For the first time since mid-2020, Nvidia posted less than $1 billion in profit. In the period from May to July 2022 it was $656 million – 59 percent down from a quarter earlier and 72 percent down from a year earlier. The reason is the collapsed demand for graphics cards, because of which Nvidia has already issued a sales warning.
Now the complete business figures with further explanations follow. Here, too, Nvidia avoids references to crypto mining with graphics cards as far as possible, the collapse of which is likely to be the main reason for the now low demand for the GeForce RTX 3000.
Sales fell within three months by 19 percent to a good 6.7 billion US dollars. In a year-on-year comparison, Nvidia still recorded a minimal increase in sales, but profits collapsed due to a billion-dollar write-down. Only the data center division around GPU accelerators such as the A100 and H100 as well as (Mellanox) network products prevented even worse figures with strong growth.
Sales breakdown of Nvidia’s divisions. The GeForce graphics cards collapsed; Data centers and automotive grew.
Billions write-off for GeForce graphics cards
Nvidia CFO Colette Kress cites a total charge of $1.34 billion for the write-down, which is made up of “$1.22 billion for inventory and related provisions and $122 million for warranty provisions”.
It says: “The $1.22 billion charge for inventory and related provisions is based on changing expectations for future demand, primarily in the data center and gaming areas. The charge is comprised of approximately $570 million $100,000 for inventory and approximately $650 million for purchase commitments for inventory in excess of our current demand forecasts, as well as cancellation and under-utilization penalties.”
The last point apparently concerns the chip order manufacturer Samsung, which produces Nvidia’s Ampere GPUs for the GeForce RTX 3000 graphics card series with 8-nanometer structures. The purchase quantities are usually contractually agreed months in advance. In the case of short-term cancellations, customers have to pay penalties due to the unexpectedly low production utilization.
Preparing for GeForce RTX 4000
The problem will accompany Nvidia for several more quarters – a déjà vu from 2018, when the crypto market had already collapsed. Nvidia is currently cutting graphics chip sales to allow retailers to clear their inventory. This is especially important now that Nvidia is preparing to unveil its next generation GeForce RTX 4000 aka Ada Lovelace, confirmed Nvidia boss Jensen Huang. In particular, the current high-end GPUs suddenly lose value with the market launch of the RTX 4000 models.
In the current quarter, Nvidia expects sales of around 5.9 billion US dollars, a further decline of 12 percent. The gross margin should increase again from 43.5 to 62.4 percent with the completed depreciation.
After the business figures were announced, Nvidia’s shares fell by a good 5 percent to around 165 euros – and thus just below the level at the beginning of August after the sales warning. In the meantime, the share had climbed back up to around 185 euros.
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