In July 2025 the SEC asked NVIDIA (NVDA) why a $4.5 billion inventory charge wasn't "a normal, recurring operating cost." That question sums up SEC comment letter trends in technology hardware: scrutiny tracks company size.
We read 143 staff letters on 10-K and 10-Q reviews of 96 hardware companies, June 2023 to June 2026. Large caps get asked whether investors can follow the numbers. MD&A came up in 68% of their letters, non-GAAP measures in 51% and segment reporting in 39%.
Micro caps get asked whether the basics hold. Going concern and internal controls come up there about five times as often as at the top. Segment reporting, rare in 2023, is now a top-three theme for mid and large caps.
This post covers the free findings from our technology hardware report and the letters behind them. We checked each letter on the SEC's EDGAR system.
What did the SEC ask NVIDIA, and how did NVIDIA answer?
The SEC's Division of Corporation Finance asked NVIDIA to justify leaving a $4.5 billion charge out of its non-GAAP results. It also asked whether the written-down products could have gone to another customer.
The letter, dated July 22, 2025, went to Colette Kress, NVIDIA's chief financial officer. It reviewed NVIDIA's 10-K for the year ended January 26, 2025, plus its May 28, 2025 earnings release.
The staff limited its review to the financial statements and related disclosures. That's one of the Division's three review types, alongside full and targeted reviews. Its first comment went straight to the charge.
NVIDIA replied nine days later, on July 31, 2025. The charge covered excess H20 inventory and purchase obligations after demand for the chip fell away. NVIDIA called it "significant and unprecedented."
Its case rested on a government decision. On April 9, 2025, the U.S. government told NVIDIA that exporting the H20 to China needed a license. Five days later, it said the requirement would stay in place indefinitely.
NVIDIA added that it had not routinely excluded normal inventory charges from its non-GAAP measures. The H20 was built for China, and NVIDIA said "there is not a market outside of China for H20."
The reply also covered presentation. NVIDIA said its release led with GAAP gross margin and diluted EPS and spelled out the H20 effect on each. Investors, it said, found the adjusted view useful for comparing periods.
The staff didn't write back on the point. Its next letter, dated September 10, 2025, said the review was complete.
The other three comments in the July letter were about presentation too.
The staff asked whether licensing and services revenue topped 10% of the total. Above that level, Rule 5-03 of Regulation S-X wants it on its own line. NVIDIA said it was about 1%.
The staff also told NVIDIA to fold its "All Other" segment column into the reconciliation. NVIDIA agreed to do so in future filings. The last comment asked how it met the rule on revenue by product group.
The whole exchange reached EDGAR on January 13, 2026, 175 days after the first letter. That's close to the 181-day median for staff letters released that quarter.
All four comments asked how NVIDIA shows its numbers, which is what large-cap reviews in this sector mostly do.
What is the NVIDIA test for non-GAAP inventory charges?
The NVIDIA test is two questions from that letter. Is the charge a normal, recurring cost of running the business? Could the written-down products have been sold to someone else or put to another use?
If the honest answer to either is yes, expect the staff to ask you to put the charge back. In hardware, the first question is the hard one.
The rule behind it is Question 100.01 of the SEC staff's Compliance and Disclosure Interpretations (C&DIs) on non-GAAP measures. It says a measure can mislead if it "excludes normal, recurring, cash operating expenses necessary to operate a registrant's business."
The answer's last sentence does most of the work. It says the staff "would view an operating expense that occurs repeatedly or occasionally, including at irregular intervals, as recurring."
Inventory write-downs in a cyclical industry fit that description well. A chip or device maker writes inventory down whenever demand turns, and demand turns often. For non-GAAP comments across every industry, see our 2026 non-GAAP comment letter trends.
Three hardware companies have put an inventory charge to this test with the staff since 2024:
| Company | Tier | What it left out of non-GAAP | Staff letters | Outcome |
|---|---|---|---|---|
| Inseego (INSG) | Micro | About $17M of E&O inventory and contract-manufacturer charges, 2023 | 2, then completion | Agreed to stop excluding them |
| Coherent (COHR) | Large | Inventory write-offs inside "integration, site consolidation and other" | 5, then completion | Agreed to stop and to recast prior periods |
| NVIDIA (NVDA) | Large | $4.5B H20 inventory and purchase-obligation charge | 1, then completion | Review closed with no further comment |
All three comments landed on an earnings release furnished on Form 8-K. The staff reads the press release as closely as the annual report.
