliency and redundancy of our supply chain, it is currently concentrated in the Asia-Pacific, including China, Hong Kong, Korea and Taiwan, and changes to trade requirements may negatively impact our business.

First Quarter of Fiscal Year 2024 Summary

Given the strength of demand for our products worldwide, we do not anticipate that additional export restrictions, if adopted, would have an immediate material impact on our financial results.

However, over the long term, our results and competitive position may be harmed, and we may be effectively excluded from all or part of the China market if there are further changes in the USG’s export controls, if customers in China do not want to purchase our alternative product offerings, if customers purchase product from competitors, if customers develop their own internal solution, if the USG does not grant licenses in a timely manner or denies licenses to significant customers, or if we incur significant transition costs.

While we work to enhance the resiliency and redundancy of our supply chain, which is currently concentrated in the Asia-Pacific, including China, Hong Kong, Korea and Taiwan, new export controls or changes to existing export controls could negatively impact our business.

Macroeconomic Factors

Macroeconomic factors, including inflation, increased interest rates, significant capital market volatility, global supply chain constraints and global economic and geopolitical developments, may have direct and indirect impacts on our results of operations.

While difficult to isolate and quantify, these macroeconomic factors can impact our supply chain and manufacturing costs, employee wages, costs for capital equipment and value of our investments.

Our product and solution pricing strategy generally does not fluctuate with short-term changes in our costs.

Within our supply chain, we continuously manage product availability and costs with our vendors.

Second Quarter of Fiscal Year 2024 Summary

Three Months Ended

April 30, 2023 January 29, 2023 May 1, 2022 Quarter-over-Quarter Change Year-over-Year Change

July 30, 2023 April 30, 2023 July 31, 2022 Quarter-over-Quarter Change Year-over-Year Change

($ in millions, except per share data)

2 unchanged sentences

Operating expenses $ 2,662 $ 2,508 $ 2,416 6 % 10 %

Income from operations $ 2,140 $ 1,257 $ 1,868 70 % 15 %

Operating income $ 6,800 $ 2,140 $ 499 218 % 1,263 %

Net income $ 6,188 $ 2,043 $ 656 203 % 843 %

4 unchanged sentences

Data Center, Gaming, Professional Visualization, and Automotive.

Revenue for the first quarter of fiscal year 2024 was $7.19 billion, down 13% from a year ago and up 19% sequentially.

Data Center revenue was up 14% from a year ago and up 18% sequentially, led by growing demand for generative AI and large language models using GPUs based on our NVIDIA Hopper and Ampere architectures.

The revenue growth reflects strong demand from large consumer internet companies and cloud service providers.

Enterprise demand for GPU platforms was strong, although general purpose networking solutions declined both sequentially and from a year ago.

Gaming revenue was down 38% from a year ago and up 22% sequentially.

The year-on-year decrease reflects weaker demand due to the macroeconomic slowdown and lower shipments to normalize channel inventory levels.

The sequential increase was driven by the ramp of our new GeForce RTX 40 Series GPUs for desktops and laptops based on the Ada Lovelace architecture.

Revenue for the second quarter of fiscal year 2024 was $13.51 billion, up 101% from a year ago and up 88% sequentially.

Data Center revenue was up 171% from a year ago and up 141% sequentially, led by CSPs and large consumer internet companies.

Strong demand for the NVIDIA HGX platform based on our Hopper and Ampere GPU architectures was primarily driven by the development of large language models and generative AI.

Data Center Compute grew 195% from a year ago and 157% sequentially, largely reflecting the strong ramp of our Hopper-based HGX platform.

Networking was up 94% from a year ago and up 85% sequentially, primarily on strong growth in InfiniBand infrastructure to support our HGX platform.

In the second quarter of fiscal year 2024, CSPs represented slightly more than half of our estimated Data Center end demand, with large consumer internet companies being the next largest end demand, followed by enterprise and high performance computing.

Gaming revenue was up 22% from a year ago and up 11% sequentially, primarily reflecting demand for our GeForce RTX 40 Series GPUs based on the NVIDIA Ada Lovelace architecture following normalization of channel inventory levels.

