Analysts weren’t entirely disappointed by NVIDIA’s long-awaited earnings report, as revenue came in just above expectations at $5.93 billion and only earnings per share fell short of forecasts at $0.27. On the other hand, NVIDIA expects earnings to hit a maximum of $6 billion in the fourth quarter, while investors were expecting a slightly higher amount of $6.09 billion. Only in the server and automotive segments did revenue momentum remain year-over-year positive.
In that space, NVIDIA’s revenue rose 31% year-over-year in the third quarter to $3.833 billion. Investors may have been encouraged in this area.
Colette Kress, the company’s chief financial officer, stressed that the year-over-year increase in revenue towards servers was mainly due to equipment sales to US companies, including big players in the “cloud” business. Continued growth was hampered by weak demand in China, but sales rose again by 1%. As for the impact of US sanctions on the delivery of computing accelerators to China, NVIDIA managed to largely offset it by delivering alternative solutions to the Chinese market – we’re talking about the recently launched A800.
At the same time, the company’s total revenue fell 17% year over year to $5.931 billion, with the sequential decline reaching 12%. In the gaming segment, the company made just $1.574 billion, down 51% from the year-ago quarter’s results and 23% from the fiscal second quarter. Incidentally, the fourth quarter of fiscal 2023 has already begun on the NVIDIA calendar, so the labels in the chart may confuse an uninformed reader.
According to NVIDIA officials, the momentum in gaming revenue in the third quarter reflected the reduction in shipments of GPUs to the company’s partners, who had to find ways to quickly reduce accumulated inventory. Demand for graphics cards has been eroded by both macroeconomic concerns and the fallout from lockdowns in China. While the 51% year-over-year decline in gaming revenue was due to lower sales of desktop and mobile graphics chips, the 23% sequential decline was primarily due to mobile graphics solutions.
The CFO rarely commented on the impact of the cryptocurrency sector on NVIDIA’s business. According to Colette Kress, Ethereum’s transition to a new mathematical model has reduced the suitability of graphics cards for cryptocurrency mining. This, in turn, contributed to the flow of used graphics cards to the secondary market, according to NVIDIA, and reduced demand for new graphics cards in certain regions of the world, especially in the budget segment.
In professional visualization, NVIDIA’s revenue fell 60% sequentially to $200 million, and the year-over-year decline reached 65%. But the automotive segment grew revenue 86% year over year to $251 million and up 14% sequentially, mostly on demand for autopilot systems. Under OEM & Other, NVIDIA revenue fell 69% year over year to $73 million, down 48% sequentially. NVIDIA’s sequential decline is explained by the drop in demand for Jetson platforms and laptop components, but revenue from the sale of CMP accelerators for cryptocurrency mining last quarter was negligible, although it was $105 million a year ago reached.
NVIDIA’s operating expenses increased 7% sequentially to $2.576 billion in the third quarter and increased 31% year over year. Operating income increased 20% sequentially to $601 million but declined 77% year-on-year. Net income increased 4% sequentially to $680 million but declined 72% year over year. Earnings per share also fell proportionately from $0.97 last year to $0.27 this year.
Of note, in general, NVIDIA’s computing and networking solutions segment revenue grew 27% year over year to $3.816 billion. Direct implementation of graphics solutions brought in 24% less than the previous quarter and 48% less than a year earlier – just 2.115 billion dollars.
Significantly, NVIDIA had to write off $702 million in the third quarter due to excess product piling up in inventories, but it was mostly about issues with the implementation of server components in China. The breakdown was as follows: $354 million related to products already in stock, and $348 million had to be written off as part of future component purchase commitments as lower demand forced NVIDIA to revise its mid-term plans.
At the same time, the value equivalent of NVIDIA’s holdings reached $4.45 billion in the third quarter, up from $2.23 billion a year earlier, doubling. Compared to the second quarter (3.89 billion US dollars), the increase was not as significant. As the company’s management explains, the steady increase in stocks was due to the appearance of certain volumes of components with new architectures in both the server and gaming segments. In an interview with the resource Barrons Colette Kress expressed her hope that inventories will normalize by the end of the current quarter. In her opinion, the macroeconomic situation has not changed significantly over the past three months, although demand for the company’s products has increased in Europe and the United States, while it has decreased in Asia in general and in China in particular.
NVIDIA’s profit margin increased sequentially to 53.6% from 43.5% in the third quarter but fell from 65.2% year over year. As previously mentioned, the company expects fourth-quarter revenue of around $6 billion and an increase in yield to 63.2% or 66%, depending on the calculation method. NVIDIA’s fourth-quarter capital expenditures will not exceed $550 million During the third quarter, the company managed to return $3.75 billion to shareholders in the form of dividends and share buyback expenses, totaling 9.29 year-to-date Billion US dollars equals amount of 13.14 billion US dollars.
According to NVIDIA CEO Jensen Huang, “The company quickly adapts to macroeconomic conditions, adjusting inventories and paving the way for new products.”. The expansion of new products in various market segments is the basis for the next growth phase, he summed up. The release of the company’s earnings results resulted in a 3.2% increase in the market value of NVIDIA stock.