NVIDIA Diverts Tax Dollars to R&D

Intel is looking to wrestle share away from graphics chipset maker Nvidia by putting integrated-graphics silicon into its cental processing units. Nvidia, which dominates the market for high-end graphics popular among gamers, is fighting back against its cross-town rival by moving aggressively to capture share for entertainment applications in smaller, mobile internet devices. Luckily for Nvidia, it is able to subsidize R&D of its new class of mobile chip, called Tegra, with the millions it saves on its tax bill.

• We recognized income tax expense of $9.8 million and $80.8 million for the first nine months of fiscal years 2009 and 2008, respectively. Income tax expense as a percentage of income before taxes, or our effective tax rate, was 7.7% and 13.0% for the nine months of fiscal years 2009 and 2008, respectively. Our effective tax rate is lower than the United States federal statutory tax rate of 35.0% due primarily to income earned in lower tax jurisdictions and the U.S. tax benefit of the federal research tax credits available in the respective periods. -- Third-quarter 2009 Form 10-Q filing

For the nine-months ended October 26, Nvidia spent $644 million, or 22 percent, of net sales on research and development, up from 17 percent in the prior year. By comparison, in the three-month October-end quarter, Intel spent almost $1.5 billion, or 14 percent of its net sales -- more than double the year-to-date spend by Nvidia -- on research and development! Albeit Intel's R&D spend dwarfs that of its much smaller rival, the semiconductor giant pays an effective tax rate of about 30 percent per quarter.

Whether or not Intel can catch up to Nvidia in high-end graphics-processing units found in desktop and notebook PCs is open to debate, but at least Nvidia can divert needed monies to R&D -- as opposed to handing it over to tax coffers.