Professional Visualization revenue was down 24% from a year ago and up 28% sequentially.

The year-on-year decrease reflects lower sell-in to partners to help reduce channel inventory levels.

The sequential increase was driven by higher demand for desktop and mobile workstation GPUs.

Automotive revenue was up 114% from a year ago and up 1% sequentially.

The year-on-year increase reflects growth in sales of self-driving platforms and AI cockpit solutions.

OEM and Other revenue was down 51% from a year ago and down 8% sequentially.

These decreases were primarily driven by lower entry level notebook GPU sales.

Gross margin declined from a year earlier and increased sequentially.

The year-on-year decline reflects lower Gaming margins and a higher contribution from Automotive, partially offset by higher Data Center margins.

The sequential increase reflects lower costs in Gaming and higher Data Center margins as we ramp our Hopper architecture.

Operating expenses were down 30% from a year ago and down 3% sequentially.

The prior year included a termination charge of $1.35 billion for the proposed Arm acquisition, and the prior quarter included fixed asset write-downs.

Cash, cash equivalents and marketable securities were $15.32 billion, down from $20.34 billion a year ago and up from $13.30 billion a quarter ago.

The year-on-year decrease reflects $8.04 billion in stock repurchases, partially offset by operating cash flow generation.

The sequential increase reflects operating cash flow generation.

During the first quarter of fiscal year 2024, we returned $99 million to shareholders in the form of cash dividends.

As of the end of the first quarter of fiscal year 2024, we had $7.23 billion remaining under our share repurchase authorization through December 2023.

The year-on-year decrease primarily reflects lower sell-in to partners following normalization of channel inventory levels.

The sequential increase was primarily due to stronger enterprise workstation demand and the ramp of NVIDIA RTX products based on the Ada Lovelace Architecture.

Automotive revenue was up 15% from a year ago and down 15% sequentially.

The year-on-year increase was primarily driven by sales of self-driving platforms.

The sequential decrease primarily reflects lower overall auto demand, particularly in China.

Gross margin increased from a year ago and sequentially, primarily reflecting growth in Data Center sales.

The year-on-year increase also reflects the impact on the year-ago gross margin from $1.34 billion in inventory provisions and related charges.

Operating expenses were up 10% from a year ago and up 6% sequentially, primarily driven by compensation and benefits, including stock-based compensation, reflecting growth in employees and compensation increases.

Market Platform Highlights

Data Center revenue for the first quarter of fiscal year 2024 was $4.28 billion, up 14% from a year ago, led by growing demand for generative AI and large language models using GPUs based on our NVIDIA Hopper and Ampere architectures.

The year-on-year increase reflects strong demand from large consumer internet customers and cloud service providers.

We launched four AI inference platforms that combine our full-stack inference software with NVIDIA Ada, NVIDIA Hopper and NVIDIA Grace Hopper processors optimized for generative AI, large language model and other AI workloads.

We announced that Google Cloud is the first cloud provider to offer the new NVIDIA L4 Tensor Core GPU to accelerate generative AI application.

We introduced NVIDIA AI Foundations to help businesses create and operate custom large language models and generative AI models.

We also partnered with ServiceNow, Inc.

to build generative AI across enterprise IT;

joined with Dell Technologies in Project Helix to deliver full-stack generative AI solutions to enterprises;

announced a collaboration with Medtronic on an AI platform for medical devices;

and unveiled the NVIDIA cuLitho software library for computational lithography.

Gaming revenue for the first quarter of fiscal year 2024 was $2.24 billion, down 38% from a year ago.

The year-on-year decrease reflects weaker demand due to the macroeconomic slowdown and lower shipments to normalize channel inventory levels.

We launched the GeForce RTX 4070 GPU based on the NVIDIA Ada Lovelace architecture.

Professional Visualization revenue for the first quarter of fiscal year 2024 was $295 million, down 53% from a year ago, on lower sell-in to partners to help reduce channel inventory levels.

