'Post-Crypto Hangover' Leaves Nvidia With Unsold Graphics Cards

Irving Hamilton
November 16, 2018

"Gaming revenue was short of our expectations, and our fourth quarter outlook is impacted by excess channel inventory of midrange Pascal products", Nvidia said. "We thought we had done a better job managing the cryptocurrency dynamics", he later added.

As a result, Nvidia stopped shipping some of its mid-priced chips to retailers, where they are stacking up in warehouses and the backs of stores.

Moreover, Nvidia's gross margins declined by 1.8 percent in Q3 to 60.4 percent - which the company attributed to $57 million in excess charges from its old chip models following the sharp decline in the demand for digital currency mining hardware.

Nvidia also said that its revenue derived from personal computer makers decreased by nearly 40 percent because of lower demand for GPU products targeted for use in cryptocurrency mining.

On Thursday after the market close, Nvidia reported fiscal-third-quarter revenue of $3.18 billion, missing the $3.24 billion average forecast, according to FactSet.

Despite the near term uncertainty, Hari reaffirmed his Buy rating for the chip maker based on its long-term growth opportunities in artificial intelligence and data centers. "During the quarter, we launched new platforms to extend our architecture into new growth markets-RAPIDS for machine learning, RTX Server for film rendering, and the T4 Cloud GPU for hyperscale and cloud", Huang said. Starting from January 1st, 2019, tariffs on many goods imported from China are expected to increase by up to 25 percent.

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"Nvidia's inventory build-up is suggesting that the escalating tariffs have started to pinch producers", said Haris Anwar, analyst at Investing.com.

Last month, rival Advanced Micro Devices Inc blamed dwindling demand for chips from cryptocurrency miners for its lower-than-expected fourth-quarter revenue forecast.

Notably, Nvidia's stock price dropped over 15% during after-hours trading to approximately $170 (per share).

While not stated, Nvidia might have also been impacted by its GeForce RTX launch, and specifically by users delaying purchases of graphics cards in anticipation of the launch.

Nvidia total revenue rose 20.7 per cent to $3.18 billion while analysts had expected $3.24 billion.

Nvidia's share price is getting hammered right now, dropping more than 18 percent a day after the company announced its third quarter earnings report.

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