Second quarter results of chip maker Nvidia fell short of Wall Street’s expectations with respect to revenue and earnings per share.

The report is consistent with Nvidia’s two weeks ago preliminary earnings. The chipmaker issued a warning that it would miss Wall Street expectations and that growth had significantly slowed as a result of weak gaming sales that were influenced by macroeconomic factors. It also issued a warning about a decline in gross margin.

Despite Nvidia’s revenue shortfall, Refinitiv’s estimates remained stable despite the company’s warning regarding its outlook and expectation to report $6.7 billion for the quarter. Over 4per cent  was lost by Nvidia stock during extended trading.

In contrast to Refinitiv consensus estimates of $6.95 billion for the third quarter of its fiscal year, the chipmaker predicted sales of $5.9 billion.

Revenue from Nvidia’s gaming division fell 33per cent  year over year to $2.04 billion, a more drastic decline than the company had anticipated. Nvidia claimed that lower sales of its PC graphics cards for gaming, which make up the majority of its product line, were the cause of the miss.

“Macroeconomic headwinds across the world drove a sudden slowdown in consumer demand” for the company’s gaming products, Nvidia CFO Colette Kress said on a call with analysts.

To address the “challenging market conditions” for the industry, which Nvidia predicted would continue through the current quarter, the company said it would adjust prices with its retailers.

Data center operations for the company performed marginally better. It increased 61 per cent on an annual basis to $3.8 billion, driven by large cloud providers, or what the company refers to as “hyperscale” customers.

Nvidia also operates a few more niche business segments. The company’s professional visualization division, which sells graphics chips for business applications, saw a 4per cent  annual decline to $496 million. Although it increased 45 per cent year over year to $220 million, automotive is still a small industry. According to Nvidia, the CMP dedicated cryptocurrency mining chips’ “nominal” revenue was a factor in the OEM and other category’s 66 per cent annual decline.

Since the start of the year, the price of Nvidia stock has fallen by more than 42 per cent. It had become a pandemic darling, rising sharply as the rise of work-from-home prompted the purchase of server chips and graphics cards, boosting Nvidia’s business and causing a 61per cent increase in revenue in fiscal 2022.

Nvidia announced in May that it would slow its hiring rate in response to macroeconomic difficulties.

Because of the superiority of its most recent generation of graphics cards, which were in high demand for PC gaming during the pandemic, Nvidia has enjoyed success over the past two years.

However, there are still concerns about whether cryptocurrency miners, who favor Nvidia’s graphics cards because they are effective at mining Ethereum, played a role in the company’s growth.

As part of a settlement with the SEC, Nvidia announced in May that it would pay $5.5 million to investors for how it disclosed how cryptocurrency was driving up demand for its graphics cards that year. Since then, despite this year’s sharp decline in cryptocurrency prices, Nvidia has claimed it lacks visibility into how much cryptocurrency influences the demand for its products.

“Volatility in the cryptocurrency market – such as declines in cryptocurrency prices or changes in method of verifying transactions, including proof of work or proof of stake – has in the past impacted, and can in the future impact, demand for our products and our ability to accurately estimate it,” CFO Kress said in a statement.

“We are unable to accurately quantify the extent to which reduced cryptocurrency mining contributed to the decline in Gaming demand,” Kress continued.

(Adapted from CNBC.com)

Categories: Economy & Finance, Strategy, Sustainability, Uncategorized