We announced six new GPUs based on the NVIDIA RTX Ada Lovelace architecture.

We announced NVIDIA Omniverse Cloud, a fully managed service running in Microsoft Azure, for the development and deployment of industrial metaverse applications, and expanded our collaboration with Microsoft to connect Microsoft 365 applications with NVIDIA Omniverse.

Automotive revenue for the first quarter of fiscal year 2024 was $296 million, up 114% from a year ago on growth in sales of self-driving platforms and AI cockpit solutions.

We announced that electric vehicle maker BYD Auto Co.

will extend its use of the NVIDIA DRIVE Orin centralized compute platform across more of its fleet.

Data Center revenue for the second quarter of fiscal year 2024 was $10.32 billion, up 171% from a year ago.

We announced that the NVIDIA GH200 Grace Hopper Superchip is available in the third quarter of fiscal year 2024;

announced the NVIDIA L40S GPU - a universal data center processor for compute-intensive applications, including AI training and inference, is available now;

unveiled the NVIDIA MGX server reference design;

announced NVIDIA Spectrum-X, an accelerated networking platform for AI;

and partnered with a

range of companies on AI initiatives, including ServiceNow, Accenture, VMware, Snowflake, WPP, SoftBank, and Hugging Face.

Gaming revenue for the second quarter of fiscal year 2024 was $2.49 billion, up 22% from a year ago.

We began shipping the GeForce RTX 4060 family of GPUs;

and announced NVIDIA Avatar Cloud Engine for Games, a custom AI model foundry service using AI-powered natural language interactions to transform games.

Professional Visualization revenue for the second quarter of fiscal year 2024 was $379 million, down 24% from a year ago.

We announced new NVIDIA RTX GPUs for desktop workstations based on the Ada Lovelace architecture;

and a major release of the NVIDIA Omniverse platform.

Automotive revenue for the second quarter of fiscal year 2024 was $253 million, up 15% from a year ago.

We announced that NVIDIA DRIVE Orin is powering the new XPENG G6 Coupe SUVs;

and announced a partnership with MediaTek, which will develop mainstream automotive systems on chips for global OEMs integrating a new NVIDIA GPU chiplet IP for AI and graphics.

Financial Information by Business Segment and Geographic Data

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The following table sets forth, for the periods indicated, certain items in our Condensed Consolidated Statements of Income expressed as a percentage of revenue.

Three Months Ended

Three Months Ended Six Months Ended

2023 July 31,

2022 July 30,

2023 July 31,

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

6 unchanged sentences

Total operating expenses 19.8 36.0 25.0 39.9

Income from operations 29.7 22.6

Operating income 50.3 7.5 43.2 15.8

Interest income 1.4 0.7 1.6 0.4

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Other income (expense), net

1.3 (0.4) 1.2 (0.6)

Income before income tax 51.6 7.1 44.4 15.2

Income tax expense 2.3 2.3

Income tax expense (benefit) 5.9 (2.7) 4.6 —

Net income 45.7 % 9.8 % 39.8 % 15.2 %

Revenue for the second quarter and first half of fiscal year 2024 was $13.51 billion and $20.70 billion, up 101% and 38%, respectively.

Revenue by Reportable Segments

Three Months Ended

Three Months Ended Six Months Ended

2023 July 31,

Change July 30,

2023 July 31,

($ in millions)

2 unchanged sentences

Total $ 13,507 $ 6,704 $ 6,803 101 % $ 20,699 $ 14,992 $ 5,707 38 %

Compute & Networking - The year-on-year increase was led by growing demand for generative AI and large language models using GPUs based on our Hopper and Ampere architectures.

The revenue growth reflects strong demand from large consumer internet companies and cloud service providers.

Enterprise demand for GPU platforms was strong, although general purpose networking solutions declined from a year ago.

Self-driving platforms and AI cockpit solutions revenue also increased from a year ago.

Graphics - The year-on-year decrease primarily reflects weaker Gaming demand due to the macroeconomic slowdown and lower shipments to normalize channel inventory levels, and lower Professional Visualization sell-in to partners to help reduce channel inventory levels.

