NVIDIA Earnings Fall 68%, Still Crushing Management's Guidance

Graphics processor designer NVIDIA (NVDA 0.76%) reported financial results on Thursday, May 16, covering the first quarter of fiscal year 2020.

NVIDIA's first-quarter results: The raw numbers

Data source: Nvidia.

What happened with NVIDIA this quarter?

• Three months ago, NVIDIA expected its first-quarter sales to fall near $2.2 billion, fueling GAAP earnings of roughly $0.32 per diluted share. The actual results were somewhat stronger.
• Three of NVIDIA's five target markets saw sales below those of the year-ago period. Chips intended for gaming systems took a 39% haircut, stopping at $1.06 billion. Data center products collected revenue of $634 million, a 10% decrease. The OEM sector saw a 74% sales drop, landing at $99 million.
• On the upside, automotive sales rose 14% to $166 million, and professional visualization revenue increased by 6% to $266 million. NVIDIA's automotive chips made their way into plenty of "AI cockpit modules" in the first quarter, a term that refers to advanced infotainment systems that include speech recognition and augmented-reality features in their navigation features.
• The sharp drop in OEM sales includes a $289 million decrease in cryptocurrency mining chips, which NVIDIA categorizes under this header. In all likelihood, the gaming sector also suffered another crypto hangover, since NVIDIA's gaming cards also used to be powerful mining tools for certain types of cryptocurrencies. It's rather impossible for the chip designer, or even the gaming card vendor, to tell those market-crossing sales apart from gaming cards actually used for playing video games.
• Data center sales suffered as several of NVIDIA's largest customers in that sector reduced their order volumes.
• NVIDIA's earnings plunged due to a perfect storm of lower revenues, slimmer gross margins, and higher operating costs.

Image source: NVIDIA.

What management had to say

NVIDIA is not planning to slow down its development efforts to bolster those flagging bottom-line figures. In the earnings call, CFO Colette Kress explained that her company will keep focusing on the long-term horizon.

"GAAP operating expenses were $938 million, and non-GAAP operating expenses were $753 million, up 21% and 16% year-on-year, respectively," Kress said. "We remain on track for high single-digit OpEx growth in fiscal 2020 while continuing to invest in the key platforms driving our long-term growth, namely graphics, AI, and self-driving cars."

Looking ahead

In the second quarter, NVIDIA's management expects sales to fall approximately 18% year over year, landing in the neighborhood of $2.55 billion. At the midpoints of the guidance ranges given for gross margins, operating expenses, and tax rates, GAAP net income should stop near $450 million. That would be roughly 60% below the previous year's second-quarter earnings. Assuming a relatively steady share count, earnings per share should stop near $1.50 per share.

Things get a bit complicated beyond that. In February's fourth-quarter report, NVIDIA pinned its full-year guidance at "roughly flat or slightly below" $11.7 billion. Management didn't provide any official updates to that target this time. On the earnings call, Kress met an analyst question about full-year revenue targets with this response:

So at this time, we don't plan on giving a full year overall guidance. I think our look in terms of gaming, all of the drivers that we thought about earlier in the quarter and we talked about on our Investor Day and we have continued to talk about, are still definitely in line. The drivers of our gaming business and Turing RTX for the future are still on track, but we're not providing guidance at this time for the full year.