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Nvidia Tumbles After PC Industry Slump Crushes Revenue

·3 min read
Nvidia Tumbles After PC Industry Slump Crushes Revenue

(Bloomberg) -- Nvidia Corp.’s quarterly revenue missed its projections by more than $1 billion, surprising investors and piling on more evidence that demand for electronic components is drying up quickly after a two-year boom.

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Fiscal second-quarter revenue was about $6.7 billion, down from its earlier projection of $8.1 billion, the company said Monday in a statement. Shares of the most valuable publicly traded chipmaker fell 6.3% to $177.93, their worst decline in nearly two months, and the biggest drag on the Nasdaq 100 Index.

Nvidia’s report underscored a squeeze rippling across the industry: Declining consumer spending, growing inflation and a push to return to offices have reduced purchases of personal computers. Intel Corp., Western Digital Corp. and other companies that depend on PC sales have reported sharp declines in demand for their products.

Nvidia’s graphics chips are a staple of high-end PCs used to get the most realistic gaming experience. Most of the major gaming companies have reported falling sales or weaker outlooks this year, from PlayStation maker Sony Group Corp. to Microsoft Corp., which sells the Xbox console. The add-in card made by Nvidia also are a key part of systems used by currency miners, which make the company’s earnings vulnerable to fluctuations in those markets.

“Our gaming product sell-through projections declined significantly as the quarter progressed,” Nvidia Chief Executive Officer Jensen Huang said in the statement. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our gaming partners to adjust channel prices and inventory.”

Ambrish Srivastava, an analyst at BMO Capital Markets, called it “an ugly preliminary announcement” in a note to clients. “We had lowered our numbers last month as well, but clearly not enough,” he wrote. Nvidia will give its full report and projections for the current period on Aug. 24.

Nvidia had already flagged strains on its performance in its second quarter, which ended July 31. The Santa Clara, California-based company said in May that Covid-19 lockdowns in China disrupted production and transportation lines, making it harder to capitalize on demand for chips. Russia’s invasion of Ukraine also weighed on its outlook, and together the problems were expected to cut sales by about $500 million in the fiscal second quarter, Nvidia said.

Gaming revenue in the second quarter fell 44% from the previous quarter and 33% from a year earlier to $2.04 billion, Nvidia said.

Nvidia’s ascent to the top of the chip industry by market valuation has been partially driven by the explosive growth of its data center business. Owners of large cloud data centers are increasingly using its graphics chips for artificial intelligence computing. While revenue from that division increased 61% to $3.81 billion, it fell short of Nvidia’s projections, the company said. Performance was “impacted by supply chain disruptions.”

The quarterly results also will include about $1.32 billion of charges, “primarily for inventory and related reserves, based on revised expectations of future demand,” Nvidia said.

“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,” said Chief Financial Officer Colette Kress.

(Updates closing share price movement in the second paragraph.)

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