Nvidia Warns of Sales Shortfall as Gaming Revenue Drops

Sales would still be up from the year-prior period to reach their fourth-highest total ever, though they would grow at their slowest pace in three years.

The revised outlook from Nvidia, which specializes in graphics-processing chips that help run videogames faster and with better image quality, was below Wall Street expectations. Analysts polled by FactSet, on average, were expecting total revenue of $8.12 billion and gaming revenue of $3.09 billion.

Chief Executive

Jensen Huang

said gaming revenue declined significantly as the quarter progressed and the company is adjusting prices and inventory levels in response. Demand from PC gamers who rushed to get their hands on chips during the pandemic has subsided in recent months, retailers, electronics distributors and chip-makers have said.

“As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory,” he said. Those sales refer to an arrangement where Nvidia’s chips are sent to third-party manufacturers who then put them on circuit boards and sell them to consumers.

Nvidia shares fell $11.96, or 6.3%, to $177.93. The stock has retreated about 40% this year amid a broad selloff in chip-company shares, but the company remains the largest listed U.S. chip maker by market value.

The warning came after

Advanced Micro Devices Inc.

CEO

Lisa Su

last week said graphics chips prized by PC gamers fell in the second quarter, reflecting pressure on consumer spending from the current economic slowdown. Nvidia graphics cards are also used in cryptocurrency mining. Those activities have slowed down sharply amid a drop in digital currencies.

Analysts had been expecting Nvidia’s gaming sales to be weaker, but some were surprised by the depth of the adjustment.

Hans Mosesmann,

a chip analyst at Rosenblatt Securities, said the move was “somewhat expected, but the magnitude was not,” adding that it signaled just how much the market has changed.

Chip companies broadly have been facing softening demand in consumer-facing electronics after the pandemic fueled the sales of devices such as laptops. Smartphone sales also have eased in recent months.

Intel Corp.

late last month spooked investors when it reported a surprise quarterly loss, a 22% drop in quarterly sales and cut its full-year sales outlook as PC sales fell. Mobile-phone chip supplier

Qualcomm Inc.,

in its quarterly earnings last month, said it expects 650 million to 700 million 5G smartphones to be shipped this year, down from an earlier forecast of more than 750 million units.

Despite a slowdown in some chip segments, pockets of semiconductor shortages remain after a two-year drought that has limited supplies of automobiles, medical devices and other electronics. Chip companies that supply the industrial and automotive markets have reported healthy sales and outlooks in recent weeks, suggesting demand is still strong in areas less subject to wavering consumer appetite. Nvidia said its automotive-related sales in the quarter just ended rose 45% from the year-earlier period.

In addition to gaming and crypto mining, Nvidia has prospered in recent years from the rapid growth in artificial intelligence calculations where its graphics processors excel. The company’s sales rose strongly through the pandemic; it last reported a quarterly sales decline in 2019.

Nvidia has been dialing back hiring as it braces for a slowdown in some of its most important end markets.

On Monday, it said it is slowing growth of operating expenses and managing profits for the near term. It said it would continue plans for stock buybacks.

Revenue from Nvidia’s data-center business, projected to be up 61% from a year ago, fell short of internal expectations due to supply-chain problems.

Nvidia also said it would post more than $1.3 billion charges for inventory and related reserves based on reduced expectations of future demand. Those reflect long-term purchase commitments it made during a time of severe component shortages and its current expectation of continuing macroeconomic uncertainty.

Write to Asa Fitch at [email protected] and Colin Kellaher at [email protected]