News Nvidia 2Q22 Financial Results / The Impact of the Mining Crash

[Hitman928]

Nvidia has pre-announced (never a good thing) a glimpse of their upcoming earnings results for 2Q22 (cy). The mining crash has hit Nvidia hard and they are reporting $6.7B in revenue, down from their previously announced $8.1B of projected revenue for the quarter. The hit has mostly come from the "gaming" sector, Nvidia said (the quotes are my own, I think we all know it wasn't actually gaming). Nvidia also said that the challenging market conditions in the "gaming" sector are expected to continue into the 3rd quarter. Nvidia also announced that data center, while up, also fell short of the companies expectations due to supply chain issues. Their gross margin plummeted more than 20 pp down to 43.7% which Nvidia has blamed on long term purchase commitments they made before the unexpected softening of the "gaming" market. They do expect the gross margin hit to be short lived as they balance out supply with the demand.

https://finance.yahoo.com/news/nvidia-announces-preliminary-financial-results-130000607.html

This news confirms the stories that Nvidia has a major surplus of GPU stock it has to clear due to the mining crash, that they were much more exposed to the volatility of the mining market than AMD/Intel, and that they continue to try to hide this fact by blaming the gaming market for the abrupt weak demand.

 

[Saylick]

Here's a link to their press release:

NVIDIA Announces Preliminary Financial Results for Second Quarter Fiscal 2023

NVIDIA today announced selected preliminary financial results for the second quarter ended July 31, 2022.

nvidianews.nvidia.com

The shortfall relative to the May revenue outlook of $8.10 billion was primarily attributable to lower sell-in of Gaming products reflecting a reduction in channel partner sales likely due to macroeconomic headwinds. In addition to reducing sell-in, the company implemented pricing programs with channel partners to reflect challenging market conditions that are expected to persist into the third quarter.

LOL. No mention of crypto prices falling or PoS about to happen leading to lower GPU sales, just that the reduced demand is simply because of "macroeconomic headwinds" aka blaming it on softened PC sales, which is true but we all know that softened crypto also played a big part in that. They'll never admit it was crypto that gave them the tailwind but they'll blame the overall economy for any headwinds. Didn't the SEC go after them not too long ago for the crypto crash in 2018? I wonder if we'll get a repeat of that.

Second quarter results are expected to include approximately $1.32 billion of charges, primarily for inventory and related reserves, based on revised expectations of future demand.

It appears they are writing off 1.3B due to excess inventory, but I think this statement is far more telling:

The significant charges incurred in the quarter reflect previous long-term purchase commitments we made during a time of severe component shortages and our current expectation of ongoing macroeconomic uncertainty,” said Colette Kress, EVP and CFO of NVIDIA.

They made a huge prepayment to TSMC for N5/N4 wafers and I recall that Digitimes article about Nvidia asking TSMC to cut their order. TSMC refused to cut, but said that they could at best delay production by 1Q. I wonder if this 1.3B is partially due to them writing off that some of that prepayment won't be used.

 

[KompuKare]

No major surprise.

Wonder how well they'll be able to hide the reasons. It's one thing hiding bad new of the rest of the results are fine (witness Intel's Contra revenue, or even the way AMD are able to hide exactly how low console margins actually are - but in both cases during record results), but when the overall results are bad too?

Someone is bound to to ask when the have the directors in the "witness box" (well the shareholder report thing) and that shouldn't leave much wiggle room.

 

[jpiniero]

They made a huge prepayment to TSMC for N5/N4 wafers and I recall that Digitimes article about Nvidia asking TSMC to cut their order. TSMC refused to cut, but said that they could at best delay production by 1Q. I wonder if this 1.3B is partially due to them writing off that some of that prepayment won't be used.

I suspect they are talking about pre-purchase agreements with Samsung actually. I mentioned this before... I believe nVidia thought they would be able to sell Ampere to miners while selling Ada to gamers.

 

[Stuka87]

It still amazes me that nVidia refuses to use the `m` word (mining). What do they gain by beating around the bush? Everybody knows thats where the surge in income came from, and that's why income is crashing now.

I am wondering if nVidia payed a premium to TSMC because they bid during big shortages, and that prices have now come down, and they don't like that they over payed.

 

[MoragaBlue]

Ah, nothing surprising, and, matter of fact, it would have been had they not pre-announced anything.

I'm not unfamiliar with WS & the finance world, and you always take, with a huge grain of salt, what the C-Suite says during their earnings calls, projections and especially the PR stuff. Generally, only in rare instances when reality matches up hype (stock pumping), and ultimately most growth companies fail to meet unrealistic expectations.

Now, the wild card, in my view, is the crypto markets. While ultimately, again IMHO, these things will all go to zero, it never goes there immediately, and there's always a long drawn out process with multiple peaks and valleys. I suspect, the crypto markets will recover some before nose-diving, yet again. During the recovery, I'd imagine the selling will abate and some existing/new miners will begin buying up these cards again.

I suspect what NVDA is worried about is *if* the crypto market doesn't recover, shareholders aren't going to care what happened the last couple of years, only what will happen during the next 6-12 months--even today is no longer relevant. This is a business where, quite literally, you're only as good as your last at bat; and, no one's gonna care about their excuses, especially since all of those lofty projections were based on the crypto market increasing in perpetuity.

I mean, since when was the gamers' GPU market before crypto a large one? Just by taking a look at Steam's user hardware, about 5% - 10% are running 3080s and above?

