What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-28 compared with 2024-05-29 · 163 added, 133 removed, 166 unchanged (64% of the section changed)

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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.

Our two operating segments are "Compute & Networking" and "Graphics," as described in Note 14 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Recent Developments, Future Objectives and Challenges

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

Our overall revenue, driven by data center compute, continued to grow through the first quarter of fiscal year 2025.

We continue to gather customer demand indications across several product transitions.

We have demand visibility for our data center products, including the recently announced Blackwell GPU architecture.

We have previously increased our supply and capacity purchases with existing suppliers with planned receipts later this year.

We continue to add new vendors and have entered and may continue to enter into prepaid manufacturing and capacity agreements to supply both current and future products.

The increased purchase volumes and number of suppliers and integration of new vendors into our supply chain may create more complexity and execution risk.

Our purchase commitments and obligations for inventory and manufacturing capacity at the end of the first quarter of fiscal year 2025 continued to be impacted by shortening lead times for certain components.

We may incur inventory provisions or impairments if our inventory or supply or capacity commitments exceed demand for our products or demand declines.

While supply for H100 continued to improve, we are still constrained on H200.

Our next generation data center architecture, Blackwell, is in production, and we plan on shipping customer samples in the second quarter.

We expect to ramp customer shipments of Blackwell in the second half of the fiscal year.

We believe the initial demand for Blackwell is well ahead of the projected supply for this fiscal year.

We expect supply constraints for our Blackwell offerings will continue into next year.

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.

Due to our product introduction cycles, we are almost always in various stages of transitioning the architectures of our Data Center, Gaming, and Professional Visualization products.

We have begun a broader and faster Data Center product launch cadence to meet a growing and diverse set of

AI opportunities.

The increased frequency of these transitions may magnify the challenges associated with managing our supply and demand due to manufacturing lead times.

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

The increasing frequency and complexity of newly introduced products could result in quality or production issues that could increase inventory provisions, warranty, or other costs or result in product delays.

Deployment of new products to customers creates additional challenges due to the complexity of our technologies, which has impacted and may in the future impact the timing of customer purchases or otherwise impact our demand.

While we have managed prior product transitions and have sold multiple product architectures at the same time, these transitions are difficult, may impair our ability to predict demand and impact our supply mix, and may cause us to incur additional costs.

We build technology and introduce products for new and innovative use cases and applications such as our NVIDIA DGX Cloud services, our Omniverse platform, LLMs, and generative 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.

Demand and Supply

Revenue growth in the second quarter of fiscal year 2025 was driven by data center compute platforms and networking for accelerated computing and AI solutions.

Hopper architecture demand is strong, and shipments are expected to increase in the second half of fiscal 2025.

We shipped customer samples of our Blackwell architecture in the second quarter.

We executed a change to the Blackwell GPU mask to improve production yield.

Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal year 2026.

In the fourth quarter of fiscal year 2025, we expect to ship several billion dollars in Blackwell revenue.

Demand estimates for our new products, applications, and services can be incorrect and create volatility in our revenue or supply levels.

We may not be able to generate significant revenue from them.

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

We continue to increase our supply and capacity purchases with existing and new suppliers to support our demand projections.

With these additions, we have also entered and may continue to enter into prepaid manufacturing and capacity agreements to supply both current and future products.

The increased purchase volumes and integration of new suppliers and contract manufacturers into our supply chain may create more complexity in managing multiple suppliers with variations in production planning, execution and logistics.

Our expanding product portfolio and varying component compatibility and quality may lead to increased inventory levels.

We have incurred and may in the future incur inventory

provisions or impairments if our inventory or supply or capacity commitments exceed demand for our products or demand declines.

Product Transitions and New Product Introductions

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

We may be in various stages of transitioning the architectures of our Data Center, Gaming, Professional Visualization and Automotive products.

The computing industry is experiencing a broader and faster launch cadence of accelerated computing platforms to meet a growing and diverse set of AI opportunities.

