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NVIDIA's Earnings Plunged As Expected

By Anders Bylund – Aug 16, 2019 at 6:51PM

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The graphics chip designer's profits were cut in half in its fiscal second quarter, and guidance for the current period was set even lower.

NVIDIA (NVDA -0.36%), which specializes in graphics processors and heavy-duty data processing tools, reported earnings for the second quarter of its fiscal 2020 on Thursday evening. The chip designer's sales fell, which was to be expected as the Turing platform works its way through a normal product life cycle.

Here's a closer look at NVIDIA's report.

NVIDIA's second-quarter results: The raw numbers

Metric

Q2 2019

Q2 2018

Change

Revenue

$2.58 billion

$3.12 billion

(17%)

Net income

$552 million

$1.10 billion

(50%)

GAAP earnings per share (diluted)

$0.90

$1.76

(49%)

Data source: NVIDIA. GAAP = generally accepted accounting principles.

What happened this quarter?

  • Three months ago, NVIDIA's management guided for Q2 revenues of approximately $2.55 billion, and GAAP net income of roughly $450 million. The results exceeded both of these guidance targets.
  • Lower revenues met relatively fixed manufacturing costs, resulting in slimmer gross profits. NVIDIA also boosted its R&D budget by 21%, which is a key reason why the bottom-line figure was roughly half what it was a year ago.
  • Free cash flow rose 5% year over year to $823 million.
  • The company shipped 27% fewer graphics processing units (GPUs) into the gaming sector. Data center revenues fell 14%, while automotive customers racked up a 30% order increase. Sliced up a different way, revenues from the Tegra processor line held nearly steady at $475 million, while GPU sales fell 21% to $2.10 billion.
  • Management is pumping the brakes on share repurchases, conserving funds to finance the pending acquisition of Israel-based networking hardware specialist Mellanox Technologies (MLNX). The $7 billion all-cash deal has stepped through the process of regulatory reviews without any serious roadblocks so far, and is expected to close near the end of calendar 2019.
A green Nvidia logo, rendered as a 3-D profile.

Image source: Nvidia.

What management had to say

In the second-quarter earnings call, CEO Jensen Huang explained how important artificial intelligence will be for NVIDIA as that technology evolves.

"AI is the most powerful technology force of our time and a once in a lifetime opportunity. More and more enterprises are using AI to create new products and services while leveraging AI to drive ultra-efficiency and speed in their business," Huang said. "The work we're doing is important, impactful and incredibly fun. We're just grateful, there is so much of it."

Looking ahead

NVIDIA is not providing long-term guidance at this time because the Mellanox deal could change the full-year results significantly if it closes a couple of weeks earlier or later than expected. Management did offer the following third-quarter projections:

  • Revenues should fall roughly 9% below the year-ago result, landing near $2.9 billion.
  • Based on the midpoints of the guidance ranges provided for gross margins, operating costs, and tax rates, GAAP earnings should stop in the neighborhood of $760 million or $1.23 per diluted share. That would be down from $1.1 billion and $1.76 per share in the third quarter of fiscal 2019.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA. The Motley Fool has a disclosure policy.

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$125.16 (-0.36%) $0.45
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