- Falling revenue and rising costs are meeting each other halfway, while NVIDIA continues to increase its staff of specialists
- Without support from cryptocurrency miners, the company’s budget “lost” by almost a billion US dollars
- Inventories, although decreasing, are still 80% higher than before the cryptocurrency boom.
- Tegra processors in the automotive segment, although in growing demand, are sold commercially mainly as part of on-board entertainment systems
The quarterly reporting of any US company is not limited to a press release, comments from the CFO and presentation materials; existing rules require US public companies to provide a report on , and NVIDIA Corporation was no exception. This document was not particularly voluminous compared to the materials of some competitors, and was limited to 39 pages, but it contained a lot of interesting information that allowed us to look at the structure and dynamics of changes in the revenue of this graphics processor developer from a different angle.
Let's remember that NVIDIA's total revenue for the year , profit from operations fell 72% and net income fell 68%. Revenue from sales of graphics processors decreased by 27%, and sales of gaming products brought in 39% less money than a year earlier. It is in this comparison that it is important to evaluate NVIDIA’s revenue in order to understand the influence of the notorious “cryptocurrency factor.”
The “crypto hangover” turned out to be protracted and severe
If we look at the revenue structure by business line, we can find that sales of gaming products brought NVIDIA $668 million less than in the same quarter last year. In all official documents, NVIDIA admits that revenue from the sale of cryptocurrency mining equipment decreased by $289 million, but this amount was included in the “OEM and other” line, which implies taking into account only those video cards for mining that were deprived of video outputs and a full warranty, and were sold large customers. Meanwhile, it is obvious that a year ago miners were actively buying video cards on the retail and wholesale markets, competing for them with game lovers.
It is worth adding to the same amount of $289 million a decrease in revenue by $668 million, and we get almost a billion US dollars, by which the absence of the cryptocurrency rush reduced NVIDIA’s revenue in the period from February to April of this year inclusive. Of course, the overstocking of warehouses with video cards also had an impact, which kept gamers from buying new video cards, but we will talk about the structure of warehouse stocks below. On the other hand, if it weren’t for last year’s cryptocurrency boom, there would not have been such quantities of surplus video cards in warehouses.
The second table reveals what factors were responsible for the decline in NVIDIA's revenue by $987 million over the past year, broken down by product category. Approximately $743 million of this amount was due to a drop in revenue from the sale of graphic processors, another $244 million was due to Tegra processors. The latter brought NVIDIA 55% less revenue than a year earlier, with the main reduction occurring precisely in the direction of Nintendo Switch game consoles, and sales volumes of Tegra processors in the automotive segment in monetary terms increased by 14%. Alas, this happened mainly due to the multimedia on-board systems of cars, and not components for the “autopilot”. The traditionally conservative automotive sector in this sense is still at the initial stages of the path to large volumes of purchases of NVIDIA processors.
By the way, in the comments to the second table, the company explains that sales of GeForce gaming graphics processors decreased by 28%. In fact, this is one percentage point more than the overall decline in revenue for all GPUs. In other words, something offset the overall decline in revenue when revenue from gaming GPU sales declined. NVIDIA openly indicates which areas showed revenue growth: firstly, these are mobile and desktop solutions for professional visualization of the Quadro family; secondly, there was an increase in demand for graphics processors in the segment of artificial intelligence systems.
NVIDIA began to earn less and spend more
We have already talked quite a lot about the decrease in net profit and profit margin against the backdrop of falling NVIDIA revenue. It should be added that the negative dynamics of income was accompanied by an increase in expenses - both in relative and absolute terms. Judge for yourself, over the year NVIDIA increased operating expenses by 21%, and their proportion in relation to revenue increased from 24,1% to 42,3%.
At the same time, research and development expenses increased by 24%, and their proportion in relation to net revenue increased from 17% to 30%. The company admits that the main reason for the increase in costs is the increase in the number of specialists, the increase in compensation payments and other factors that are only indirectly related to actual research. However, it is still difficult to blame the company for misappropriation of funds, because newly hired specialists must also engage in development, including.
Administrative and marketing expenses increased quite modestly - by only 14%, from 7% to 12% of net revenue. Tellingly, this growth was partly due to preparations for the upcoming takeover of Mellanox, which will cost NVIDIA a record $6,9 billion. However, if the deal does not go through, NVIDIA will simply pay the Israeli company $350 million in compensation.
Inventories continue to decline
At the quarterly reporting event, NVIDIA executives emphasized that most of the problems associated with overstocking of warehouses are already behind us, and Turing graphics solutions are in exceptionally high demand, and unsold representatives of the Pascal architecture are gathering dust in warehouses. At the turn of the second and third fiscal quarters, which corresponds to approximately July-August, the gaming market should normalize, according to NVIDIA management estimates. Compared to the previous quarter, the company actually reduced the amount of inventory in monetary terms, from $1,58 billion to $1,43 billion, with the most noticeable reduction occurring among products in the least degree of readiness.
However, if you look at NVIDIA's reporting from previous years, it turns out that the normal value for inventory at this time of year is about $800 million, and current values are still about 80% higher than normal. The warehouses will have to be cleared out with the same zeal, and here the company will be helped by the fact that Turing architecture carriers this year will not move below the $149 price positioning bar, preserving the opportunity for representatives of the Pascal generation to find their grateful customers outside the secondary video card market.
Some discrepancies in estimates are also observed when discussing the impact of Intel processors on NVIDIA's ability to sell more Max-Q laptops. If the company documents in its Form 10-K that the shortage of Intel processors will hold back revenue growth from sales of these laptops in the second fiscal quarter, then in oral comments the head of NVIDIA expresses confidence that the worst is over. However, if the company were ready to give rosy forecasts for the near future, it would not refuse to announce a forecast for the entire calendar year 2019. In fact, NVIDIA's CFO limited herself to just forecasting the second fiscal quarter, which doesn't happen very often. On the other hand, such caution is largely due to the uncertainty of the situation in the server market, according to industry analysts.
Source: 3dnews.ru