Semiconductor gross margin is the share of revenue left after subtracting the cost of goods sold (COGS) for chips, expressed as a percentage of revenue. In a chip company's income statement, COGS captures wafer and packaging costs paid to foundries and assembly and test subcontractors, memory components, depreciation on owned fabrication equipment, and warranty and inventory charges. Gross profit divided by revenue is the gross margin, and for semiconductor issuers it is one of the most-watched lines because it compresses and expands with utilization, product mix, and inventory charges.

The figure that matters for U.S. reporting is the GAAP gross margin computed from the audited income statement in a registrant's Form 10-K or 10-Q. Many chip companies also present a non-GAAP gross margin that excludes items such as stock-based compensation and acquisition-related charges; under Regulation G and Item 10(e) of Regulation S-K, those non-GAAP measures must be reconciled to the most directly comparable GAAP figure and may not be presented with greater prominence than GAAP. The starting point for any margin read is therefore the filed GAAP statement, not a press-release adjusted number.

"All of these factors may negatively impact our gross margins and financial results."— NVIDIA FY2025 Form 10-K, SEC, source

What moves a chip company's gross margin

NVIDIA (NVDA), in its fiscal 2025 Form 10-K filed February 26, 2025, ties its gross margin to demand-forecast accuracy: it states that mis-sizing demand can force “inventory provisions or impairments if our inventory or supply or capacity commitments exceed demand for our products or demand declines.” Because a fabless company prepays foundry capacity, an inventory or commitment write-down lands directly in COGS and pulls gross margin down in the quarter it is recognized. Conversely, when a new architecture sells at a premium and fabs run at high utilization, fixed costs spread over more units and margin expands.

The components differ by business model. An integrated device manufacturer that owns its fabs, such as Intel (INTC), carries large fixed depreciation in COGS, so its gross margin is highly sensitive to factory utilization — idle capacity is still depreciated. A fabless designer pays a foundry a per-wafer price, converting much of that fixed cost into a variable one, but it remains exposed to foundry price increases and to advanced-packaging costs. A pure-play foundry like Taiwan Semiconductor Manufacturing Company (TSM) reports margin against its own enormous capital base, so its gross margin tracks wafer pricing against depreciation and node ramp costs.

How to read it from the filing

To analyze gross margin from primary disclosure, start with the consolidated statements of operations for revenue and cost of revenue, then read the Management's Discussion and Analysis (MD&A) section, where Item 303 of Regulation S-K requires registrants to describe the underlying reasons for material period-to-period changes in line items in both quantitative and qualitative terms. That is where management attributes a margin move to mix, pricing, utilization, or a specific inventory charge. Reconcile any non-GAAP gross margin back to the GAAP cost-of-revenue line before drawing a conclusion; the reconciliation is required to appear in the same filing or earnings exhibit.

GAAP versus non-GAAP, and why the gap matters

The distance between a chip company's GAAP and non-GAAP gross margin is itself a disclosure worth reading. Non-GAAP gross margin most often adds back stock-based compensation and amortization of acquired intangibles, both of which are real costs under GAAP; the larger and more persistent those add-backs, the wider the gap between the two figures. Item 10(e) of Regulation S-K requires the company to present the most directly comparable GAAP measure with equal or greater prominence and to reconcile the difference, so the reconciliation table is where a reader can see exactly which costs management is asking investors to look past. A consistent, well-explained adjustment is one thing; a gap that grows quarter over quarter is a prompt to read the reconciliation closely rather than the headline percentage.

Mix is the other recurring driver, and it cuts across product lines and end markets. A data-center accelerator sold at a premium carries a different margin than a consumer graphics part, so a shift in the revenue blend can move blended gross margin without any change in the price of a single product. The same is true geographically: regulatory or export-control limits that shift sales away from a higher-margin region change the blend. Because Item 303 requires management to attribute material margin moves to their underlying causes, the MD&A will usually separate a pricing effect from a mix effect from a charge — and a reader who ties each attributed driver back to the segment and inventory footnotes can reconstruct the margin bridge from primary disclosure rather than taking the summary at face value.

Gross margin is descriptive, not predictive. The filing reports what the period's COGS and revenue were and why they changed; it does not promise a forward margin except where the company chooses to guide, and any guidance is a separate, qualified statement. For a chip investor or operator, the durable takeaways are that inventory and commitment charges are the fastest way for semiconductor gross margin to fall, that the GAAP figure is the anchor, and that the MD&A is where the company is required to explain the move in its own words. Reading the cost-of-revenue line alongside the inventory footnote and the MD&A gives a grounded picture of where a quarter's margin actually came from.

What the record shows: gross margin is revenue minus GAAP cost of goods sold as a percent of revenue; foundry, packaging, memory, depreciation, and inventory charges all sit in COGS; NVIDIA's fiscal 2025 Form 10-K warns that inventory and commitment provisions can depress it; and Item 303 of Regulation S-K requires management to explain each material change. The GAAP figure is the anchor and any non-GAAP version must be reconciled to it.