We have introduced a new cadence of our Data Center architectures where we seek to complete a new GPU computing architecture each year and we are providing a greater variety of Data Center offerings.

The increased frequency of these transitions and the larger number of products and product configurations may magnify the challenges associated with managing our supply and demand which may create volatility in our revenue.

The increased frequency and complexity of newly introduced products could result in quality or production issues that could increase inventory provisions, warranty, or other costs or result in product delays.

We incur significant engineering development resources for new products, and changes to our product roadmap may impact our ability to develop other products or adequately manage our supply chain cost.

Customers may delay purchasing existing products as we increase the frequency of new products or may not be able to adopt our new products as fast as forecasted, both impacting the timing of our revenue and supply chain cost.

For example, we executed a change to the Blackwell GPU mask to improve production yield.

Our gross margins in the second quarter of fiscal year 2025 were negatively impacted by inventory provisions for low-yielding Blackwell material and they may continue to be impacted in the future.

In August 2022, the U.S.

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We have not received licenses to ship these restricted products to China.

Additionally, partners and customers have experienced delays in receiving licenses or have not received a license to ship these restricted products.

We expanded our Data Center product portfolio to offer new solutions, including those for which the USG does not require a license or advance notice before each shipment.

We ramped new products designed specifically for China that do not require an export control license.

Our Data Center revenue in China is down significantly from the level prior to the imposition of new export control restrictions in October 2023.

Our Data Center revenue in China grew sequentially in the second quarter of fiscal year 2025 and is a significant contributor to our Data Center revenue.

As a percentage of total Data Center revenue, it remains below levels seen prior to the imposition of export controls in October 2023.

To the extent that a customer requires products covered by the licensing requirements, we may seek a license for the customer but have no assurance that the USG will grant such a license, or that the USG will act on the license application in a timely manner or at all.

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Macroeconomic Factors

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

Macroeconomic factors, including inflation, interest rate changes, capital market volatility, global supply chain constraints and global economic and geopolitical developments, may have direct and indirect impacts on our results of operations, particularly demand for our products.

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

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

Israel and Hamas Conflict

Israel and Regional Conflicts

We are monitoring the impact of the geopolitical conflict in and around Israel on our operations, including the health and safety of our approximately 4,000 employees in the region who primarily support the research and development, operations, and sales and marketing of our networking products.

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A substantial number of our employees in the region have been called-up for active military duty in Israel.

Some of our employees in Israel have been on active military duty for an extended period and they or others may continue to be absent, which may cause disruption to our product development or operations.

Some employees in Israel have been on active military duty for an extended period and may continue to be absent, which may cause disruption to our product development or operations.

We have not experienced significant impact or expense to our business;

however, if the conflict is further extended, it could impact future product development, operations, and revenue or create other uncertainty for our business.

First Quarter of Fiscal Year 2025 Summary

Second Quarter of Fiscal Year 2025 Summary

Three Months Ended Quarter-over-Quarter Change Year-over-Year Change

Apr 28, 2024 Jan 28, 2024 Apr 30, 2023

Jul 28, 2024 Apr 28, 2024 Jul 30, 2023

($ in millions, except per share data)

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Data Center revenue was up 154% from a year ago and up 16% sequentially.

The strong sequential and year-on-year growth was driven by demand for our Hopper GPU computing platform for training and inferencing of large language models, recommendation engines, and generative AI applications.

Sequential growth was driven by consumer internet and enterprise companies.

Cloud service providers represented roughly 45% of our Data Center revenue, and more than 50% stemmed from consumer internet and enterprise companies.

Strong year-on-year growth was driven by all customer types from both compute and networking revenue.

Customers continue to accelerate their Hopper architecture purchases while gearing up to adopt Blackwell.

Data Center compute revenue was $22.6 billion, up 162% from a year ago and up 17% sequentially.

These increases reflect higher shipments of the NVIDIA Hopper GPU computing platform used for training and inferencing with large language models, recommendation engines, and generative AI applications.

