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Aug 8, 2022

Nvidia disappoints with big miss in revenue on slump in gaming

Pay attention to NVIDIA's datacenter performance not gaming weakness: Bernstein's Senior analyst

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Nvidia Corp. shocked Wall Street with a big miss on quarterly revenue, saying a slowdown in the gaming industry is eroding demand for the high-end graphics cards used in specialty computers. 

Revenue will be US$6.70 billion, Nvidia said Monday in reporting preliminary results for its second quarter ahead of the scheduled Aug. 24 announcement. That compares with the company’s earlier forecast of US$8.1 billion, and the shares fell the most on the Nasdaq 100 Index after the news.

Nvidia’s disappointment underscored a squeeze rippling across the industry: Still pressured by pandemic-era supply and shipping constraints on hardware, companies now face users with dwindling time available to play games and a slower launch schedule of new titles. Most of the major gaming companies have reported declining sales or weaker outlooks this year, from PlayStation maker Sony Group Corp. to Microsoft Corp., which sells the Xbox console. 

“Our gaming product sell-through projections declined significantly as the quarter progressed,” Nvidia Chief Executive Officer Jensen Huang said in a statement Monday. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory.”

The stock dropped 5.6 per cent to US$179.25 at 10:38 a.m. in New York, extending a decline of 35 per cent this year through Aug. 5. 

Nvidia had already flagged strains on its performance in its second quarter, which ended July 31. The Santa Clara, California-based company said in May Covid-19 lockdowns in China disrupted production and transportation lines, making it harder for companies like Nvidia to capitalize on demand for chips. Russia’s invasion of Ukraine also weighed on its outlook, and together the problems were expected to cut sales by about US$500 million in the fiscal second quarter, Nvidia said.

Gaming revenue in the second quarter fell 44 per cent from the previous quarter and 33 per cent from a year earlier to US$2.04 billion, Nvidia said. Revenue from chips used in data centers was US$3.81 billion, up 61 per cent from a year earlier.

Full second-quarter results will include about US$1.32 billion of charges, “primarily for inventory and related reserves, based on revised expectations of future demand,” Nvidia said.

“The significant charges incurred in the quarter reflect previous long-term purchase commitments we made during a time of severe component shortages and our current expectation of ongoing macroeconomic uncertainty,” said Chief Financial Officer Colette Kress.

The US chip industry has been waiting for more than US$50 billion to be deployed from the US Chips Act passed by the Senate last year. The legislation was aimed at boosting domestic manufacturing and helping resolve pandemic-related shortages in computer chips, but legislative battles have kept spending on hold.