NVIDIA Shares Dive on Earnings Warning

Shares in chipmaker NVIDIA took a nosedive Monday after the company warned of weaker than expected revenue, primarily from China, for the fiscal fourth quarter of 2019.

The company said fourth quarter revenue is expected to be $2.20 billion versus previous guidance of $2.70 billion, reflecting weaker than forecasted sales of its Gaming and Datacenter platforms.

NVIDIA stock was down $22.14 or 13.82% on the news to close at $138.01.

In Gaming, NVIDIA’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations. However, deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs.  In addition, sales of certain high-end GPUs using NVIDIA’s new Turing™ architecture were lower than expected.  These products deliver a revolutionary leap in performance and innovation with real-time ray tracing and AI, but some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.

In Datacenter, revenue also came in short of expectations. A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach. Despite these near-term headwinds, NVIDIA has a large and expanding addressable market opportunity in AI and high performance computing, and the company believes its competitive position is intact.

“Q4 was an extraordinary, unusually turbulent, and disappointing quarter,” said Jensen Huang, founder and CEO of NVIDIA. “Looking forward, we are confident in our strategies and growth drivers.

“The foundation of our business is strong and more evident than ever – the accelerated computing model NVIDIA pioneered is the best path forward to serve the world’s insatiable computing needs.  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,” he said.

NVIDIA expects its GAAP and non-GAAP gross margin to be impacted by approximately $120 million in charges for excess DRAM and other components associated with the updated revenue guidance and current market conditions.

The company will provide Q4 fiscal 2019 financial results and Q1 fiscal 2020 guidance on its earnings call scheduled for Feb. 14.

Previous Q4 Fiscal 2019
Guidance
Updated Q4 Fiscal 2019
Guidance
Revenue $2.70 billion, plus or minus 2% $2.20 billion, plus or minus 2%
Gross margin – GAAP
Gross margin – non-GAAP
62.3%, plus or minus 50 bps
62.5%, plus or minus 50 bps
55.0%, plus or minus 100 bps
56.0%, plus or minus 100 bps
Operating expenses – GAAP
Operating expenses – non-GAAP
$915 million
$755 million
$915 million
$755 million
GAAP and non-GAAP other income and expense $21 million $25 million
GAAP and non-GAAP tax rate, excluding discrete items 8%, plus or minus 1% 6%, plus or minus 1%