Networking revenue was $3.2 billion, up 242% from a year ago on strong growth of InfiniBand end-to-end solutions, and down 5% sequentially due to the timing of supply.

Strong sequential Data Center growth was driven by all customer types, led by Enterprise and Consumer Internet companies.

Large cloud providers continued to drive strong growth as they deploy and ramp NVIDIA AI infrastructure at scale, representing mid-40% of our Data Center revenue.

Gaming revenue was up 18% from a year ago and down 8% sequentially.

The year-on-year increase primarily reflects higher demand.

The sequential decrease reflects seasonally lower GPU sales for laptops.

Professional Visualization revenue was up 45% from a year ago and down 8% sequentially.

The year-on-year increase primarily reflects higher sell-in to partners following the normalization of channel inventory levels.

The sequential decrease was primarily due to desktop workstation GPUs.

Networking revenue was $3.7 billion, up 114% from a year ago driven by InfiniBand and Ethernet for AI revenue, which includes Spectrum-X end-to-end ethernet platform.

Networking revenue sequentially was up 16% and includes a doubling of Ethernet for AI revenue.

We shipped customer samples of our Blackwell architecture in the second quarter.

We executed a change to the Blackwell GPU mask to improve production yield.

Blackwell production ramp is scheduled to begin in the fourth quarter and continue into fiscal year 2026.

In the fourth quarter of fiscal year 2025, we expect to ship several billion dollars in Blackwell revenue.

Hopper demand is strong, and shipments are expected to increase in the second half of fiscal year 2025.

Gaming revenue was up 16% from a year ago and up 9% sequentially.

These increases reflect higher sales of our GeForce RTX 40 Series GPUs and game console SOCs.

We had solid demand in the second quarter for our gaming GPUs as part of the back-to-school season.

Professional Visualization revenue was up 20% from a year ago and up 6% sequentially.

These increases were driven by the continued ramp of RTX GPU workstations based on our Ada architecture.

Automotive revenue was up 37% from a year ago and up 5% sequentially.

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

The sequential increase was driven by AI Cockpit solutions and self-driving platforms.

Gross margin for the first quarter increased significantly from a year ago on strong Data Center revenue growth primarily driven by our Hopper GPU computing platform.

Sequentially, gross margin benefited from lower inventory charges.

Operating expenses were up 39% from a year ago and up 10% sequentially.

The increases were primarily driven by compensation and benefits, reflecting growth in employees and compensation.

These increases were driven by AI Cockpit solutions and self-driving platforms.

Gross margin increased from a year ago on strong Data Center revenue growth primarily driven by our Hopper GPU computing platform.

Sequentially, gross margin decreased primarily driven by inventory provisions for low-yielding Blackwell material and a higher mix of new products within Data Center.

Operating expenses were up 48% from a year ago and up 12% sequentially, largely driven by compensation and benefits, reflecting growth in employees and compensation.

Market Platform Highlights

Data Center revenue for the first quarter of fiscal year 2025 was $22.6 billion, up 427% from a year ago and up 23% from the previous quarter.

In our trailing 4 quarters, we estimate that inference drove about 40% of our Data Center revenue.

We unveiled the NVIDIA Blackwell platform, our next-generation GPU architecture for the new era of AI computing at trillion-parameter scale and the Blackwell-powered DGX SuperPOD for generative AI supercomputing.

Joining Blackwell will be NVIDIA Quantum InfiniBand and Spectrum Ethernet switches designed for massive-scale AI.

We also announced NVIDIA AI Enterprise 5.0 with NVIDIA NIM Inference Microservices — to speed enterprise app development.

We announced that nine new supercomputers worldwide are using Grace Hopper Superchips to ignite a new era of AI supercomputing.

Gaming revenue for the first quarter of fiscal year 2025 was $2.6 billion, up 18% from a year ago and down 8% from the previous quarter.

