Perhaps more product discounts will be required. It will be more difficult to move the increased amount of inventory now that demand has fallen off a cliff. However, they also disclosed that inventory was $3.89 billion compared with $2.11 billion a year ago and $3.16 billion a quarter ago. Management emphasized they were working to decrease inventory in the channel.
#Nvda earning report seeking alpha professional
And concern about how low the Gaming and Professional Visualization lines would be once crypto mining demand is gone. I also heard questions from analysts expressing concern about Data Center demand going forward.
I also believe analysts were skeptical about how the guided Q3 margins and revenues would be possible without further charges to reduce inventory costs and improve sell-through. It is also curious that they had supply chain problems but yet were also able to pull-in a large amount of their Data Center revenue from Q3. The analyst pointed out that supply chain problems have improved recently.
But to my ears, the tone definitely changed this quarter.Īn analyst questioned why management blamed supply chain problems for the poor quarter when the company has performed very well over the past two years when supply chain problems were rampant throughout the industry.
Analysts have been cheerleaders for the company for years. I was surprised to hear the analysts on the earnings call begin to ask tough questions of management. Just like with the Gaming and Professional Visualization lines, it's possible that Data Center has been inflated the past few years by some temporary demand factors that may start to slow down. Without this pull-in, the Data Center line would have been down 7% sequentially. The CFO Commentary also disclosed that the Data Center line benefitted from a pull-in of $287 million in orders from Q3. Management declined to elaborate on how much they expected demand to decline for Data Center from their prior expectations. The charge consists of approximately $570 million for inventory on hand and approximately $650 million for inventory purchase obligations in excess of our current demand projections, and cancellation and underutilization penalties. The $1.22 billion charge for inventory and related reserves is based on revised expectations of future demand, primarily relating to Data Center and Gaming. In the CFO Commentary, management disclosed that $1.22 billion of the charges in the quarter were partially attributed to a reduction in expectations of demand for Data Center. Negative growth is not the kind of thing people paying 56 times trailing earnings want to see. With management guiding for Q3 to be around $1.7 billion total for those two lines, the business will have actually declined over the last 2 years. Gaming and Professional Visualization Lines May Have Negative Growth Past Two YearsĮight quarters ago, the Q3 FY21 Gaming and Professional Visualization lines totaled to $2.5 billion. This supports the thesis I presented earlier as well, indicating lower earnings power in the business. In addition to the loss of sales, CEO Huang also indicated that margins would be lower without crypto demand due to a shift in mix to lower-end cards. CEO Huang indicated that the Gaming and Professional Visualization lines would face inventory issues for multiple quarters, despite the inventory charges realized in Q2. It appears that revenues from these two lines may have been mostly due to mining demand. Now that Ethereum is not going to use GPUs to mine anymore, that demand to mine Ethereum is gone permanently. This would be down from $4.24 billion a few months ago in Q1-a stunning decline of over $2.5 billion, or 60%.Īs I pointed out recently, the Gaming and Professional Visualization lines were wildly inflated by cryptocurrency mining demand. The guidance indicates the two lines would combine to be around $1.7 billion. Gaming and Professional Visualization Lines May Have Been Mostly Cryptoĭuring the earnings call, CFO Kress indicated that the Gaming and Professional Visualization lines would be down again more than 30% sequentially in total. Management also guided for Q3 revenues to continue downwards to $5.9 billion-down almost 1/3 from just a few months ago in Q1.īeyond the headline numbers, there were some land mines strewn throughout the disclosures and on the earnings call. As I predicted, GAAP earnings per share fell off a cliff to $0.26, down 59% sequentially. Revenues were $6.7 billion, down 19% sequentially, and GAAP gross margins dropped 22 points from 65.5% to 43.5% sequentially. NVIDIA Corporation ( NASDAQ: NVDA) just released their Q2 financials, and boy was it ugly! We already knew that revenues and gross margins were going to be down dramatically from the pre-announcement 2 weeks ago.
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