Compute & Networking - The increase in the second quarter and first half of fiscal year 2024 compared to the second quarter and first half of fiscal year 2023 was primarily due to higher Data Center revenue.

Compute GPUs grew 208% year-on-year and 112% compared to the first half of fiscal year 2023 led by demand for NVIDIA HGX platform based on our Hopper and Ampere GPU architecture for large language models and generative AI.

Networking was up 94% year-on-year and 63% compared to the first half of last year driven primarily by strong growth in InfiniBand infrastructure to support our HGX platform.

Graphics - The increase in the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 primarily reflects growth in Gaming GPUs related to the demand for our GeForce RTX 40 Series GPUs based on the NVIDIA Ada Lovelace architecture following normalization of channel inventory levels.

The decrease in the first half of fiscal year 2024 compared to the first half of fiscal year 2023 primarily reflects 16% lower Gaming GPU sales and 36% lower Professional Visualization GPU sales, due to lower sell-in to partners following normalization of channel inventory levels.

Concentration of Revenue

Revenue from sales to customers outside of the United States accounted for 67% and 77% of total revenue for the first quarter of fiscal years 2024 and 2023, respectively.

Revenue by geographic region is allocated to countries based on the billed location even if the revenue may be attributable to end customers in a different location.

No direct customer represented 10% or more of total revenue for the first quarter of fiscal years 2024 and 2023.

However, our estimated Compute & Networking end customer demand is concentrated among a few large cloud service providers and consumer internet companies.

Some of these large companies do not purchase directly from us but often purchase through several system builders and channel partners.

We expect this trend will continue.

Our overall gross margin decreased to 64.6% for the first quarter of fiscal year 2024 from 65.5% for the first quarter of fiscal year 2023, reflecting lower margins of GeForce GPUs within our Graphics segment partially offset by higher margins and increased contribution from compute products within our Compute & Networking segment.

Reserves for inventory and excess inventory purchase obligations totaled $134 million and $90 million for the first quarter of fiscal years 2024 and 2023, respectively.

Sales of inventory that was previously written-off or down, or settlements of excess inventory purchase obligations, totaled $50 million and $15 million for the first quarter of fiscal years 2024 and 2023, respectively.

As a result, the overall net effect on our gross margin was an unfavorable impact of 1.2% and 0.9% in the first quarter of fiscal years 2024 and 2023, respectively.

Compute & Networking - Segment gross margin increased during the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, primarily due to higher margins and increased contribution from compute products.

Graphics - Segment gross margin decreased during the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023 primarily due to lower margins of GeForce GPUs.

Revenue from sales to customers outside of the United States accounted for 55% and 59% of total revenue for the second quarter and first half of fiscal year 2024, respectively, and 70% and 74% of total revenue for the second quarter and first half of fiscal year 2023, respectively.

The increase in revenue to the United States for the second quarter and first half of fiscal year 2024 was primarily due to higher U.S.-based Data Center end demand.

Our customer and partner network incorporates original equipment manufacturers, original device manufacturers, system builders, system integrators, add-in board manufacturers, retailers/distributors, independent software vendors, internet and CSPs, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants.

One data center distributor customer represented approximately 17% and 13% of total revenue for the second quarter and first half of fiscal year 2024, respectively, and was attributable to the Compute & Networking segment.

There were no customers with 10% or more of total revenue for the second quarter and first half of fiscal year 2023.

A large CSP, which primarily purchases indirectly through multiple system integrators and distributors, is estimated to represent approximately 22% and 19% of total revenue for the second quarter and first half of fiscal year 2024, respectively, and was attributable to our Compute & Networking segment.

Our estimated Compute & Networking end customer demand is concentrated among several large CSPs and consumer internet companies.

Most of these large companies do not purchase directly from us but often purchase through multiple system integrators, distributors, and channel partners.

We expect this concentration trend will continue.

Our overall gross margin increased to 70.1% and 68.2% for the second quarter and first half of fiscal year 2024, respectively, from 43.5% and 55.7% for the second quarter and first half of fiscal year 2023, respectively.

