Nvidia said that the main reason for lowering its revenue forecast was lower-than-expected revenue from the gaming business, which was about $2.04 billion, down 44% month-on-month and down 33% year-on-year. “This was primarily attributable to lower sales of gaming products, reflecting macroeconomic headwinds that may have resulted in lower sales to channel partners,” the company explained.
Nvidia CEO Jensen Huang said in a statement: “As the quarter progresses, our gaming product sales expectations have declined significantly. As we expect macroeconomic conditions to continue to impact sales, we will take joint action with our gaming industry partners to adjust Channel prices and inventory.”
Piper Sandler analyst Harst Kumar said Nvidia’s revenue decline was surprising, while the decline in gaming revenue was not surprising.
“Nvidia’s slowdown in gaming sales likely includes the chips they sell to the cryptocurrency market, which has been soft, thus leading to The extent of the slowdown is so great.” Nvidia has been increasing its supply of cryptocurrency mining processors, bringing in $266 million in the second quarter of last year.
In its preliminary earnings report, Nvidia acknowledged that its data center division was affected by supply chain disruptions, with preliminary revenue of $3.81 billion, also below the company’s expectations. Still, the number was up 1% quarter-on-quarter and 61% year-over-year.
Nvidia said it would write off about $1.32 billion in expenses, mostly inventory and related reserves, based on revised expectations for future demand. In other words, it has a lot of unused GPU inventory. The company said it was forced to commit upfront costs for existing production, which was significant because of the extremely high demand for GPUs during the height of the pandemic.
This means that the company may believe that a significant portion of the existing inventory in customers’ hands will either not be sold or will be sold at a significant discount. To help these partners out of the woods, Nvidia is working with its partners to either accept lower prices or push up the value of these graphics cards through things like gaming or peripheral bundling.
“The significant spending incurred in the second quarter reflects our prior long-term procurement commitments during times of severe parts shortages, as well as our Current expectations for continued macroeconomic uncertainty.”
Interestingly, its competitorsAMDApparently not suffering the same price pressure. AMD’s gaming segment revenue climbed 32 percent to $1.7 billion, even though the company’s gaming segment includes revenue from semi-custom processors for consoles and PC GPUs. To be fair, though, AMD’s strategy of entering the console market has shielded it from the general downturn in the PC market,MicrosoftIn June it called the PC market “deteriorating.”
Kress believes that Nvidia’s long-term gross margin levels will remain the same. “We have slowed operating expense growth, balancing investments for long-term growth while managing short-term profitability,” she said. “We plan to continue to repurchase shares as we anticipate strong cash flow generation and future growth to accelerate.”
It is reported that Nvidia is scheduled to announce its second-quarter earnings on August 24.