Core business revenue plummeted 33%, and Nvidia’s performance fell short of expectations for two consecutive quarters

Yesterday, Nvidia announced its earnings for the second quarter of this year. According to the financial report, Nvidia’s second-quarter revenue was US$6.70 billion, a year-on-year increase of 3% and a month-on-month decrease of 19%, which is basically the same as the performance preview released by Nvidia two weeks ago.

This marks that Nvidia’s performance in the first and second quarters of this year did not meet analysts’ expectations.

Specifically, in the second quarter of this year, Nvidia’s two pillar businesses rose and fell:

Nvidia’s data center business gained momentum in the second quarter, with revenue reaching $3.81 billion, up 61 percent year-on-year, driven by large cloud providers with “super-large customers.”

But at the same time, Nvidia’s game business revenue in the second quarter was only $2.04 billion, down 33% year-on-year and 44% month-on-month.

In the smaller business line, the professional visualization business, which sells enterprise graphics chips, had revenue of only $496 million, down 4% year-on-year. Automotive revenue rose 45%, but it remains small, with total revenue of just $220 million.

Shares of Nvidia fell 5% after the earnings report.

Prior to this, Nvidia had grown rapidly due to the explosion in demand caused by the epidemic. The surge in demand for PCs and servers during the pandemic has led to a boom in Nvidia’s business, which provided Nvidia with a 61% revenue increase in fiscal 2022.

But since this year, the consumer electronics market has continued to be cold. This has caused Nvidia’s business to decline while also frustrating Nvidia’s capital market. Since the beginning of this year, Nvidia’s stock price has fallen by more than 42%.

After reporting its first-quarter earnings in May, Nvidia announced it was suspending hiring and curbing spending “as the company faces a challenging macroeconomic environment.”

Regarding the sharp decline in game business revenue in this quarter’s financial report, Nvidia explained that the game business did not meet expectations mainly due to the decline in sales of game product terminals, mainly PCs.

“Global macroeconomic headwinds have led to a sudden slowdown in consumer demand for the company’s gaming products,” Nvidia CFO Kress said on a conference call with analysts.

However, analysts believe that the huge changes in the virtual currency market are also an important reason for the weakness of Nvidia’s game business.

Previously, Nvidia also benefited a lot from the continued rise in virtual currency prices that stimulated demand for GPUs in the market.

Today, the overall price of virtual currency has fallen and even some currencies have collapsed, and the demand for graphics cards in mining has suddenly decreased, which is one of the reasons for the decline of NVIDIA’s game business.

Nvidia also stated in its earnings report that the revenue from the CMP cryptocurrency mining dedicated chip that was once launched is now only “nominal”, and its revenue fell by 66% year-on-year.

Previously, NVIDIA has always kept a distance from virtual currency “miners” on the bright side, and “struck hard” against virtual currency mining, taking measures such as hash locks to limit the use of NVIDIA GPUs for mining purposes.

But in fact, a considerable part of Nvidia’s “game” business growth actually comes from virtual currency mining.

In May, the U.S. Securities and Exchange Commission (SEC) noted that Nvidia did not want investors to fully disclose the impact of cryptocurrency mining on its business.

The SEC believes that Nvidia reported 52% year-over-year growth in its gaming business in the second quarter of fiscal 2018, but did not disclose the impact of cryptocurrency mining on that growth. Nvidia paid $5.5 million to settle with the SEC over the issue.

Meanwhile, in May Nvidia admitted that while he did not understand why cryptocurrency prices had plummeted this year, the cryptocurrency market did affect demand for its products.

“Volatility in crypto markets, such as declines in currency prices or changes in the method of verifying transactions, may affect the accuracy of our estimates of demand for our products in the past, present and future,” Nvidia CFO Kress said in a statement. It is impossible to accurately quantify the extent to which the reduction in cryptocurrency mining has affected Nvidia’s gaming business.”

Nvidia said it would work with retailers to adjust chip prices in response to a “challenging market environment” in the gaming industry. But it didn’t make it clear that Nvidia GPUs would cut prices.

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