Nvidia Aided by Recovering Cloud-Computing Demand -- Update
November 14 2019 - 6:57PM
Dow Jones News
By Asa Fitch
Nvidia Corp. said chip sales in some of its key markets started
to recover in recent months even as it posted a fourth-straight
quarter of lower earnings and said that its revenue decline wasn't
over.
The Santa Clara, Calif.-based company Thursday said revenue
linked to its cloud-computing activities improved sequentially in
its fiscal third quarter. Gaming revenue, which made up more than
half of overall sales, was also up strongly sequentially. But both
segments were still lower than in the year-prior period.
Nvidia reported a 27% drop in net income to $899 million.
Adjusted earnings per share, the chip maker's more closely watched
earnings measure, fell to $1.78 from $1.84 a year ago, well above
the $1.58 analysts surveyed by FactSet expected.
The company last year enjoyed strong sales in its third quarter,
driven both by customers in China, who placed orders ahead of
looming tariffs on some U.S. goods, and by demand for chips used
for cryptocurrency mining. Without those benefits, Nvidia's sales
fell to $3.01 billion in the quarter ended Oct. 27, down from $3.18
billion a year ago and above analysts' projections.
The sales challenges aren't over. The company's revenue forecast
in the current quarter of around $2.95 billion came in short of
analysts expectations.
Nvidia has long led the market in graphics-processing chips for
personal computers. Users in recent years found new applications
for the powerful processors, including for cryptocurrency mining,
which helped bolster demand. More recently, cloud-computing giants
such as Amazon.com Inc., Alphabet Inc.'s Google unit and Microsoft
Corp. have embraced the chips to offer artificial
intelligence-related applications on their systems.
Intel Corp., the largest U.S. chip maker by revenue, last month
signaled that data-center demand was improving after topping
earnings expectations and raising its outlook. Cloud computing, a
model where customers rent out computing resources instead of using
their own machines, also drove Microsoft's stronger-than-expected
quarterly earnings last month.
Nvidia's gaming division, which accounted for more than half of
its revenue, got a boost from sales of Nintendo Co.'s new Switch
Lite gaming console, which uses the company's chips. Nintendo said
it sold 1.95 million of the devices in the third quarter, helping
Nvidia's gaming segment to a 26% revenue increase compared with the
second quarter.
Nvidia is also facing stiffer competition. Advanced Micro
Devices Inc., Nvidia's main graphics-chip competitor, has gained
market share by introducing new hardware that uses the tiniest
transistors available, allowing its chips run faster and more
efficiently.
Nvidia earnings could be dented further if the U.S. moves ahead
with a plan to impose a 10% tariff on computers imported from China
next month as part of a long-running trade dispute.
Nvidia said the closing of its nearly $7 billion deal to buy
networking company Mellanox Technologies Ltd. -- a key aspect of a
strategy to offer a wider set of hardware tools to customers --
could be delayed. That deal, reached in March, has been approved by
U.S. regulators. Talks are still ongoing with authorities in China
and Europe, which could push out the closing date into early next
year, Nvidia said.
Once the deal closes, Nvidia said it would resume share
repurchases that it put on hold as it built up cash to pay for the
acquisition.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
November 14, 2019 18:42 ET (23:42 GMT)
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