CPB. The gross margin of our CPB increased during fiscal year 2009 as compared to fiscal year 2008.  This increase was primarily due to changes in the product mix in our CPB product lines.  We experienced greater revenue decline in our lower margin cell phone and other handheld devices product lines as compared to higher margin SCE transactions in the current year.

    Fiscal Year 2008 vs. Fiscal Year 2007 



   GPU Business. The gross margin of our GPU business increased during fiscal year 2008 as compared to fiscal year 2007.  This increase was primarily due to increased sales of our GeForce 8-series GPUs, which began selling in the third quarter of fiscal year 2007. Our GeForce 8-series GPUs generally have higher gross margins than our previous generations of GPUs. Additionally, the more favorable costs of memory purchases during fiscal year 2008, positively impacted our gross margin.



   PSB. The gross margin of our PSB increased during fiscal year 2008 as compared to fiscal year 2007.  This increase was primarily due to increased sales of our GeForce 8-based NVIDIA Quadro products, which began selling in the fourth quarter of fiscal year 2007 and generally have higher gross margins than our previous generations of NVIDIA Quadro products.



   MCP Business. The gross margin of our MCP business increased during fiscal year 2008 as compared to fiscal year 2007.  This increase was primarily due to a shift in product mix towards Intel-based platform products, which began to ramp up shipments after the third quarter of fiscal year 2007, and inventory reserves that we recorded as a charge to cost of revenue during the first quarter of fiscal year 2007 of approximately $4.1 million related to certain NVIDIA nForce purchase commitments that we believed had exceeded future demand.



   CPB. The gross margin of our CPB decreased during fiscal year 2008 as compared to fiscal year 2007.  This decrease was primarily due to a drop in gross profit realized from sales of our high-end feature cellular phone and other handheld devices.  However, increased royalties from SCE during fiscal year 2008, offset the decreases.

 

Operating Expenses

    Research and Development

 

    Fiscal Year 2009 vs. Fiscal Year 2008 



    Research and development expenses were $855.9 million and $691.6 million during fiscal years 2009 and 2008, respectively, an increase of $164.3 million, or 24%. The increase was primarily due to increase in salaries and benefits by approximately $64.9 million primarily as a result of the net addition of approximately 500 personnel in departments related to research and development functions, offset by lower expenses during fiscal year 2009 related to our variable compensation programs when compared to fiscal year 2008. Stock-based compensation expense increased by $21.4 million primarily because of the impact of new hire and semi-annual stock awards granted subsequent to the third quarter of fiscal year 2008, offset by a reduction in expense related to older stock awards that were almost fully vested and for which the related expense had been almost fully amortized by the end of the first quarter of fiscal year 2009.