Stock plummets after third quarter sales as well as fourth quarter forecasts are deemed unimpressive
SAN FRANCISCO — The end of the cryptocurrency mining boom that boosted Nvidia’s revenue for more than a year hit the graphics chip vendor hard in the third quarter, dragging sales below Wall Street’s expectations.
Nvidia also issued a fourth quarter forecast that came in below analysts’ targets, citing excess inventory of GPUs based on its Pascal architecture in the sales channel.
Nvidia had warned after its second quarter results that its revenue boost from cryptocurrency mining had essentially dried up as cryptocurrency values declined. But Jensen Huang, Nvidia’s CEO, said in a conference call with analysts following the third quarter financial report Thursday that the magnitude of the inventory glut in the channel — caused by slower sales of the Pascal GPUs used for cryptocurrency mining — caught the company largely by surprise until near the end of the quarter.
“We were as surprised by it as anybody else,” said Huang. “The crypto hangover lasted longer than we expected.”
In a nutshell, Huang said that channel partners were slower to lower the price of Pascal GPUs than Nvidia expected. When the prices did come down, demand did not rise as fast as Nvidia anticipated, he said.
“All of that uncertainty I think froze the market a little longer than we expected,” said Huang. He added that Nvidia decided not to ship any more mid-range Pascals until the inventory levels cleared. The company is hopeful that demand for the products will rise and the excess inventory to be sold within one to two quarters, he added.
“This is surely a setback, and I wish we would have seen it earlier,” said Huang. “In the final analysis, I’m not sure what we would have done differently.”
As a result of the inventory glut, Nvidia took a third quarter right down of $57 million for Pascal components and chips. Revenue from the company’s Gaming business segment came up short of expectations, obscuring record revenue from Nvidia’s Professional Visualization, Datacenter and Automotive segments.
Huang said that Nvidia remains bullish on its prospects in gaming, as well as data center and automotive. He described the company’s next-generation Turing GPU architecture — the successor to Pascal — as “a giant leap for computer graphics and AI” and the biggest generational performance improvement Nvidia has ever delivered.
Overall, Nvidia’s third quarter sales came in at $3.18 billion, up 2% sequentially and up 21% year-over-year. The company reported a net income in accordance with generally accepted accounting principles of $1.23 billion, up 12% sequentially and up 47% year-over-year.
Nvidia said that it expects fiscal fourth quarter sales to decline to between $2.65 billion and $2.75 billion, well below consensus analysts’ expectations of about $3.4 billion.