We introduced generative AI for digital humans, NVIDIA ACE for speech and animation, and new RTX technologies;

and added support for new models.

Professional Visualization revenue for the first quarter of fiscal year 2025 was $427 million, up 45% from a year ago and down 8% from the previous quarter.

We introduced NVIDIA RTX 500 and 1000 professional Ada generation laptop GPUs;

unveiled NVIDIA RTX A400 and A1000 GPUs for desktop workstations, based on the NVIDIA Ampere architecture;

and introduced NVIDIA Omniverse Cloud APIs to power industrial digital twin software tools.

Automotive revenue for the first quarter of fiscal year 2025 was $329 million, up 11% from a year ago and up 17% from the previous quarter.

We revealed U.S.

and China electric vehicle makers Lucid and IM Motors are using the NVIDIA DRIVE Orin platform;

and announced BYD, XPENG, GAC's AION Hyper, Nuro and others will adopt its successor, NVIDIA DRIVE Thor.

Data Center revenue for the second quarter of fiscal year 2025 was $26.3 billion, up 16% from the previous quarter and up 154% from a year ago.

We unveiled an array of NVIDIA Blackwell-powered systems featuring NVIDIA Grace CPUs, networking and infrastructure from top manufacturers.

We announced broad adoption of the NVIDIA Spectrum-X Ethernet networking platform by cloud service providers, GPU cloud providers and enterprises, as well as partners incorporating it into their offerings.

We released NVIDIA Inference Microservices, or NIM, for broad availability to developers globally and unveiled that more than 150 companies are integrating NIM into their platforms to speed generative AI application development.

We introduced an NVIDIA AI Foundry service and NIM inference microservices to accelerate generative AI for the world’s enterprises with the Llama 3.1 collection of models.

We announced that the combination of NVIDIA H200 and NVIDIA Blackwell architecture B200 processors swept the latest industry-standard MLPerf results for inference.

We also unveiled an array of Blackwell systems featuring NVIDIA Grace CPUs, networking and infrastructure.

Over the trailing four quarters, we estimate that inference drove over 40% of our Data Center revenue.

Gaming revenue for the second quarter of fiscal year 2025 was $2.9 billion, up 9% from the previous quarter and up 16% from a year ago.

We announced NVIDIA ACE generative AI microservices are in early access for RTX AI PCs.

We announced new RTX and DLSS titles bringing the total number of RTX games and apps to over 600.

We surpassed 2,000 games on GeForce NOW and expanded the service into Japan.

Professional Visualization revenue for the second quarter of fiscal year 2025 was $454 million, up 6% from the previous quarter and up 20% from a year ago.

We introduced generative AI models and NIM microservices for OpenUSD;

and announced major Taiwanese electronics makers are creating more autonomous factories with a new reference workflow that combines NVIDIA Metropolis vision AI, NVIDIA Omniverse simulation and NVIDIA Isaac AI robot development.

Automotive revenue for the second quarter of fiscal year 2025 was $346 million, up 5% from the previous quarter and up 37% from a year ago.

At the Computer Vision and Pattern Recognition conference, NVIDIA won the Autonomous Grand Challenge in the ‘End-to-End Driving at Scale’ category, highlighting the importance of generative AI in building applications for physical AI deployments in autonomous vehicle development.

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

Apr 28, 2024 Apr 30, 2023

Three Months Ended Six Months Ended

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Revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Other income (expense), net

1.9 1.3 1.7 1.2

Income before income tax 63.9 51.6 65.0 44.4

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Revenue by Reportable Segments

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Change Jul 28, 2024 Jul 30, 2023 $

($ in millions)

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Operating Income by Reportable Segments

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Three Months Ended Six Months Ended

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Change Jul 28, 2024 Jul 30, 2023 $

($ in millions)

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Total $ 18,642 $ 6,800 $ 11,842 174 % $ 35,551 $ 8,941 $ 26,610 298 %

Compute & Networking revenue – The year-on-year increase was due to higher Data Center revenue.