The increase in the second quarter and first half of fiscal year 2024 compared to second quarter and first half of fiscal year 2023 was primarily due to higher revenue from Compute GPUs of 208% and 112%, respectively, and lower inventory provisions.

Provisions for inventory and excess inventory purchase obligations totaled $576 million and $709 million for the second quarter and first half of fiscal year 2024, respectively.

Sales of inventory that was previously written off or down, or settlements of excess inventory purchase obligations, totaled $84 million and $134 million for the second quarter and first half of fiscal year 2024, respectively.

As a result, the overall net effect on our gross margin was an unfavorable impact of 3.6% and 2.8% in the second quarter and first half of fiscal year 2024, respectively.

Provisions for inventory and excess inventory purchase obligations totaled $1.22 billion and $1.31 billion for the second quarter and first half of fiscal year 2023, respectively.

Sales of inventory that was previously written off or down, or settlements of excess inventory purchase obligations, totaled $23 million and $38 million for the second quarter and first half of fiscal year 2023, respectively.

As a result, the overall net effect on our gross margin was an unfavorable impact of 17.8% and 8.5% in the second quarter and first half of fiscal year 2023, respectively.

Operating Expenses

Three Months Ended

Three Months Ended Six Months Ended

2023 July 31,

Change July 30,

2023 July 31,

($ in millions)

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% of net revenue 19.8 % 36.0 % 25.0 % 39.9 %

The increases in research and development expense and sales, general and administrative expense for the first quarter of fiscal year 2024 were primarily driven by employee growth and associated compensation and benefits.

The increases in research and development expenses and sales, general and administrative expenses for the second quarter and first half of fiscal year 2024 were primarily driven by compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases.

Acquisition termination cost

We recorded an acquisition termination cost related to the Arm transaction of $1.35 billion in fiscal year 2023 reflecting the write-off of the prepayment provided at signing.

Operating Income

Operating income for the second quarter and first half of fiscal year 2024 was $6.80 billion and $8.94 billion, respectively, up 1,263% and 278% from a year ago, respectively.

Operating income by Reportable Segments

Three Months Ended Six Months Ended

2023 July 31,

Change July 30,

2023 July 31,

($ in millions)

Compute & Networking

$ 6,728 $ 816 $ 5,912 725 % $ 8,887 $ 2,422 $ 6,465 267 %

1,211 657 554 84 % 2,258 3,133 (875) (28) %

(1,139) (974) (165) 17 % (2,204) (3,188) 984 (31) %

$ 6,800 $ 499 $ 6,301 1,263 % $ 8,941 $ 2,367 $ 6,574 278 %

Compute & Networking – Segment operating income increased during the second quarter and first half of fiscal year 2024 compared to the second quarter and first half of fiscal year 2023 primarily due to higher revenues.

Graphics - Segment operating income increased during the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 primarily due to higher revenues of 11%.

Segment operating income was also impacted by inventory provisions which were $81 million in the second quarter of fiscal year 2024 compared to $396 million in the second quarter of fiscal year 2023.

Segment operating income decreased during the first half of fiscal year 2024 compared to the first half of fiscal year 2023 primarily due to lower revenues of 21%.

Segment operating income was also impacted by inventory provisions which were $125 million in the first half of fiscal year 2024 compared to $416 million in the first half of fiscal year 2023.

All Other expenses increased during the second quarter of fiscal year 2024 compared to the second quarter of fiscal year 2023 primarily due to higher stock-based compensation expense.

All Other expenses decreased during the first half of fiscal year 2024 compared to the first half of fiscal year 2023 primarily due to an acquisition termination cost of $1.35 billion related to the Arm transaction in the prior year.

Other Income (Expense), Net

Three Months Ended

Three Months Ended Six Months Ended

2023 July 31,

Change July 30,

2023 July 31,

($ in millions)

8 unchanged sentences

Other, net, consists primarily of realized or unrealized gains and losses from investments in non-affiliated entities and the impact of changes in foreign currency rates.

