Chip designer Nvidia has forecast a decline in its video game chip sales in the current quarter, and has startled some analysts by bringing up new supply chain issues stemming from China’s COVID-19 shutdowns.
CEO Jensen Huang told Reuters that revenue from Nvidia’s gaming business will post a percentage decline in the mid-teens for the current quarter compared to the previous quarter.
“The game market is generally slowing down,” Huang said. He said that based on weak market demand, Nvidia has chosen to reduce what it sells in the Chinese market. He said Nvidia had taken a hit from Russia and was seeing a “sell-down slowdown” in Europe.
Nvidia shares fell 6.7 percent in extended trading, even though the company’s first-quarter revenue and profit beat analyst estimates. Shares are down about 40 percent so far this year along with a broad sell-off in growth stocks on fears of big rate hikes by the US Federal Reserve.
Concerns about inflation are spreading across the US economy, as consumers weigh their purchases of items such as laptops and video game consoles.
Nvidia forecast second-quarter revenue of $8.10 billion (approximately Rs 62,842 crore), plus or minus 2%. Analysts on average expected $8.45 billion (about Rs 65,557 crore), according to IBES data from Refinitiv. The lower revenue forecast included an estimated decrease of $500 million (about Rs 3,879 crore) related to Russia and the COVID lockdowns in China. Chief Financial Officer Colette Chris said the $500 million figure included about $400 million (about Rs 3,103 crore) lost in game sales in China and Russia, and another $100 million lost in data center sales in Russia.
Chris told analysts on the earnings call that the coronavirus shutdowns in China, in addition to affecting logistics, are hurting consumer spending.
It was baffling that a company that had weathered supply hurdles so well so far suddenly hit a bump in the road, said Dan Morgan, senior portfolio manager at Synovus Trust.
Almost every technology company that missed expectations has blamed the Russian-Ukrainian conflict and China’s lockdown for the coronavirus, said Kenjay Chan, an analyst at Summit Insights Group. He predicted that Nvidia will face more downturns in the future.
One analyst was more optimistic.
“The after-hours dip is an overreaction to geopolitical events outside the company’s control, not a weak demand environment,” said Logan Burke, an analyst at Edward Jones, referring to the dip in Nvidia’s stock price.
Weak graphics chip prices and lower discretionary spending amid rising inflation are likely to put pressure on Nvidia’s gaming business, according to experts.
The escape in the cryptocurrency market is also hurting the demand for its GPUs, which are favored by crypto miners. Chris, chief financial officer, said in a statement Wednesday that Nvidia saw a 52 percent year-over-year decline in the “OEM and other revenue” category due to lower revenue from crypto-mining processors.
However, demand from data center customers has remained strong as more companies are turning to the cloud and integrating AI into their operations. Chris said that and car sales will help offset the decline in games. Data center revenue for the first quarter came in at a record $3.75 billion (about Rs. 29,097 crore), up 83 per cent year-on-year. Gaming revenue in the first quarter was also $3.62 billion (approximately Rs. 28,086 crore), up 31 percent year-over-year.
Revenue for the first quarter ended May 1 rose 46 per cent to a record $8.29 billion (about Rs 64,320 crore). Excluding items, the company earned $1.36 (about 105 rupees) per share, beating estimates of $1.29 (about 100 rupees).
© Thomson Reuters 2022