*Edited*

The above is not and should not be considered financial advice of any kind, and only the opinions of a wayward PC gaming enthusiast's random opinionated views.

 

[GodisanAtheist]

It still amazes me that nVidia refuses to use the `m` word (mining). What do they gain by beating around the bush? Everybody knows thats where the surge in income came from, and that's why income is crashing now.

I am wondering if nVidia payed a premium to TSMC because they bid during big shortages, and that prices have now come down, and they don't like that they over payed.

-Given one product line is being used by two vastly different markets I have to imagine that A) it's difficult to really properly quantify the volume of cards being used for mining and B) because mining is so succeptible to boom/bust cycles it's really super inconvenient for everyone making money hand over fist in the good times to admit how much revenue is coming from a market that can up and disappear like a fart in the wind overnight (which is exactly what happened).

So in short: greed.

 

[Saylick]

It still amazes me that nVidia refuses to use the `m` word (mining). What do they gain by beating around the bush? Everybody knows thats where the surge in income came from, and that's why income is crashing now.

I am wondering if nVidia payed a premium to TSMC because they bid during big shortages, and that prices have now come down, and they don't like that they over payed.

Nvidia is an optics-first company. Everything they do is always done with PR in mind. Just look at all of the past instances where they dropped the ball but they misdirected so that the consumer wouldn't blame them as much, e.g. solder gate, GTX 970-gate, etc. Their valuation is enormous (literally valued higher than Intel + AMD combined) so anything that refutes the theory that they are firing on all cylinders and just growing like gangbusters has the potential to pop their valuation bubble.

 

[biostud]

I'll help them clear their stock if they lower the price of a RTX 3080 12GB by 30%

 

[Mopetar]

It still amazes me that nVidia refuses to use the `m` word (mining). What do they gain by beating around the bush?

Wasn't there some investor lawsuit over NVidia not previously disclosing how mining factored in? Talking about it now would be stupid for obvious reasons.

 

[Saylick]

Welp, today is Nvidia's earnings day, and here's what they reported: https://nvidianews.nvidia.com/news/nvidia-announces-financial-results-for-second-quarter-fiscal-2023

 

[Karnak]

That Q3 guidance. Less revenue than AMD. Who would have thought that like 5 years ago.

 

[Joe NYC]

8.3bn in Q1
5.9bn forecast for Q3
down 2.4bn or -29%

 

[maddie]

Anyone as to why operating expenses are up so much? N4?

 

[jpiniero]

Anyone as to why operating expenses are up so much? N4?

The $1.22 billion charge for inventory and related reserves is based on revised expectations of future
demand, primarily relating to Data Center and Gaming. The charge consists of approximately $570 million for
inventory on hand and approximately $650 million for inventory purchase obligations in excess of our current
demand projections, and cancellation and underutilization penalties.

I believe that purchase obligations is talking about Samsung and not TSMC.

 

[Saylick]

I listened to a bit of the Earnings Call, and it was reiterated many times over that they are significantly reducing shipments to AIBs so that AIBs have a chance to reduce inventory, and they will incentivize that inventory correction via sales/discounts. Basically, nothing we haven't heard before already but it's pretty much official confirmation from the head honcho himself. The rest was just hyping up AI and how Hopper will accelerate transformer models. A whole lot of ducking when asked about gaming revenue and then diversions to talk about datacenter lol

 

[maddie]

I believe that purchase obligations is talking about Samsung and not TSMC.

$650 million for inventory purchase obligations in excess of our current demand projections, and cancellation and underutilization penalties.

Isn't this part most likely TSMC and other BOM component costs related to Lovelace?

 

[jpiniero]

$650 million for inventory purchase obligations in excess of our current demand projections, and cancellation and underutilization penalties.

Isn't this part most likely TSMC and other BOM component costs related to Lovelace?

I mentioned this before.. I think nVidia intended to go full bore with Ampere even past Ada's launch... thinking they would sell it to miners.

 

[maddie]

I mentioned this before.. I think nVidia intended to go full bore with Ampere even past Ada's launch... thinking they would sell it to miners.

A guess then. Well, we diverge.

 

[Motostu]

I guess I'm the dummy here; can someone help me out a little on how their fiscal years work? Why are they talking about FY23 numbers already?

 

[Saylick]

I guess I'm the dummy here; can someone help me out a little on how their fiscal years work? Why are they talking about FY23 numbers already?

They are just weird like that. Literally the only company I am aware of who doesn't have their fiscal years aligned with the current calendar year.

 

[TESKATLIPOKA]

That Q3 guidance. Less revenue than AMD. Who would have thought that like 5 years ago.

True, but let's be honest, AMD's revenue is mostly from CPUs. If you compared only GPU sales, then Nvidia would win hands down.

 

[Saylick]

True, but let's be honest, AMD's revenue is mostly from CPUs. If you compared only GPU sales, then Nvidia would win hands down.

That's been true for the last 10 years lol. What's your point?

 

[Leeea]

True, but let's be honest, AMD's revenue is mostly from CPUs. If you compared only GPU sales, then Nvidia would win hands down.

That has been true since before I was born.

It is interesting that CPUs can be far more profitable however. No need for AMD to supply the board, memory, and power regulators I guess.

 

[TESKATLIPOKA]

That's been true for the last 10 years lol. What's your point?

AMD is selling both CPUs and GPUs, where CPUs are the main source of income.
Nvidia is selling only GPUs.
So It's not very surprising that AMD will have higher revenue than Nvidia, even If It took a very long time.