arrangements.

 

Gross margin is the percentage of gross profit to revenue. Our gross margin can vary in any period depending on the mix of types of products sold. Our gross margin was 45.6%, 42.4% and 38.3% for fiscal years 2008, 2007 and 2006, respectively.  The improvement in our gross margin reflects our continuing focus on delivering cost effective product architectures, enhancing business processes and delivering profitable growth.



Our gross margin is significantly impacted by the mix of products we sell. Product mix is often difficult to estimate with accuracy and, thus, if we achieve significant revenue growth in our lower margin product lines, or if we are unable to earn as much revenue as we expect from higher margin product lines, our gross margin may be negatively impacted.  We expect gross margin to remain relatively flat to slightly up during the first quarter of fiscal year 2009 as compared to the fourth quarter of fiscal year 2008. A discussion of our gross margin results for each of our operating segments is as follows:



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.

 

Fiscal Year 2007 vs. Fiscal Year 2006 



GPU Business. The gross margin of our GPU Business increased during fiscal year 2007 as compared to fiscal year 2006, primarily due to the sale of our GeForce 8-series GPUs and increased sales of our GeForce 7 series GPUs, which collectively accounted for approximately 70% of our GPU Business revenue. Our GeForce 8 and our