Inseego makes mobile hotspots and sits in our report's micro-cap tier. In late 2023 it left about $17 million of excess and obsolete (E&O) charges out of its non-GAAP measures.
Those charges covered stock it no longer expected to sell at full value. They also covered liabilities on purchase orders already placed with its contract manufacturers.
The staff's April 9, 2024 letter to Inseego said those adjustments "represent normal operating expenses necessary to operate your business."
Inseego pushed back on April 17. Pandemic demand swings, it said, had taken revenue from $314 million in 2020 to $196 million in 2023. In its view, that made the 2023 charges neither normal nor recurring.
The staff answered on April 23 with the line that sums up this sector.
"It appears to us that managing inventory levels is an integral aspect of your business."
Inseego agreed on May 6 to stop excluding the charges, and the review closed on May 8, 2024.
Coherent ran the same test over eight months. The staff wrote five comment letters before Coherent took its write-offs out. Those sat inside a non-GAAP line called "integration, site consolidation and other."
Coherent also promised to recast prior periods to match. That follows the next interpretation, Question 100.02, which says a change in adjustments may require recasting earlier measures. Its full timeline is further down.
NVIDIA's answer was different in kind. Inseego blamed demand, and demand swings are the hardware business. NVIDIA pointed to a product with no buyer outside China and a government decision it called "outside our control."
None of this means the staff agreed with NVIDIA. NVIDIA's completion letter, like the others we read, ends with a standard reminder. The company is responsible for its disclosures "notwithstanding any review, comments, action or absence of action by the staff."
So the test has a hard edge in hardware. If the charge came from your own market, expect the staff to call it a cost of doing business.
How do SEC comment letter trends change with company size?
They track size almost step for step. The bigger the company, the more the staff asks whether investors can follow its numbers. The smaller the company, the more it asks whether the basics are right.
Large caps, those over $10 billion, rarely get questions about the arithmetic. They get asked what drove revenue, why an adjustment belongs in non-GAAP and how segments add up. Customer and geographic concentration appears in 24% of their letters, a theme the report found almost only at the top.
Mid caps, from $2 billion to $10 billion, already read like large caps. MD&A comes up in 63% of their letters, and non-GAAP and segment reporting in 37% each. Goodwill and intangible impairment follows at 23%.
Small caps, from $300 million to $2 billion, get the most non-GAAP pressure of any tier. MD&A and non-GAAP each appear in 57% of their letters. Goodwill and intangible impairment comes up in 35%, the highest share on the ladder.
Micro caps, those under $300 million, get a different letter. Non-GAAP still leads at 27% and MD&A follows at 16%. Then come going concern and dilution at 11%, inventory at 11% and internal control at about 9%.
Prominence comes up at both ends of the ladder. The staff told Inseego to give net loss equal or greater prominence than Adjusted EBITDA. Coherent got the same note about its shareholder letter in July 2024.
About a third of micro-cap reviews are limited reviews that close after one or two clean-up comments. Those letters are short, and they land on the basics.
Inventory is the one theme that runs the whole ladder, at 11% of micro-cap letters and 17% of large-cap ones. Inseego and NVIDIA got the same non-GAAP question at opposite ends of it.
Here's the full ladder from the report:
| Tier | Market cap | Filers · letters | Most-asked themes | Named in the report |
|---|---|---|---|---|
| Micro | Under $300M | 31 · 44 | Non-GAAP 27%, MD&A 16%, going concern 11%, inventory 11% | Inseego, Universal Electronics |
| Small | $300M to $2B | 17 · 23 | MD&A 57%, non-GAAP 57%, goodwill and intangibles 35% | Varex, iRobot, SkyWater |
| Mid | $2B to $10B | 21 · 35 | MD&A 63%, non-GAAP 37%, segment 37%, goodwill 23% | Digi, Plug Power, nLIGHT |
| Large | Over $10B | 27 · 41 | MD&A 68%, non-GAAP 51%, segment 39%, concentration 24% | NVIDIA, Texas Instruments, Coherent |
Across all industries the staff's list looks much the same, led by MD&A, segments and non-GAAP. Our seven SEC comment letter trends for 2026 covers that wider view.
Read your tier's row before your next filing, then read the row above it.
Why did segment reporting become a top-three theme?
Segment comments were almost absent from the sector's 2023 letters, at about 3%. In 2025 and 2026, segment reporting came up in 39% of large-cap hardware letters and 37% of mid-cap ones. Our report ties the jump to ASU 2023-07, the Financial Accounting Standards Board's (FASB) update to segment disclosures.
