The computer chip producer reported a drop in revenue during the second quarter amidst a weaker gaming market.
On Wednesday, Nvidia Corporation reported a shocking decrease in revenue in the second quarter in the face of a struggling gaming industry. Nvidia's shares dropped about 5% in after-hours trading.
According to Reuters, Nvidia forecasts about $5.90 billion for its third quarter revenue, a 17% drop from last year's Q3. The Santa Clara, California based company was however optimistic that such decreases would be somehow offset by its venture into data center and the automotive business.
Nvidia Discloses Q2 Results
Nvidia revealed that its second-quarter earnings did not meet Wall Street expectations, posting a $6.70 billion that was significantly lower than its $8.10 billion May forecast. Meanwhile, its gaming division reported a revenue of $2.04 billion, with a 33% decline from last year's second quarter results. The company's data center revenue reported a $3.81 billion revenue, which was a whopping 61% increase from last year.
Because of these results, Nvidia is now expecting a $5.9 billion in sales for its fiscal third quarter, $1 billion short of Refinitiv's forecast of $6.95 billion, CNBC reported. The company's gaming department saw a 33% decline in its revenue with 2.04 billion, a steeper decline than Nvidia's expectations. They cited lower sales of gaming products as the reason for the weak sales.
In a call with analysts, Nvidia CFO Colette Kress explained, "Macroeconomic headwinds across the world drove a sudden slowdown in consumer demand" for its gaming products. The company promised to work with retailers to adjust prices in response to "challenging market conditions" that they believe will continue through Q3.
Nvidia Admits Overproduction, Hints at 'New Segment' Coming Soon
In addition to the decline in revenue, Nvidia is also facing overproduction. According to The Verge, the company's CEO Jensen Huang confirmed that they had in fact built too many gaming GPUs, forcing them to sell the products for a discounted price.
Citing the "excess inventory," Huang said that Nvidia is now taking on a strategy of selling for well below the current sell-through levels in the market. During the earnings call, Huang confirmed that they are now working with partners to "price-position" the product before releasing newer GPUs.
In addition, Kress suggested that Nvidia is cooking up an entirely new product or endeavor to bring in more gaming revenue. She said during the call that Nvidia is working on "a new segment of the market that we plan to reach with our gaming technology" but did not offer any details as to what exactly it was.
Nvidia stock has fallen more than 42% since the beginning of 2022 despite having powered through the pandemic, a period in which gaming products and work-from-home computers were in high demand.
Nvidia's success was also partly due to cryptocurrency miners' preference for its graphics cards which have been found to be efficient at mining Ethereum. In May, the company said it would pay $5.5 million as part of a settlement with U.S. Securities and Exchange Commission (SEC) about how the company tipped investors on how cryptocurrency was fueling the demand for Nvidia graphics cards in 2017.