Compute GPU grew 497%, due to higher shipments of the NVIDIA Hopper GPU computing platform used for training and inferencing with large language models, recommendation engines, and generative AI applications.

Networking was up 242% on strong growth of InfiniBand end-to-end solutions.

Graphics revenue – The year-on-year increase of 18% was led by higher demand for Gaming.

Reportable segment operating income – The year-on-year increase in Compute & Networking and Graphics operating income was driven by higher revenue.

All Other operating loss – The year-on-year increase was due to an increase in stock-based compensation expense.

Compute & Networking revenue – The increase in the second quarter and first half of fiscal year 2025 compared to the second quarter and first half of fiscal year 2024 was due to strength in Data Center computing and networking for accelerated computing and AI solutions.

Revenue from GPU computing grew 166% year-on-year and 257% compared to the first half of fiscal year 2024, was driven by demand for our Hopper GPU architecture computing platform for training and inferencing of large language models, recommendation engines, and generative AI applications.

Networking was also up 114% year-on-year and 159% compared to the first half of last year driven by both InfiniBand and Ethernet for AI revenue.

Graphics revenue – The increase in the second quarter and first half of fiscal year 2025 compared to the second quarter and first half of fiscal year 2024 was led by higher sales of our GeForce RTX 40 Series GPUs.

Reportable segment operating income – The increase in the second quarter and first half of fiscal year 2025 compared to the second quarter and first half of fiscal year 2024 in Compute & Networking and Graphics operating income was driven by higher revenue.

All Other operating loss – The increase in the second quarter and first half of fiscal year 2025 compared to the second quarter and first half of fiscal year 2024 was due to an increase in stock-based compensation expense reflecting employee growth and compensation increases.

Concentration of Revenue

Revenue by geographic region is designated based on the billing location even if the revenue may be attributable to end customers, such as enterprises and gamers in a different location.

Revenue from sales to customers outside of the United States accounted for 48% and 67% of total revenue for the first quarter of fiscal years 2025 and 2024, respectively.

We refer to customers who purchase products directly from NVIDIA as direct customers, such as original equipment manufacturers, or OEMs, original device manufacturers, or ODMs, system integrators, add-in board manufacturers, and distributors.

Revenue from sales to customers outside of the United States accounted for 57% and 53% of total revenue for the second quarter and first half of fiscal year 2025, respectively, and 55% and 59% of total revenue for the second quarter and first half of fiscal year 2024, respectively.

We refer to customers who purchase products directly from NVIDIA as direct customers, such as add-in board manufacturers, distributors, ODMs, OEMs, and system integrators.

We have certain customers that may purchase products directly from NVIDIA and may use either internal resources or third-party system integrators to complete their build.

We also have indirect customers, who purchase products through our direct customers;

indirect customers include public cloud providers, consumer internet companies, enterprises, startups, and public sector entities.

Sales to one direct customer, Customer A, represented 13% of total revenue and sales to a second direct customer, Customer B, represented 11% of total revenue for the first quarter of fiscal year 2025, both of which were attributable to the Compute & Networking segment.

There was no direct customer that represented 10% or more of total revenue for the first quarter of fiscal year 2024.

Two indirect customers each represented 10% or more of total revenue for the first quarter of fiscal year 2025;

one of these indirect customers purchased our products primarily through direct Customer B.

Both were attributable to the Compute & Networking segment.

indirect customers include cloud service providers, consumer internet companies, enterprises, and public sector entities.

Sales to direct customers which represented 10% or more of total revenue, all of which were primarily attributable to the Compute & Networking segment, are presented in the following table:

Three Months Ended Six Months Ended

Jul 28, 2024 Jul 28, 2024

Customer A 14 % 14 %

Customer B 11 % *

Customer C 11 % *

Customer D 10 % 10 %

* Less than 10% of total revenue

For the second quarter of fiscal year 2025, two indirect customers which primarily purchase our products through system integrators and distributors, including through Customer B and Customer E, are estimated to each represent 10% or more of total revenue attributable to the Compute & Networking segment.

