Chipmaker Nvidia Guides for a Weak First Quarter

Not too long ago chipmaker Nvidia released mixed fourth quarter fiscal 2019 results.

While the company beat in the top line, adjusted earnings came in below estimates. Revenues also saw a decline in the mid-twenties percent and GPU as well as Tegra Processors segments saw drops in sales. Earnings fell over 50% to hit $0.80 a share, on an adjusted basis.

Looking ahead, the first quarter isn’t expected to be anything too hot either.

The company has forecast first-quarter revenue of $2.20 billion, plus or minus 2 percent. Analysts on average were expecting revenue of $2.28 billion, according to IBES data from Refinitiv.

Recently Bernstein analyst Stacy Rasgon downgraded Nvidia’s stock ahead of the earnings release and lowered her rating to “market perform.” She also lowered her price target from $250 to $175.

“Since the preannouncement 2 weeks ago we have struggled with what to do with the stock, and have used the time to think through more broadly what the near to midterm trajectory might bring,” Rasgon remarked. “Coming out, we believe the shares are likely to remain hamstrung.”

Rasgon also added that “the latest cut appears much more fundamentally demand-driven, with the question of the ‘true’ run-rate of the gaming business remaining up in the air for now.”

Rasgon believes in the business long-term but said “this is not like 18 months ago” when year-over-year growth was “massive, and expectations had plenty of room to move higher.”

Fourth quarter 2019 financial results beat expectations however, with share prices exploding over 5% on the results.

For the quarter, Nvidia reported revenue of $2.21 billion compared to $2.2 billion expected. Earnings per share of $0.80 was higher by two cents than what analysts had expected.

It was in January that the company’s CEO Jensen Huang sent a letter to shareholders updating the company’s outlook for the fourth quarter, lowering revenue from $2.7 billion to $2.2 billion.

Gaming revenue for the quarter was $954 million. Compared to the gaming revenue the company saw in the year ago period at $1.74 billion, this was a big drop.

The data center business saw a year-over-year jump from $606 million to $679 million.

CFO Colette Kress said on the earnings call, “As you know we lowered fourth quarter guidance for January 28th and the results are in line with our pre-announcement. Q4 revenue was $2.21 billion, down 24% from a year earlier, driven primarily by 45% year-on-year decline in gaming. Full year revenue was $11.72 billion, up 21% from the previous year.”

“Starting with our gaming business revenue. Revenue of $954 million was down 45% year-on-year and down 46% sequentially, weaker than our expectations heading into the quarter. Full year revenue was up 13% percent to $6.25 billion. Three factors contributed to the Q4 gaming revenue decline. First, post crypto inventory of GPUs in the channel caused us to reduce shipments in order to allow excess channel inventory to sell through. We expect channel inventory to normalize in Q1 in line with one to two quarter timeline we had outlined on our previous earnings calls,” she added.

“Second, deteriorating macro economic conditions, particularly in China, impacted consumer demand for our GPUs; and third, sales of certain high-end GPUs using our new Turing architecture, including the GeForce RTX 2080 and 2070 were lower than we expected for the launch of a new architecture. These products deliver a revolutionary leap in performance and innovation with real time ray-tracing in AI, but some customers may have delayed their purchase while waiting for lower price points for further demonstrations of the RTX technology and actual gains. The significant volatility in our gaming business over the last few quarters has been challenging to model.”

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