NVIDIA Corp. (NVDA)
Analysis of Revenues
High level of difficulty
Accounting Policy on Revenue Recognition
NVIDIA derives the revenue from product sales, including hardware and systems, license and development arrangements, and software licensing. NVIDIA determines revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, NVIDIA satisfies a performance obligation.
Product Sales Revenue
Revenue from product sales is recognized upon transfer of control of promised products to customers in an amount that reflects the consideration NVIDIA expects to receive in exchange for those products. Revenue is recognized net of allowances for returns, customer programs and any taxes collected from customers.
For products sold with a right of return, NVIDIA records a reduction to revenue by establishing a sales return allowance for estimated product returns at the time revenue is recognized, based primarily on historical return rates. However, if product returns for a fiscal period are anticipated to exceed historical return rates, NVIDIA may determine that additional sales return allowances are required to properly reflect the estimated exposure for product returns.
NVIDIA’s customer programs involve rebates, which are designed to serve as sales incentives to resellers of the products in various target markets, and marketing development funds, or MDFs, which represent monies paid to the partners that are earmarked for market segment development and are designed to support the partners’ activities while also promoting NVIDIA products. NVIDIA accounts for customer programs as a reduction to revenue and accrue for potential rebates and MDFs based on the amount NVIDIA expects to be claimed by customers.
License and Development Arrangements
NVIDIA’s license and development arrangements with customers typically require significant customization of the intellectual property components. As a result, NVIDIA recognizes the revenue from the license and the revenue from the development services as a single performance obligation over the period in which the development services are performed. NVIDIA measures progress to completion based on actual cost incurred to date as a percentage of the estimated total cost required to complete each project. If a loss on an arrangement becomes probable during a period, NVIDIA records a provision for such loss in that period.
NVIDIA’s software licenses provide the customers with a right to use the software when it is made available to the customer. Customers may purchase either perpetual licenses or subscriptions to licenses, which differ mainly in the duration over which the customer benefits from the software. Software licenses are frequently sold along with post-contract customer support, or PCS. For such arrangements, NVIDIA allocates revenue to the software license and PCS on a relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation. Revenue from software licenses is recognized up front when the software is made available to the customer. PCS revenue is recognized ratably over the service period, or as services are performed.
Source: 10-K (filing date: 2019-02-21).
Revenues as Reported
NVIDIA Corp., Income Statement, Revenues
US$ in millions
|12 months ended||Jan 27, 2019||Jan 28, 2018||Jan 29, 2017||Jan 31, 2016||Jan 25, 2015||Jan 26, 2014|
|OEM & IP|
Based on: 10-K (filing date: 2019-02-21), 10-K (filing date: 2018-02-28), 10-K (filing date: 2017-03-01), 10-K (filing date: 2016-03-17), 10-K (filing date: 2015-03-12), 10-K (filing date: 2014-03-13).
|Revenue||Amount of revenue recognized from goods sold, services rendered, insurance premiums, or other activities that constitute an earning process. Includes, but is not limited to, investment and interest income before deduction of interest expense when recognized as a component of revenue, and sales and trading gain (loss).||NVIDIA Corp.’s revenue increased from 2017 to 2018 and from 2018 to 2019.|