Crypto crash leads to inventory pile-up at Nvidia, sales slaughtered

Revs down 25% y-o-y, op profit sinks 79%. Miners? Gamers? Hyperscalers? Anyone? Guys? Bueller?

Crying

You can't make a silk purse out of a sow's ear, so found Nvidia's management team last night as they reported a pig of a quarter that saw revenues and profit crash.

For Nvidia's Q4 ended 27 January, reported revenues slumped 24 per cent year-on-year to $2.21bn, operating expenses went up by a quarter to $913m and profit from operations dived 73 per cent to $294m.

This was the first decline for Nvidia for five years.

The numbers were in line with warnings handed down by management a fortnight ago and so the share price was trading up almost 8 per cent. The same thing happened to Apple in January after it delivered a sales warning and then "met" that reforecast.

The top line slide for the quarter was "driven primarily" by a 45 per cent drop in gaming revenue to $954m, "weaker than expectations heading into the quarter", said CFO Colette Kress on an earnings call with financial analysts.

She said: "Post crypto inventory of GPUs in the channel caused us to reduce shipments in order to allow excess channel inventory to sell through." The level of stock is predicted to "normalise" in the current Q1 of fiscal '20. Nvidia made a big gamble on crypto miners snaffling up fat GPUs and it simply hasn't paid off.

The second reason given from the gaming sales collapse was "deteriorating macro economic conditions, particularly in China, impacted consumer demand for our GPUs". Again, this is another challenge voiced by Apple.

The third and final excuse was that sales of the high-end next-gen architecture, the GeForce RTX 2080 and 2070, came in lower than planned.

The products "deliver a revolutionary leap in performance and innovation with real-time ray tracing and AI but some customers may have delayed their purchase while waiting for lower price points or further demonstrations of the RTX technology and actual gains. The significant volatility in our gaming business over the last few quarters has been challenging to model," said Kress.

Moving onto the data centre area of Nvidia's business, sales edged up 12 per cent to $679m but this represented a 14 per cent quarter-on-quarter slide.

The CFO chose to focus on the sequential shrinkage, pointing out that "customers around the world became increasingly cautious due to rising economic uncertainty".

She noted "hyper scale and cloud purchases declined" on a sequential and year-on-year basis but CEO Jen-Hsun Huang claimed the "slowdown was broad based... across every vertical, every geography".

"There was a level of cautiousness across all of the enterprise customers and the could service providers that we've not experienced in a while. And I think it has to be temporary." He added: "I think that the demand will return."

Pro visualisation revenues were up 15 per cent year-on-year to $293m and down on the prior quarter by 4 per cent. New applications for data science, AI and VR fuelled wins with Boeing, Google, LinkedIn and Toyota.

Last but not least, the automotive segmental sales jumped 23 per cent on the year-ago Q4 to $163m. This translated into a 5 per cent quarter-on-quarter decline but that was described as "seasonal".

Smashed by the sales decline, Nvidia reported a profit before tax of $324m compared to $1.073bn a year ago but received a tax benefit of $243m ($40m in Q4 fiscal '18), which left net income at $567m, down from $1.118bn.

Despite Q4, the chipmaker said sales for the year went up 21 per cent to $11.72bn and net income crossed the line at $4.141bn versus $3.047bn. ®

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