Nvidia Plummets After Warning on Revenue, Especially in China

(Bloomberg) -- Nvidia Corp. fell the most in two months after cutting its outlook for fourth-quarter revenue, reflecting weaker than forecast sales of gaming and datacenter platforms due to a slowing global economy, especially in China.

The biggest maker of chips for computer graphics cards said it sees fiscal fourth quarter revenue of about $2.2 billion, down from a previous forecast of about $2.7 billion. The shares plunged as much as 18 percent. They were down 15 percent to $136.90 at 11:48 a.m. in New York. In November, the company’s forecast for the fourth quarter missed analysts’ estimates.

“Deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs,” the Santa Clara, California-based company said in a statement Monday. Sales of some high-end graphics processing units using Nvidia’s latest Turing design for realistic video and images, were also lower than expected, the company said. Some customers may have delayed purchases, waiting for lower prices and further proof of the technology in actual games, according to the company.

China’s slowing economic growth has started taking a toll on U.S. companies from Apple Inc., to Caterpillar Inc. Corporate executives and the International Monetary Fund have warned recently that the global economy is slowing faster than expected. China, the world’s second-largest economy, earlier this month revealed the slowest expansion since 2009, and is locked in a bruising trade war with the U.S.

Nvidia said its datacenter revenue also came in short of expectations. Several deals didn’t close in the last month of the quarter, as customers became more cautious.

Nvidia Plummets After Warning on Revenue, Especially in China

The company, whose fiscal year ended Jan. 27, will report fourth-quarter results on Feb. 14.

What Our Analysts Say

Nvidia’s substantial cut to its fiscal 4Q revenue forecast re-emphasizes two key tenets of our view: China’s macroeconomic woes and cloud-spending cuts are likely to affect the whole server supply chain and not just Intel, Seagate or Western Digital through 1H. Organic gaming growth may be in the low teens, with any notably higher inflections unlikely to be sustainable.

-- Anand Srinivasan, Bloomberg Intelligence semiconductor analyst

For more, read the full report BI Company Research Primer: Nvidia

Founder and Chief Executive Officer Jensen Huang tried to put a positive spin on the update.

“The foundation of our business is strong and more evident than ever,” Huang said in the statement. “The markets we are creating – gaming, design, HPC, AI and autonomous vehicles – are important, growing and will be very large. We have excellent strategic positions in all of them.”

After a huge run-up in the stock, Nvidia has come under pressure as it works through excess inventory left after the cryptocurrency crash. The mining of cryptocurrency tokens, computer code that carries value in online transactions, had helped stoke demand for graphics chips. The reduction in that inventory has proceeded largely in line with expectations, Nvidia said Monday.

Huang has promised investors that graphics chips will find a more central place in computing. Artificial intelligence in data centers and self-driving cars are just two areas where GPUs will grab sales, he has argued.

Nvidia expects its quarterly margin to be impacted by about $120 million in charges “associated with the updated revenue guidance and current market conditions.”

Mitch Steves, an analyst at RBC Capital Markets, said the next three to four months “will remain challenging until we see a return to growth in 2H19 for both gaming and Data Center.”

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