Nvidia gives weak forecast, signaling PC decline may remain

(Bloomberg) — Nvidia Corp., which warned earlier this month that its sales were slipping, gave a weak forecast for the current period that demand may be even worse than expected.

Fiscal third-quarter revenue will be about $5.9 billion, the company said late Wednesday in a statement. That compares with an average analyst estimate of $6.92 billion. Gross margin, the percentage of sales remaining after deducting production costs, will be 65%, minus certain items.

Nvidia issued the forecast two weeks after warning that sales for the latest quarter would be well below initial expectations. The company blamed a decline in demand for chips used in gaming PCs, citing “challenging market conditions”. The latest guidance shows that the recession will last.

The chipmaker’s shares fell more than 3 percent in extended trading after the announcement. The stock has already fallen 41% this year to the close, making it one of the worst performers in the Philly Semiconductor Index.

Nvidia has been a growth engine in recent years, outperforming other chip makers. Before the quarter that ended in July, the worst quarter in the previous 10 was 2021, when it saw sales growth of 39%.

Second-quarter revenue rose just 3% to $6.7 billion. And net income fell 72% to $656 million. Excluding certain items, earnings came to 51 cents per share.

Like many of its peers that outsource manufacturing, Nvidia is facing a rapid transition from supply shortages — which forced customers to pay up front to secure what they needed — to having large inventories of unsold products.

Nvidia is now saddled with the advances it made on materials and product manufacturing at a time when its own demand is falling and its domestic stockpile of finished chips is growing.

Inventories were $3.89 billion in the latest quarter, compared to $2.11 billion in the same period last year. Gross inventory purchases and long-term supply obligations were $9.22 billion — nearly double from a year earlier. Prepaid supply agreements were $3.14 billion, Nvidia said.

“We are navigating our supply chain transitions in a challenging macroeconomic environment and we will get through it,” CEO Jensen Huang said in the statement.

Nvidia’s GeForce graphics chips are essential for high-end PC owners looking for the most realistic gaming experience. Tokens have also become popular with cryptocurrency miners, although crypto mining and changes in the way the asset is mined have undermined this market.

Gaming revenue in the second quarter fell 44% from the previous quarter and 33% from a year earlier to $2.04 billion, Nvidia said, confirming preliminary figures given earlier this month.

Nvidia’s rise to the top of the US chip industry by market valuation has been driven by explosive growth in its data center business. Owners of large cloud data centers are increasingly using its graphics chips for artificial intelligence computing. While revenue from that segment rose 61 percent to $3.81 billion, it fell short of Nvidia’s forecasts, the company said. Performance was “affected by supply chain disruptions.”

(Updates with details on stockpiling in the eighth paragraph.)

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