Nvidia Corp. has been through this type of downturn before, and this time executives are taking more aggressive tactics to overcome it.
Nvidia NVDA, +0.24% executives warned Wall Street on Wednesday that revenue in its next fiscal quarter would be roughly $1 billion below analysts’ expectations, due to supply chain-issues and a sudden slowdown in consumer demand for gaming products. That forecast suggests that quarterly revenue will decline by roughly 14% year-over-year in the current quarter.
The last time that Nvidia suffered a glut in gaming chips, during the “crypto hangover” of 2019, revenue declined year-over-year for four consecutive quarters. Most important, it swallowed nearly an entire product cycle for Nvidia — the release of its Turing architecture was marred, as gamers delayed their purchases to wait for lower price points and for more games to be designed around the technology.
In an interview with MarketWatch on Wednesday, Nvidia Chief Financial Officer Collette Kress said that executives are trying to be much more forceful and decisive early in the process of this downturn, effectively looking to rip off the band-aid before new products arrive. Nvidia took a $1.22 billion inventory write-down so that its channel partners can drop prices and move Nvidia’s existing products faster before new ones are launched.
“We are taking different actions,” Kress said Wednesday. “This time it is about working very fast on the inventory corrections. We haven’t even started that new-product introduction. We have adjusted pricing in the channel.”
Even so, the news did not initially sit well with Wall Street, which was concerned about the future of gaming revenue. In after-hours trading, shares fell nearly 5%. Nvidia said gaming revenue will be down sequentially in the upcoming fiscal third quarter from the quarter it just reported. Nvidia’s gaming revenue was $2.04 billion, down 44% sequentially and down 33% year-on-year. In the April quarter, gaming reached a peak of $3.6 billion in revenue.
As analysts tried to get a sense of what the growth rate for gaming will be going forward, Kress remained optimistic.
“While gaming navigates significant short-term macroeconomic challenges, we believe the long-term fundamentals in gaming remain strong,” she said.
Nvidia announced its new chip architecture, nicknamed Hopper for famed programmer Grace Hopper, in March, but products featuring the chips have not made it to market en masse yet. Based on previous announcements, it is likely that Nvidia executives will detail new gaming cards using the Hopper chips at its fall GTC event, scheduled for Sept. 19-22.
“We’ll get through this over the next few months and go into next year with our new architecture,” Nvidia co-founder and Chief Executive Jensen Huang told analysts on a conference call. “I look forward to telling you more about it at GTC next month.”
If Nvidia wants to come out of this downturn faster and avoid a prolonged downturn, executives will need more than a quick inventory move — maintaining the data-center category’s 60% growth, as reported Wednesday, would be a good start. However, at least it seems executives have learned from their last trip through the semiconductor sales cycle, and have hopes for a faster turnaround this time.