Nvidia CEO cites supply chain, macro transition: 'We will get through this'

Nvidia formally announced second quarter revenues of $6.7 billion on Wednesday, an increase of 3% from a year ago, but well below guidance, as the company had said in preliminary results Aug. 8.

The prior guidance was $8.1 billion, but revenues came in under expectations mainly due to a 33% drop in gaming from a year ago, reaching $2.04 billion.

“We are navigating our supply chain transitions in a challenging macro environment and we will get through this,” CEO Jensen Huang said in a statement.

Data center revenues were $3.8 billion, up by 61% and a record, but only somewhat short of the company’s expectations.

Gaming was down due to lower sell-in of gaming products reflecting a reduction in channel partner sales “likely due to macroeconomic headwinds,” Nvidia said Aug. 8.

On Wednesday, CFO Colette Kress told analysts there was a “sudden slowdown” in gaming demand in the second quarter. However, she said, “the long term fundamentals in gaming remain strong.”

She said gaming will also decline in the third quarter and predicted overall revenues will reach $5.9 billion. 

Huang agreed in comments on an earnings call noting an increase of 70% in gaming revenues since pre-Covid. "Our strategy is to sell-in [to the channel] well below to give the channel a chance to correct," he added. 

Nvidia shares have dropped 42% in 2022 and were up less than 1% reaching $172.22 before market close Wednesday.

“Nvidia has excellent products and position driving large and growing markets,” Huang said in early August. “As we navigate these challenges, we remain focused on the once-in-a-generation opportunity to reinvent computing for the era of AI.”

Automotive was a bright spot, with revenues of $220 million, up 45% from a year ago. Huang said automotive is “on track to be our next billion-dollar business.”

“Nvidia has to ride out the storm like the rest of chip guys, but they will be fine long term,” said Jack Gold, an analyst at J. Gold Associates. “They have enough momentum to be OK.  I think what the market is looking for is not so much a good quarter but will be concentrating on longer term guidance to gauge how much trouble they think Nvidia will be having over the next few quarters.”

The earnings call was not very surprising, given what was said in early August, said Patrick Moorhead, an analyst at Moor Insights & Strategy. “The biggest surprise was the sharp and large decline in its gaming business,” he said. As Covid has improved, fewer people are gaming than before when they were locked inside their homes, he noted.

Also, there hasn’t been a major AAA PC game released in a while, which would normally drive purchases and Nvidia is in a product transition to its 4000 series.

“While it is tough to measure with the crash of the crypto market, I believe fewer crypto miners bought the company’s cards,” Moorhead added.  “None of these factors indicate that there’s anything the company is doing wrong.”

The microchip industry is seeing a growth slowdown globally. The World Semiconductor Trade Statistics organization this week said sales growth slow to 13.9% this year and 4.6% in 2023, after 26% growth in 2021. The tally for revenues in all of 2022 is projected to reach $633 billion and grow to $662 billion in 2023.

Logic chips are forecast to grow 24% in all of 2022, while analog will see 22% growth and sensors 16.6% growth. The Americas will see growth of 23.5%.

For 2023, Logic will reach $200 billion, about 30% of the total, WSTS said.