Nvidia’s sales forecast is about $1 billion lower than expected, shares fall

On Wednesday evening, executives at Nvidia Corp. predict another revenue drop in the current quarter, after confirming an earlier warning by showing a sharp reduction in profits, while the chipmaker assured analysts that it was working on its inventory before the release of its new chip. architecture.

For the third fiscal year or current quarter, Nvidia
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forecast revenue of $5.78 billion to $6.02 billion, while analysts polled by FactSet on average expect earnings of 85 cents per share on revenue of $6.91 billion.

“We expect gaming and professional viewing revenue to decline sequentially and OEM and channel partners to reduce inventory levels to align with current demand levels and prepare for our new product generation,” Colette Kress, Nvidia’s chief financial officer, told analysts on a conference call. “We expect this decline to be partially offset by sequential growth in automotive.”

This puts Nvidia on track to report lower quarterly sales than Advanced Micro Devices Inc.
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for the first time since the third quarter of 2014. In its recent earnings report, AMD forecasts third-quarter sales of $6.5 billion to $6.9 billion. Throughout the call, Nvidia executives pointed to supply chain issues, not demand, as the main culprits for the declining outlook.

“We are navigating our supply chain transitions in a challenging macro environment and we will get through it,” Nvidia founder and chief executive Jensen Huang said in a statement, before the company addressed inventory issues.

“Our supply came in a bit late in the quarter for some of our key products that we needed to release,” Kress told analysts. “And putting that together has caused disruption in our logistics and distribution.”

Nvidia also recorded a $1.22 billion inventory charge for data center and gaming products, given its revised expectations. The company said about $570 million of the charge was for on-hand inventory and about $650 million for inventory purchase obligations “in excess of our current demand forecast.”

“We have reduced sales to allow channel inventory to correct and have programs in place with our partners to position products in the channel for our next generation,” Huang told analysts during the call. “All of that, we expect that we’re working on our way to being in good shape for next year. So that’s our game plan.

Kress told MarketWatch in an interview that the company did not disclose the inventory split between data center and gaming products because the company values ​​the two segments differently.

“We wanted people to understand that the prior architecture chips and the things that we looked at when we reassessed our demand estimates going forward, and the inventory that we both had on hand and for which we procured, we made an adjustment,” Kress told MarketWatch.

The reduction in inventory is crucial as Nvidia is expected to release its next-generation “Lovelace” chip architecture this fall, to replace its “Ampere” architecture that was released in 2020.

Nvidia reported net income of $656 million, or 26 cents per share, in the second quarter, compared with $2.37 billion, or 94 cents per share, a year ago. Adjusted earnings, which exclude stock-based compensation expense and other items, were 51 cents per share, compared with $1.04 per share a year ago.

Revenue reached $6.7 billion, compared to $6.51 billion in the prior year quarter.

Analysts had forecast 50 cents a share on revenue of $6.7 billion. Earlier in the month, Nvidia warned of $1.4 billion shortfall due to weak game sales. This is in addition to Nvidia’s $500 million cut from its Q2 revenue guidance because of the COVID shutdowns in China and the war in Ukraine.

PC sales have fallen significantly after a two-year increase, and spending on video games and equipment for them has also come down to earth. At the same time, falling cryptocurrency prices have made mining less profitable; Nvidia cards have been widely used to mine Ethereum
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and other cryptos.

Data center sales rose 61% to $3.81 billion, while gaming sales were down 33% to $2.04 billion from a year ago.

“The drop in gaming revenue was stronger than expected, due to both lower units and lower ASP,” Kress said. “Macroeconomic headwinds across the globe have led to a sudden slowdown in consumer demand.”

“As reported last quarter, we expected cryptocurrency mining to make a decreasing contribution to gaming demand, and we are unable to accurately quantify the extent to which the reduction in mining of crypto has contributed to the drop in demand for games,” Kress told analysts.

Analysts had forecast $2.02 billion in gaming sales and $3.81 billion in data center sales, after updates following the previous warning.

Shares fell 4% after hours, after rising 0.2% in the regular session to close at $172.22.

Over the year, Nvidia shares fell 42%. In comparison, the PHLX Semiconductor Index
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is down 28% since the start of the year, the S&P 500 index
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is down 13%, and the Nasdaq composite index
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+0.41%

is down 21%.

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