For the first half of fiscal year 2025, an indirect customer which primarily purchases our products from system integrators and distributors, including from Customer E, is estimated to represent 10% or more of total revenue, attributable to the Compute & Networking segment.

Indirect customer revenue is an estimation based upon multiple factors including customer purchase order information, product specifications, internal sales data and other sources.

Actual indirect customer revenue may differ from our estimates.

We have experienced periods where we receive a significant amount of our revenue from a limited number of customers, and this trend may continue.

Gross Profit and Gross Margin

Gross profit consists of total net revenue less cost of revenue.

Our overall gross margin increased to 78.4% for the first quarter of fiscal year 2025 from 64.6% for the first quarter of fiscal year 2024.

The year over year increase was primarily due to strong Data Center revenue growth of 427%.

Provisions for inventory and excess inventory purchase obligations totaled $393 million and $134 million for the first quarter of fiscal years 2025 and 2024, respectively.

Sales of previously reserved inventory and settlements of excess inventory purchase obligations resulted in a provision release of $114 million and $50 million for the first quarter of fiscal years 2025 and 2024, respectively.

The net effect on our gross margin was an unfavorable impact of 1.1% and 1.2% in the first quarter of fiscal years 2025 and 2024, respectively.

Our overall gross margin increased to 75.1% and 76.6% for the second quarter and first half of fiscal year 2025, respectively, from 70.1% and 68.2% for the second quarter and first half of fiscal year 2024, respectively.

The increases in the second quarter and first half of fiscal year 2025 compared to the second quarter and first half of fiscal year 2024 were primarily due to strong Data Center revenue growth of 154% and 234% for the second quarter and first half of 2025, respectively.

Provisions for inventory and excess inventory purchase obligations totaled $908 million and $1.3 billion for the second quarter and first half of fiscal year 2025, respectively, and were primarily due to low-yielding Blackwell material.

Sales of previously reserved inventory and settlements of excess inventory purchase obligations resulted in a provision release of $85 million and $199 million for the second quarter and first half of fiscal year 2025, respectively.

The net effect on our

gross margin was an unfavorable impact of 2.7% and 2.0% in the second quarter and first half of fiscal year 2025, respectively.

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 previously reserved inventory and settlements of excess inventory purchase obligations resulted in a provision release of $84 million and $134 million for the second quarter and first half of fiscal year 2024, respectively.

The 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.

We expect our Data Center mix to continue to shift to new products in the second half of fiscal year 2025.

For fiscal year 2025, we expect gross margins to be in the mid-70% range.

Operating Expenses

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Change Jul 28, 2024 Jul 30, 2023 $

($ in millions)

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% of net revenue 13.1 % 19.8 % 13.3 % 25.0 %

The increases in research and development expenses for the first quarter of fiscal year 2025 were primarily driven by a $482 million increase in compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases, and a $242 million increase in compute and infrastructure investments.

The increase in sales, general and administrative expenses for the first quarter of fiscal year 2025 was primarily driven by compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases.

For fiscal year 2025, we expect operating expenses to grow in the low-40% range.

The increases in research and development expenses for the second quarter and first half of fiscal year 2025 were driven by 35% and 34% increase in compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases, and 118% and 117% increase in compute and infrastructure investments, respectively.

The increases in sales, general and administrative expenses for the second quarter and first half of fiscal year 2025 was primarily driven by compensation and benefits, including stock-based compensation, reflecting employee growth and compensation increases.

For fiscal year 2025, we expect operating expenses to grow in the mid to upper 40% range as we work on developing our next generation of products.

Other Income (Expense), Net

Three Months Ended

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Three Months Ended Six Months Ended

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Change Jul 28, 2024 Jul 30, 2023 $

($ in millions)

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$ 572 $ 181 $ 391 $ 942 $ 249 $ 693

Interest income consists of interest earned on cash, cash equivalents and marketable securities.