Income tax expense was $166 million and $187 million for the first quarter of fiscal years 2024 and 2023, respectively.

The income tax expense as a percentage of income before income tax was 7.5% and 10.3% for the first quarter of fiscal years 2024 and 2023, respectively.

The decrease in the effective tax rate was primarily due to the tax impact of the Arm acquisition termination cost recorded in the first quarter of fiscal year 2023, which did not result in a tax benefit, and the increased impact of tax benefits from stock-based compensation, partially offset by decreased tax benefits impact from the foreign-derived intangible income deduction and the U.S.

federal research tax credit.

Change in other, net, compared to the second quarter and first half of fiscal year 2023 was primarily driven by mark-to-market gains from publicly traded equity investments.

Income tax was an expense of $793 million and $958 million for the second quarter and first half of fiscal year 2024, respectively, a benefit of $181 million for the second quarter of fiscal year 2023, and an expense of $6 million for the first half of fiscal year 2023.

The income tax as a percentage of income before income tax was an expense of 11.4% and 10.4% for the second quarter and first half of fiscal year 2024, respectively, a benefit of 38.0% for the second quarter of fiscal year 2023, and an expense of 0.3% for the first half of fiscal year 2023.

The increase in the effective tax rate was primarily due to a decreased impact of tax benefits from the foreign-derived intangible income deduction, stock-based compensation, and the U.S.

federal research tax credit, relative to the increase in income before income tax.

Liquidity and Capital Resources

April 30, 2023 January 29, 2023

July 30, 2023 January 29, 2023

(In millions)

2 unchanged sentences

Cash, cash equivalents and marketable securities $ 16,023 $ 13,296

Three Months Ended

April 30, 2023 May 1, 2022

Six Months Ended

July 30, 2023 July 31, 2022

(In millions)

2 unchanged sentences

Net cash used in financing activities $ (5,479) $ (6,208)

As of April 30, 2023, we had $15.32 billion in cash, cash equivalents and marketable securities, an increase of $2.02 billion from the end of fiscal year 2023.

As of July 30, 2023, we had $16.02 billion in cash, cash equivalents, and marketable securities, an increase of $2.73 billion from the end of fiscal year 2023.

Our investment policy requires the purchase of highly rated fixed income securities, the diversification of investment types and credit exposures, and certain maturity limits on our portfolio.

Cash provided by operating activities increased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, primarily due to lower inventory prepayments and changes in inventory, partially offset by lower revenue.

Cash used in investing activities increased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, primarily driven by lower marketable securities sales and maturities, partially offset by lower purchases of marketable securities.

Cash used in financing activities decreased in the first quarter of fiscal year 2024 compared to the first quarter of fiscal year 2023, which primarily reflects share repurchases in the first quarter of fiscal year 2023.

Our primary sources of liquidity are our cash and cash equivalents, our marketable securities, and the cash generated by our operations.

As of April 30, 2023, we had $15.32 billion in cash, cash equivalents, and marketable securities.

Cash provided by operating activities increased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023, primarily due to higher revenue and lower inventory, partially offset by higher accounts receivable.

Accounts receivable in the second quarter of fiscal year 2024 benefited by approximately $1.25 billion from customer payments received ahead of the invoice due date.

Cash used in investing activities increased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023, primarily driven by lower marketable securities sales and maturities, partially offset by lower purchases of marketable securities.

Cash used in financing activities decreased in the first half of fiscal year 2024 compared to the first half of fiscal year 2023, which primarily reflects lower share repurchases partially offset by a debt repayment in the second quarter of fiscal year 2024.

Our primary sources of liquidity are our cash, cash equivalents, and marketable securities, and the cash generated by our operations.

As of July 30, 2023, we had $16.02 billion in cash, cash equivalents, and marketable securities.

Our marketable securities consist of debt securities issued by the USG and its agencies, highly rated corporations and financial institutions, and foreign government entities, as well as certificates of deposit issued by highly rated financial institutions.

1 unchanged sentence

Refer to Note 7 of the Notes to Condensed Consolidated Financial Statements for additional information.