The FASB issued ASU 2023-07 in November 2023. It applies to fiscal years beginning after December 15, 2023. Calendar-year companies first used it in 10-Ks filed in early 2025.
In plain English, a company now lists the costs its chief operating decision maker (CODM) sees for each segment. Paragraph 280-10-50-26A asks for "the significant expense categories and amounts that are regularly provided to the chief operating decision maker."
Paragraph 26B adds an "other segment items" amount to bridge segment revenue, those expenses and segment profit. If a company has no significant expense categories, 26C asks it to explain what expense information the CODM uses instead.
That matters most for hardware companies with several product lines. Our report calls segment reporting the most common substantive accounting comment for them.
nLIGHT (LASR) got three segment comments in its April 20, 2026 letter. The staff asked which of revenue, gross profit and gross margin was the CODM's primary measure of segment profit. It then asked how nLIGHT had met 26A and 26B, or how it would revise its disclosure.
The second comment will look familiar. The staff said nLIGHT's "Corporate and Other" column "should not be given prominence as a separate column."
It had used almost the same paragraph about NVIDIA's "All Other" column nine months earlier. Both letters came from the Division's Office of Manufacturing.
nLIGHT replied in eight days. It named segment gross profit as the primary measure and cost of revenue as its only significant expense. The staff closed the review on April 30, and the letters went public on May 29, 2026.
Segment questions predate the new standard in this sector. In 2024, Digi International (DGII) went four rounds on how it grouped operating segments and what its CODM reviewed. One letter even asked how segment leaders were paid and whether segment results set their bonuses.
Those letters reviewed Digi's 2023 10-K, before ASU 2023-07 applied to it. Our report sees the theme moving down the size ladder, from large caps to mid caps and now small caps.
The staff also reads earnings calls. In May 2024 it told Universal Electronics (UEIC) that management named separate product channels on its calls.
Analysts asked about those channels too. So why did its filings treat the products as one group?
If your segment table has a catch-all column of unallocated costs, the staff has already written your comment.
Why do hardware reviews run to four letters?
The staff keeps asking until a company quantifies, defines and reconciles. A description doesn't close the question. Our report found four-letter exchanges at Coherent, Digi International, Lumentum (LITE) and Universal Electronics in 2024.
It found three rounds at Penguin Solutions (PENG) in 2025, on goodwill. Coherent's 2024 review shows how a chain builds. On EDGAR it runs to six staff letters, five of them with comments.
Our report counts the four that covered Coherent's 10-Q. The last two covered only its May 2024 earnings release.
Universal Electronics' chain wandered further. It opened on MD&A in April, turned to product groups in May and ended on litigation costs in July.
Watch how the staff's verbs change. In April and May it asks Coherent to explain. By July it asks Coherent to remove, and in November it asks again.
Each partial answer bought Coherent another letter. If you're mid-review, our comment letter response playbook covers how to make the first reply the last one.
The concession the staff asked for in July arrived in December.
What's rising and what's fading?
One theme is rising and two hold steady. Going concern stays a micro-cap issue, and the letter count is falling.
Read the last card with care. Counting by letter date makes recent periods look thin, because many 2025 and 2026 letters aren't public yet.
Other counts also show a fall. PwC counted 487 comment letters on 10-K and 10-Q filings for the 12 months to June 30, 2026. A year earlier it counted 1,270.
We also count letters by the day they go public. In Q3 2026 the SEC released 1,120 staff comment letters on EDGAR, down 51% from 2,278 a year earlier.
Fewer letters are reaching EDGAR, and the ones that arrive are older.
Three checks before your next 10-K or 10-Q
These three come straight from the letters above. The full report has ten, each tagged by company size.
1. Run the NVIDIA test on every inventory adjustment
Put the two questions from NVIDIA's letter to every inventory charge you exclude. Is it a normal cost of the business, and could the products go anywhere else? If your answer leans on a demand swing, Inseego's letters show where that ends.
2. Read your segment note the way the staff will
Name the CODM's primary measure of segment profit. List the significant expenses under 26A, or explain under 26C why there are none. Move unallocated costs out of their own column and into the reconciliation.
3. Put a number on every driver in MD&A
When two or more factors explain a change, the staff wants each one sized. Coherent got a version of this comment on April 9, 2024. Three days later the staff asked Universal Electronics to "quantify, where possible, the extent to which each factor contributed."