The increase in interest income was due to stronger yields on higher cash balances.

The increases in interest income for the second quarter and first half of fiscal year 2025 was due to higher cash, cash equivalents, and publicly-held debt security balances.

Interest expense is comprised of coupon interest and debt discount amortization related to our notes.

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

The change in Other, net, compared to the first quarter of fiscal year 2024 was driven by changes in value from our investments in non-affiliated entities.

Refer to Note 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our investments in non-affiliated entities.

We recognized income tax expense of $2.4 billion and $166 million for the first quarter of fiscal years 2025 and 2024, respectively.

Income tax expense as a percentage of income before income tax was 13.9% and 7.5% for the first quarter of fiscal years 2025 and 2024, respectively.

The effective tax rate increased primarily due to a decreased effect of tax benefits from the foreign-derived intangible income deduction and stock-based compensation relative to the increase in income before income tax.

Other, net consists of realized or unrealized gains and losses from investments in privately-held equity securities, publicly-held equity securities, and the impact of changes in foreign currency rates.

The change in Other, net, compared to the second quarter and first half of fiscal year 2024 was primarily driven by an increase in fair value of our privately-held and publicly-held equity securities.

Refer to Note 6 and 7 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our investments in privately-held and publicly-held equity securities.

We recognized income tax expense of $2.6 billion and $5.0 billion for the second quarter and first half of fiscal year 2025, respectively, and $793 million and $958 million for the second quarter and first half of fiscal year 2024, respectively.

Income tax expense as a percentage of income before income tax was 13.6% and 13.7% for the second quarter and first half of fiscal year 2025, respectively, and 11.4% and 10.4% for the second quarter and first half of fiscal year 2024, respectively.

The effective tax rate increased primarily due to a lower percentage of tax benefits from the foreign-derived intangible income deduction relative to the increase in income before income tax.

Given our current and anticipated future earnings, we believe that we may release the valuation allowance associated with certain state deferred tax assets in the near term, which would decrease our income tax expense for the period the release is recorded.

The timing and amount of the valuation allowance release could vary based on our assessment of all available evidence.

Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Liquidity and Capital Resources

Apr 28, 2024 Jan 28, 2024

Jul 28, 2024 Jan 28, 2024

(In millions)

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Cash, cash equivalents and marketable securities $ 34,800 $ 25,984

Three Months Ended

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Six Months Ended

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(In millions)

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Net cash used in financing activities $ (19,665) $ (5,479)

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 2025 compared to the first quarter of fiscal year 2024 due to growth in revenue.

Our accounts receivable balance in the first quarter of fiscal year 2025 reflected $429 million from customer payments received prior to next quarter's invoice due date.

Cash used in investing activities increased in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024, primarily driven by higher purchases of marketable securities, partially offset by higher maturities of marketable securities.

Cash used in financing activities increased in the first quarter of fiscal year 2025 compared to the first quarter of fiscal year 2024, mainly due to higher share repurchases and higher tax payments related to RSUs.

Our investment policy requires the purchase of high-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 half of fiscal year 2025 compared to the first half of fiscal year 2024 due to growth in revenue, partially offset by higher tax payments.

Our accounts receivable balance at the end of the first half of fiscal year 2025 reflects the strong revenue growth, partially offset by $2.8 billion from customer payments received prior to the invoice due date.

Cash used in investing activities increased in the first half of fiscal year 2025 compared to the first half of fiscal year 2024, primarily driven by net purchases of marketable securities, and acquisition of land and buildings.

Cash used in financing activities increased in the first half of fiscal year 2025 compared to the first half of fiscal year 2024, mainly due to higher share repurchases and higher tax payments related to RSUs.

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

As of April 28, 2024, we had $31.4 billion in cash, cash equivalents, and marketable securities.

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, $1.3 billion of debt repayment due in the second quarter of fiscal year 2025, and share repurchases.

