Nvidia Corp. has experienced this type of downturn before, and this time executives are taking more aggressive tactics to overcome it.
Executives warned Wall Street on Wednesday that revenue in its next fiscal quarter will be about $1 billion below analysts’ expectations due to supply chain issues and a sudden slowdown in consumer demand for gaming products. This forecast suggests that quarterly revenue will decline by about 14% year-over-year in the current quarter.
The last time Nvidia suffered a glut of gaming chips, during the “crypto hangover” of 2019, revenue fell year-over-year for four straight quarters. More importantly, it swallowed nearly an entire product cycle for Nvidia — the launch of the Turing architecture was marred as gamers delayed their purchases to wait for lower prices and more games designed around the technology.
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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, essentially trying to remove the band-aid before new products arrive. Nvidia has written off $1.22 billion in inventory so its channel partners can lower prices and move existing Nvidia products faster before new ones are released.
“We’re taking different actions,” Kress said Wednesday. “This time we are going to work very quickly on stock corrections. We haven’t even started introducing new products. We have adjusted the prices on the channel.”
Even so, the news initially didn’t sit well with Wall Street, which worried about the future of gaming revenue. In after-hours trading, shares fell nearly 5%. Nvidia said gaming revenue will decline sequentially in the next fiscal third quarter from the quarter it just reported. Nvidia’s gaming revenue was $2.04 billion, down 44% sequentially and 33% year-over-year. In the April quarter, gaming hit a revenue peak of $3.6 billion.
As analysts tried to figure out what the pace of gaming growth would be in the future, Kress remained optimistic.
“While gaming faces significant near-term macroeconomic challenges, we believe the long-term fundamentals in gaming remain strong,” he said.
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Nvidia announced its new chip architecture, nicknamed Hopper after famed programmer Grace Hopper, in March, but products featuring the chips have not reached the market en masse Yet. Based on previous announcements, Nvidia executives are likely to break down new gaming cards using Hopper chips at the fall GTC event, scheduled for September 19-22.
“We will overcome this in the coming months and continue next year with our new architecture,” Nvidia co-founder and CEO 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 get out of this slump faster and avoid a protracted recession, executives will need more than a quick stock move — maintaining data center category growth of 60%, as reported on Wednesday, will it was a good start. However, at least it appears that executives learned from their last trip through the semiconductor sales cycle and have hopes for a faster recovery this time around.