NVIDIA's Q4 Report: 24% Lower Sales, Earnings Cut in Half

The company's latest and greatest graphics chips failed to find a market over the holidays. Management hopes that the next quarter will form the bottom of this downturn.

Anders Bylund
Anders Bylund
Feb 15, 2019 at 1:21PM
Technology and Telecom

Semiconductor veteran NVIDIA (NASDAQ:NVDA) reported fourth-quarter results for fiscal year 2019 on Thursday evening. The designer of graphics processors and other high-speed number-crunching chips took a dramatic revenue haircut, driven by low sales of gaming products over the holiday season. The company is also suffering a hangover from the previous year's cryptocurrency mining trend, which has faded quickly in recent months.

NVIDIA's fourth-quarter results: The raw numbers

Metric

Q4 2019

Q4 2018

Year-Over-Year Change

Revenue

$2.21 billion

$2.91 billion

(24%)

Net income

$567 million

$1.12 billion

(49%)

GAAP earnings per share (diluted)

$0.92

$1.78

(48%)

Data source: NVIDIA.

What happened with NVIDIA this quarter?

  • The results seen above stopped far short of management's guidance for the fourth quarter. Sales had been expected to fall roughly 7% to $2.7 billion and GAAP earnings were aimed at approximately $1.16 per share.
  • Data center products saw sales rising 12% year over year, and automotive computing solutions recorded 23% growth. Professional visualization revenues also rose 15% higher.
  • The gaming segment suffered 45% lower sales due to weak sales of graphics cards for the gaming market plus declining shipping volumes of NVIDIA-powered Nintendo (NASDAQOTH:NTDOY) Switch gaming consoles. This core division accounted for 45% of NVIDIA's total revenues in the fourth quarter, down from 55% in the third quarter and 60% in the year-ago period.
  • NVIDIA argues that cryptocurrency mining sales fall under its OEM and intellectual property segment, where sales fell 36% year over year to $116 million. It's probably fair to assume that some of last year's gaming cards were put to use in crypto-mining operations, since the company has no way of knowing exactly how buyers are using their NVIDIA-powered cards.

Check out the latest NVIDIA earnings call transcript.

A 3-D rendering of Nvidia's corporate logo in shades of green.

Image source: NVIDIA.


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What management had to say

In a conference call with financial analysts, CFO Colette Kress outlined the driving factors behind NVIDIA's plunging gaming product sales.

First, post-crypto inventory of GPUs in the channel caused us to reduce shipments in order to allow access channel inventory to sell through. We expect channel inventories to normalize in Q1, in line with the one- to two-quarter timeline we had outlined on our previous earnings call.
Second, deteriorating macroeconomic 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.

Kress noted that the new cards provide a "revolutionary leap in performance and innovation" over the products that came before, but NVIDIA's potential customers appear to be waiting for lower chip prices or more widespread implementation of the new technologies in actual games.

Looking ahead

In the first quarter of fiscal year 2020, NVIDIA sees revenues falling roughly 31% year over year, landing near $2.20 billion. Working through the company's guidance for gross margins, operating expenses, and tax rates at the midpoint of each range, the first quarter's GAAP earnings should stop in the neighborhood of $0.32 per diluted share, some 84% below the year-ago period's result.

For the full fiscal year, management expects revenues to stay roughly flat or slightly below the $11.7 billion NVIDIA collected in 2019. Q1 is seen as the bottom of the ongoing inventory correction for gaming products, amplified by the faded interest in cryptocurrency mining that still was in full swing in the year-ago quarter.