As of July 28, 2024, we had $34.8 billion in cash, cash equivalents, and marketable securities.

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

Our marketable securities consist of debt securities issued by the U.S.

Our marketable securities consist of publicly-held equity securities, debt securities issued by the U.S.

government 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.

Our corporate debt securities are publicly traded with generally no restrictions.

Our corporate debt securities are publicly traded.

These marketable securities are primarily denominated in U.S.

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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 the U.S.

as of April 28, 2024 are available for use in the U.S.

as of July 28, 2024 are available for use in the U.S.

without incurring additional U.S.

federal income taxes.

We did not make any estimated federal or state tax payments in the first quarter and expect our cash taxes to substantially increase in the second quarter as we will make two federal and state estimated tax payments.

Payment from customers, per our standard payment terms, is generally due shortly after delivery of products, availability of software licenses or commencement of services.

Capital Return to Shareholders

During the first quarter of fiscal year 2025, we paid $98 million in quarterly cash dividends.

During the second quarter and first half of fiscal year 2025, we paid $246 million and $344 million, respectively, in quarterly cash dividends.

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

On May 22, 2024, we announced an increase in our quarterly cash dividend by 150% from $0.04 per share to $0.10 per share of common stock.

The increased dividend is equivalent to $0.01 per share on a post-forward stock split basis, and will be paid on June 28, 2024, to all shareholders of record on June 11, 2024.

Refer to Note 15 of the Notes to Condensed

Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding the forward stock split.

During the first quarter of fiscal year 2025, we repurchased 9.9 million shares of our common stock for $8.0 billion.

As of April 28, 2024, we were authorized, subject to certain specifications, to repurchase up to $14.5 billion of additional shares of our common stock.

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

On June 7, 2024, we increased our quarterly cash dividend to $0.01 per share on a post-Stock Split basis to all shareholders of record on June 11, 2024.

Our quarterly cash dividend was paid on June 28, 2024.

During the second quarter and first half of fiscal year 2025, we repurchased 62.8 million and 162.1 million shares of our common stock for $7.0 billion and $15.1 billion, respectively.

As of July 28, 2024, we were authorized, subject to certain specifications, to repurchase up to $7.5 billion of our common stock.

On August 26, 2024, our Board of Directors approved an additional $50.0 billion to our share repurchase authorization, without expiration.

As of August 26, 2024, a total of $53.9 billion was available for repurchase.

Our share repurchase program aims to offset dilution from shares issued to employees while maintaining adequate liquidity to meet our operating requirements.

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

We plan to continue share repurchases this fiscal year.

From April 29, 2024 through May 24, 2024, we repurchased 2.3 million shares for $2.1 billion pursuant to a Rule 10b5-1 trading plan.

From April 29, 2024 through August 26, 2024, we repurchased 31.5 million shares for $3.6 billion pursuant to a Rule 10b5-1 trading plan.

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

The excise tax was not material for the first quarter of fiscal year 2025.

The excise tax is included in our share repurchase cost and was not material for the second quarter and first half of fiscal year 2025.

Outstanding Indebtedness and Commercial Paper Program

Our aggregate debt maturities as of April 28, 2024, by year payable, are as follows:

Our aggregate debt maturities as of July 28, 2024, by year payable, are as follows:

(In millions)

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

As of April 28, 2024, no commercial paper was outstanding.

As of July 28, 2024, no commercial paper was outstanding.

Refer to Note 11 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion.

Material Cash Requirements and Other Obligations

Unrecognized tax benefits were $1.4 billion, which includes related interest and penalties of $161 million recorded in non-current income tax payable as of April 28, 2024.

We are unable to 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.

Unrecognized tax benefits were $1.7 billion, which includes related interest and penalties of $186 million recorded in non-current income tax payable as of July 28, 2024.

We are unable to 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.

Refer to Note 5 of the Notes to Condensed Consolidated Financial Statements for further information.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis