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Aug 15, 2019

Nvidia tops estimates for sales, profit on game-chip recovery

SANTA CLARA, CA - MAY 10:  A sign is posted in front of the Nvidia headquarters on May 10, 2018 in Santa Clara, California. Nvidia Corporation will report first quarter earnings today after the closing bell.  (Photo by Justin Sullivan/Getty Images)

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Nvidia Corp.’s (NVDA.O) second-quarter sales and profit topped analysts’ estimates, suggesting that a slump in orders may be easing amid a revival in demand for graphics chips.

Revenue in the quarter that ended July 28 was US$2.58 billion, and profit excluding certain costs was US$1.24 a share, the Santa Clara, California-based company said in a statement on Thursday. Analysts, on average, had estimated adjusted earnings of US$1.14 a share on sales of US$2.54 billion. Shares jumped more than 6 per cent in extended trading following the report.

After more than doubling revenue since 2016, Chief Executive Officer Jensen Huang is trying to steer Nvidia through challenges that have caused sales growth to stall. Huang has argued that a slowdown in orders for computer-gaming chips and processors for artificial intelligence tasks is temporary as customers work through stockpiles of unused parts. That buildup has caused sales to drop for three straight quarters, though analysts had projected revenue would decline more than the 17 per cent the company reported for the recent period. Nvidia’s improving performance may indicate that its customers are returning to ordering.

“Supply chain motherboard data shows graphics card inventory is finally cleaned up,” BMO Capital Markets analyst Ambrish Srivastava wrote in a recent note. “However, in the gaming segment, Nvidia now faces renewed competition from AMD’s latest release. On the data center side, we have yet to see any signs of sustained recovery.”

Nvidia shares, which have declined more than 42 per cent this year, climbed to US$158 in extended trading following the report. Earlier, they had slipped about 1 per cent to US$148.77 at the close in New York.

The company said sales in the current period will be about US$2.9 billion, plus or minus 2 per cent. That compares with an average analyst estimate for revenue of US$2.98 billion, according to a Bloomberg survey. Adjusted gross margin will be 62.5 per cent, Nvidia said.

Nvidia’s detractors say that stiffer competition is the cause of the company’s struggles. Nvidia pioneered the use of graphics chips to run AI software in data centers, while Nvidia GeForce processors have been the main choice for PC gamers wanting the highest resolution action. Now, Intel Corp. and Advanced Micro Devices Inc. are offering rival products in these markets.

The China-U.S. trade war also threatens Nvidia’s access to the world’s most populous nation, which is also the biggest market for video gaming and a major AI tech hub.