Nvidia’s Second Quarter Revenue Tanks As GPU Sales Drop By 44%

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Chip designer NVIDIA Corporation pre-released its earnings report for its second fiscal quarter earlier today, with the results showing large drops in revenue over the company's Q2 guidance. NVIDIA is one of the last companies to post its results in an earning season, and the report serves to avoid major shocks to investor confidence and the stock market on the back of poor results that also plagued Intel Corporation in its latest quarter. NVIDIA revealed that for the second quarter, the firm's preliminary revenue stands at $6.7 billion - missing the guided metric by $1.4 billion and it blamed the poor performance on its gaming segment.

NVIDIA's Gaming Revenue Drops By 44% Sequentially And 33% Annually In Major Miss

As part of its earnings report, NVIDIA divides its revenue into five segments, with its gaming segment which deals with graphics processing units (GPUs) and its data center segment which caters to large scale corporate and other segments being the driving forces for net sales. A drastic reduction in any one significantly impacts the balance sheet and this appears to be the case for the second quarter.

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The chip designer outlined that during the quarter that ended in July, Gaming posted a massive 44% sequential drop and an equally large 33% annual drop, with its revenue standing in at $2.04 billion. The second largest segment, data center, became the largest segment during the quarter, as it posted $3.81 billion in revenue for 1% sequential and a strong 61% annual growth.

Overall, however, the underperformance by Gaming saw NVIDIA post $6.7 billion in revenue as it missed its guided revenue by a whopping $1.4 billion to mark a 19% sequential drop and a small 3% annual growth. NVIDIA's statement was cautiously worded, as it pointed out that the results were still preliminary and were the expected metrics for its upcoming earnings report later this month.

NVIDIA's guidance for the second quarter vs the preliminary results. Image: NVIDIA Corporation

NVIDIA's chief financial officer Ms. Colette Kress commented on the preliminary results and ascribed them primarily to a challenging economic environment that saw her company enter into long term purchase commitments. NVIDIA and other chipmakers that rely on contract manufacturers for their production needs have dealt with historic shortages in the wake of the coronavirus pandemic, as changes ushered in by the virus spurred the demand for consumer electronics and disrupted their supply chains at the same time due to global lockdowns.

As part of her comments, Ms. Kress shared that:

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.

We believe our long-term gross margin profile is intact. We have slowed operating expense growth, balancing investments for long-term growth while managing near-term profitability. We plan to continue stock buybacks as we foresee strong cash generation and future growth,

The company's chief executive officer Mr. Jensen Huang outlined that it is working with its channel partners to adjust prices and inventories based on weaker than expected demand and sales. He also attributed the revenue drop to macroeconomic headwinds, with the current U.S. economy battling high prices and a looming recession even as labor market trends move in the opposite direction.

NVIDIA's products are also used by cryptocurrency miners, and with major and minor digital currencies having bottomed out throughout 2022, these miners have also started to sell their products in the market - potentially stealing some of the demand that would have otherwise flowed to NVIDIA's channel partners. The company's share price is down by more than 7% during trading today versus a 1.89% drop in the Philadelphia semiconductor index and has bled close to half of its value over the course of this year.

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