Nvidia’s revenue plummets as Ada Lovelace looms and Hopper enters production

Nvidia announced its financial results for the second quarter of its fiscal year 2023 on Wednesday. Results were mixed as its client PC business suffered declines, but its automotive and data center businesses prospered.

Nvidia’s gaming, professional graphics, mining, and OEM business segments declined significantly sequentially and annually, which is why it had to warn investors that it expects the slowdown sales of games and ProViz graphics products will persist for some time. Meanwhile, the company said it plans to talk about its next-gen Ada Lovelace architecture next month, but never revealed when the actual GeForce RTX 40-series graphics cards will be available.

In contrast, Nvidia’s data center and automotive hardware shipments were up significantly from the same quarter a year ago. They will be up again in the third quarter of fiscal 2023 now that the company’s Hopper H100 compute GPUs are in full production and ready to ship.

“As for Hopper, we are currently in full production and rushing to provide Hoppers to all CSPs (cloud service providers) who are dying to get it,” Huang said. This goes with our HGXs, which are multiple Hoppers on a system tray. It really is a supercomputer on the motherboard if you will, and it goes hand in hand with networking gear and switching gear. There are huge amounts of resources applied by all communication service providers around the world and ourselves to get Hopper to them. We plan to ship large [number of] Hoppers in the fourth quarter. »

“We will get there [inventory correction] over the next few months and move into next year with our new architecture,” the Nvidia official said. “I look forward to telling you more at GTC next month.”

Nvidia’s revenue for the second quarter of fiscal 2023 totaled $6.704 billion, down 19% sequentially and up 3% year-on-year. The company’s net profit fell to $656 million, down 59% quarter-over-quarter (TQ) and 72% year-over-year (YoY). Additionally, Nvidia’s gross margins have collapsed to 43.5% from around 65% in recent quarters.

Gaming, ProViz, Mining, and OEM Down

During its second quarter of fiscal 2023, Nvidia encountered multiple challenges, including macroeconomic conditions (inflation and consumer uncertainty), high inventory levels in the channel (as the company aggressively sold its cards charts in previous quarters), easing end-user demand. (both because gamers expect Ada Lovelace to launch soon and due to uncertainties), inventory fixes by partners, and lower graphics card prices due to slower demand as well as the increase in supply from the competition.

Due to the challenging environment, Nvidia’s gaming revenue fell to $2.042 billion from $3.061 billion in Q2 2022 and $3.620 billion in Q1 2023.

“These declines were primarily due to lower gaming product sales, reflecting lower channel partner sales due to macroeconomic headwinds,” said Colette Kress, Nvidia’s chief financial officer. “In addition to reducing sales, we have implemented pricing programs with distribution partners to address the challenging market conditions that are expected to persist into the third quarter.”

It’s worth noting that Nvidia’s second-quarter gaming revenue was still significantly higher compared to $1.654 billion in the company’s second quarter of fiscal 2021 (~Q2 2020 calendar). This indicates that the chip designer has benefited greatly from the increased demand for discrete GPUs for gaming PCs, rising prices for standalone graphics cards, and the crypto mining craze.

Nvidia sold some $7 billion in graphics processors to partners in the fourth quarter of fiscal 2022 and the first quarter of fiscal 2023. However, it now has to ship fewer GPUs than market and consumer demands. lower price as it prepares to launch its next-gen Ada Lovelace family (which it will describe next month at its GTC event) and has to phase out legacy GPUs.

“We are navigating our supply chain transitions in a challenging macroeconomic environment and we will get through this,” said Jensen Huang, chief executive of Nvidia.

Nvidia’s professional viewing business earned the company $496 million in the second quarter of fiscal 2023, down 20% quarter over quarter and 4% from the same quarter a year ago. one year old. Nevertheless, sales of Nvidia’s professional GPUs increased by 144% compared to sales of Proviz solutions in the same quarter two years ago.

In recent years, Nvidia’s OEM and “other” businesses (which began to include CMP solutions in early 2021) have never been too strong as the company has focused on gaming GPUs. Therefore, it wasn’t particularly unexpected to see Nvidia’s OEM revenue totaling $140 million, down 11% sequentially (due to lower laptop OEM sales) and down 66% from a year-over-year (due to negligible sales of CMP mining GPUs).

Data Center and Automotive Up

But while PC component sales were down for Nvidia, sales of its parts for data centers and automotive applications rose significantly.

After Nvidia’s data center revenue hit $3.806 billion (up 1% QoQ and 61% YoY) in the second quarter of fiscal 2023, it’s safe to say that Nvidia is more of a center company. data than a PC gaming company. Meanwhile, the company said it had to delay delivery of specific data center orders from the second to third quarters due to supply chain disruptions. As a result, it couldn’t get the components it needed to ship some of its most complex products while raking in $287 million for orders originally slated for delivery.

While Nvidia has been in the automotive business for a while, its automotive BU has never gained much as it focused on infotainment systems, so many people have called it the company’s worst performing business. . But in the second quarter of fiscal 2023, Nvidia’s automotive profits totaled $220 million (and topped $200 million for the first time), up 59% sequentially and 45% from the same. quarter of last year. The company expects its automotive business to grow as automakers adopt its Nvidia Drive self-driving and AI cockpit solutions.

Mixed outlook

Nvidia forecasts third-quarter fiscal 2023 earnings of $5.90 billion ±2%, representing a 12% sequential decline and a 17% year-over-year decline.

The company expects sales of its professional gaming and graphics processors to decline quarter over quarter as its partners make inventory adjustments as the company prepares the market for the rollout of the GeForce RTX 40 series. Speaking of the Ada Lovelace family, it’s worth noting that Nvidia promised to talk about its next-gen GPU architecture at GTC, which runs from September 19 to September 2022 (opens in a new tab). However, he never revealed his projections for the financial impact of the new family on his earnings this fiscal year.

But while PC GPU sales may not be impressive this year, Nvidia hopes its data center and automotive revenue will be up. The company says its next-generation H100 (Hopper) compute GPU is now in full production. It will be able to ship its expensive SXM modules to its data center partners and its expensive DGX systems to those who need a ready-to-use supercomputer.