Nvidia’s Sales Projection Falls Nearly $1 Billion Short Of Expectations, Sending The Stock Down

Posted by Manish Kumar August 25, 2022
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Nvidia is on track to announce quarterly sales lower than rival AMD for the first time since the third quarter of 2014.

Nvidia Corp. executives forecasted another sales shortfall in the current quarter late Wednesday, after confirming an earlier warning with a significant drop in earnings, while the chip company told analysts that it was working its way through inventories ahead of the release of its new chip design.

For the fiscal third, or current, quarter, Nvidia NVDA, -0.75% expects revenue of $5.78 billion to $6.02 billion, while FactSet analysts expect earnings of 85 cents per share on revenue of $6.91 billion.

“We expect gaming and pro visualization revenue to drop sequentially as OEM and channel partners reduce inventory levels to match current levels of demand and prepare for our new product generation,” said Colette Kress, Nvidia’s chief financial officer, during a conference call with analysts. “We expect sequential growth in automobiles to largely offset that reduction.”

This puts Nvidia on course to announce quarterly sales that are 2.76% lower than AMD’s for the first time since the third quarter of 2014. AMD anticipated third-quarter sales of $6.5 billion to $6.9 billion in its most recent earnings report. Throughout the call, Nvidia officials emphasized that supply-chain issues, not demand, were the primary factors lowering the estimate.

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“We are navigating our supply-chain transitions in a challenging macro environment,” Jensen Huang, Nvidia’s founder, and CEO said in a statement before the company addressed inventory issues.

“Our supply for some of the critical products that we needed to send out arrived a little bit late in the quarter,” Kress told analysts. “And doing so caused some disturbance in our logistics and delivery.”

Given its lowered assumptions, Nvidia also took a $1.22 billion inventory charge for data-center and gaming products. According to the firm, around $570 million of the charge is for inventory on hand, and  “We stopped selling to allow channel inventories to correct, and we’ve developed programs with our partners to position the items in the channel in readiness for our next generation,” Huang said during the conference call with analysts. “We anticipate that all of this will put us on track to be in good form for next year.” So that’s how we’re going to play.”

According to Kress, the corporation did not publish the inventory split between the data center and gaming devices since the company views both divisions differently.

“We wanted people to understand that when we revised our predictions for future demand, and the inventory that we both had on hand and procured for, we took an adjustment,” Kress told MarketWatch.

Inventory reduction is critical because Nvidia is set to deploy its next-generation “Lovelace” chip architecture this fall, replacing its “Ampere” architecture, which was released in 2020.

Nvidia reported a net income of $656 million, or 26 cents per share, in the second quarter, compared to $2.37 billion, or 94 cents per share, in the previous year. Adjusted earnings, which exclude stock-based compensation charges and other things, were 51 cents per share, down from $1.04 per share the previous year.

Revenue increased to $6.7 billion, up from $6.51 billion in the previous quarter.

Analysts expected 50 cents per share on $6.7 billion in revenue. Nvidia warned earlier this month of a $1.4 billion revenue deficit due to lackluster gaming sales. This is in addition to the $500 million cut from Nvidia’s second-quarter sales prediction due to COVID lockdowns in China and the fighting in Ukraine.

After a two-year rise, PC sales have slowed significantly, and spending on video games and accessories has also leveled off. At the same time, cryptocurrency price drops have made mining less profitable; Nvidia cards have been widely used to mine for Ethereum ETHUSD, 0.99%, and another crypto.

Data-center sales increased 61% year on year to $3.81 billion, while gaming revenues decreased 33% to $2.04 billion.

“The fall in gaming income was worse than expected, driven by lower units as well as lower ASPs,” Kress stated. “Global macroeconomic difficulties triggered a dramatic decline in consumer demand.”

“As we stated last quarter, we expected cryptocurrency mining to contribute less to gaming demand, and we are unable to correctly estimate the extent to which reduced crypto mining led to the decline in gaming demand,” Kress told analysts.

Following the earlier warning, analysts had expected $2.02 billion in gaming sales and $3.81 billion in data-center sales.

Following a 0.2% advance in the regular session to close at $172.22, shares fell 4.6% after hours.

Nvidia’s stock has fallen 42% in a year. The PHLX Semiconductor Index SOX, 1.31% is down 28% year to date, the S&P 500 index SPX, 0.44% is down 13%, and the Nasdaq Composite Index COMP, 0.52% is down 21%.

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