The full report has the other seven checks, a 2026 outlook for each tier and a 15-letter comment log. It's free: enter your email on the report page to download the PDF.
How we counted
Every figure on this page counts staff letters by letter date, from June 2023 to June 2026. Only reviews of 10-K and 10-Q filings are in scope.
We started with every UPLOAD letter at technology hardware SIC codes. UPLOAD is EDGAR's form type for a staff letter, and CORRESP is the company's reply.
The codes cover semiconductors (3674), optical instruments (3827 and 3829) and communications equipment (3661, 3663 and 3669). They also cover the wider 3570 to 3679 hardware range.
That gave 396 letters. We set aside 234 of them, or 64%, because they reviewed other forms. Those were 162 registration statements, 34 S-4 merger and de-SPAC filings and 38 foreign 20-F reports.
The remaining 143 letters went to 96 companies and are the base for every percentage here. By year: 28 in 2023, 75 in 2024, 35 in 2025 and 5 in the first half of 2026.
Size tiers use market capitalization, with the bands shown in the tier table above. Themes were tagged per letter and checked against letters read in full. Figures marked ~ are the report's approximations.
On October 15, 2026, we opened each quoted letter on EDGAR and checked every quote against its text. Links to each sit next to the quote.
PwC's count of 487 covers every industry over a different 12-month window. Use it for context alongside our sector figures.
EDGAR lists each letter under the date it was written, not the day it went public. NVIDIA's July 2025 letter, for example, went public in January 2026. For anything recent, search by company with no date filter.
Last updated: October 16, 2026.
Common questions
What did the SEC ask NVIDIA about its inventory charge?
On July 22, 2025, the SEC asked NVIDIA why its $4.5 billion H20 charge wasn't a normal, recurring operating cost. It also asked why the products couldn't be sold to another customer or used another way. NVIDIA replied that a U.S. export license requirement had left the H20 with no market outside China.
The staff closed the review on September 10, 2025, without a second comment letter.
Can a company exclude inventory write-downs from non-GAAP measures?
Only with a strong case, and rarely in hardware. Question 100.01 of the SEC staff's non-GAAP interpretations treats an expense that occurs even occasionally, at irregular intervals, as recurring. Inseego and Coherent both agreed in 2024 to stop excluding inventory charges.
The staff's words to Inseego: "It appears to us that managing inventory levels is an integral aspect of your business."
What does the SEC ask about segment reporting under ASU 2023-07?
The staff asks which measure the chief operating decision maker uses as the primary measure of segment profit. It asks for significant segment expenses under ASC 280-10-50-26A and other segment items under 26B.
It also wants unallocated costs moved from a separate column into the reconciliation. It told NVIDIA that in 2025 and nLIGHT in 2026.
What do SEC comment letters to semiconductor and hardware companies focus on?
It depends on size. From June 2023 to June 2026, MD&A came up in 68% of large-cap hardware letters. Non-GAAP came up in 51% and segment reporting in 39%.
Micro-cap letters led with non-GAAP at 27%, then MD&A at 16% and going concern and inventory at 11% each.
How many rounds of SEC comment letters should a hardware company expect?
Plan for more than one. Our report found four-letter exchanges at Coherent, Digi International, Lumentum and Universal Electronics in 2024. Simple reviews still close fast: nLIGHT's 2026 segment review went from first letter to completion in ten days.
Does a completion letter mean the SEC agreed with the company?
No. A completion letter only says the staff has finished its review. It says the company stays responsible "notwithstanding any review, comments, action or absence of action by the staff."
The SEC adds that staff letters "do not constitute an official expression of the SEC's views."
Why can't I find a recent SEC comment letter on EDGAR?
The SEC releases correspondence no sooner than 20 business days after a review closes. EDGAR then files each letter under the date it was written. NVIDIA's July 2025 letter went public on January 13, 2026, 175 days later.
Our guide to SEC comment letters explains why letters reach EDGAR late, and how to search around it.
Where can I read NVIDIA's comment letter and response?
Both are on EDGAR in NVIDIA's company filings. The staff letter is form type UPLOAD, accession 0000000000-25-007684. NVIDIA's reply is form type CORRESP, accession 0001045810-25-000192.
For other ways to find letters and replies, see our guide to comment letter research tools.
Keep reading
New to comment letters? Start with our guide to SEC comment letters. Finrep's Comment Letter Explorer has an analytics view with focus areas and filters, and a thread view with AI-tagged discussions.