We believe that we have sufficient liquidity to meet our operating requirements for at least the next twelve months, and for the foreseeable future, including our future supply obligations and potential supplier and service provider prepayments.

We believe that we have sufficient liquidity to meet our operating requirements for at least the next twelve months, and for the foreseeable future, including our debt obligations, future supply obligations and vendor and supplier prepayments.

We continuously evaluate our liquidity and capital resources, including our access to external capital, to ensure we can finance future capital requirements.

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for which we have not accrued any related foreign or state taxes if we repatriate these amounts to the U.S., substantially all of our cash, cash equivalents and marketable securities held outside of the U.S.

as of April 30, 2023 are available for use in the U.S.

as of July 30, 2023 are available for use in the U.S.

without incurring additional U.S.

federal income taxes.

We have deferred our federal income tax payments until October 2023 due to the disaster relief made available by the Internal Revenue Service.

During the first quarter of fiscal year 2024, we filed a Form S-3 shelf registration statement to replace the existing shelf that was expiring.

We do not have any immediate plans to utilize this shelf once effective.

We expect to pay approximately $3.81 billion in cash taxes in the third quarter of fiscal year 2024 as we had previously deferred our federal income tax payments due to the disaster relief made available by the Internal Revenue Service for certain California taxpayers.

Primarily based upon increased cash tax payments, we expect that our cash flow from operations will decline in the third quarter of fiscal year 2024 compared to the second quarter of fiscal year 2024.

Capital Return to Shareholders

During the first quarter of fiscal year 2024, we returned $99 million in cash dividends.

During the second quarter and first half of fiscal year 2024, we returned $3.28 billion in share repurchases and $99 million and $199 million, respectively, in cash dividends.

From July 31, 2023 through August 24, 2023, we repurchased 2 million shares for $998 million pursuant to a Rule 10b5-1 trading plan.

Our cash dividend program and the payment of future cash dividends under that program are subject to the continuing determination by our Board of Directors that the dividend program and the declaration of dividends thereunder are in the best interests of our shareholders.

We did not repurchase any shares during the first quarter of fiscal year 2024.

As of April 30, 2023, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $7.23 billion through December 2023.

As of July 30, 2023, we were authorized, subject to certain specifications, to repurchase additional shares of our common stock up to $3.95 billion.

On August 21, 2023, our Board of Directors approved an increase to our share repurchase program of an additional $25.00 billion, without expiration.

As of August 24, 2023, a total of $27.95 billion was available for repurchase.

Our share repurchase program aims to offset dilution from shares issued to employees.

We may pursue additional share repurchases as we weigh market factors and other investment opportunities.

We plan to continue share repurchases this fiscal year.

Inflation Reduction Act of 2022 was enacted on August 16, 2022 and requires a 1% excise tax on certain share repurchases in excess of shares issued for employee compensation made after December 31, 2022.

We do not expect this provision to have a material effect on our consolidated financial statements.

Outstanding Indebtedness and Commercial Paper

Our aggregate debt maturities as of April 30, 2023, by year payable, are as follows:

April 30, 2023

Our aggregate debt maturities as of July 30, 2023, by year payable, are as follows:

July 30, 2023

(In millions)

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Total long-term portion $ 8,456

We expect to repay $1.25 billion of debt due in the second quarter of fiscal year 2024.

We have a $575 million commercial paper program to support general corporate purposes.

As of April 30, 2023, we had not issued any commercial paper.

As of July 30, 2023, we had not issued any commercial paper.

Material Cash Requirements and Other Obligations

We have unrecognized tax benefits of $1.11 billion, which includes related interest and penalties of $109 million recorded in non-current income tax payable as of April 30, 2023.

We have unrecognized tax benefits of $1.25 billion, which includes related interest and penalties of $128 million recorded in non-current income tax payable as of July 30, 2023.

We are unable to reasonably estimate the timing of any potential tax liability, interest payments, or penalties in individual years due to uncertainties in the underlying income tax positions and the timing of the effective settlement of such tax positions.

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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 2. Management’s Discussion and Analysis