NVIDIA (NVDA) Q4 Earnings Top, Revenues Miss Mark, Down Y/Y
Zacks Investment Research | Feb 15, 2019 06:59AM ET
NVIDIA (NASDAQ:NVDA) delivered fourth-quarter fiscal 2019 non-GAAP earnings per share of 80 cents, which topped the Zacks Consensus Estimate of 75 cents but tumbled 53% from the year-ago period as well as 57% sequentially.
Revenues declined 24% year over year and 31% sequentially to $2.21 billion and also lagged the Zacks Consensus Estimate of $2.37 billion. Excess channel inventory post-crypto coupled with recent deteriorating end-market conditions impacted results. While growth across Datacenter, Professional Visualization and Automotive segments was positive, a sharp decline in the Gaming segment was a spoiler.
Although NVIDIA expects revenues to decrease in first-quarter fiscal 2020, its anticipation of a rebound in the second half of the year led the shares to rally more than 5% in after-hours trading.
Quarterly Details
Revenues at the GPU business fell 20% year over year to $1.98 billion, reflecting deterioration in gaming GPUs. Tegra processor revenues worth $225 million slumped 50% on a year-over-year basis due to lower shipments of SOC modules for gaming platforms.
Gaming revenues were down 45% on a year-over-year basis and 46% sequentially to $954 million. Suspension of mid-range Pascal GPU shipments following tepid demand from crypto miners in order to normalize channel inventory levels was an overhang. Waning macro-economic conditions, particularly in China, weakened consumer demand for GPUs. Further, lower-than-expected sales of high-end GPUs based on the company’s new Turing architecture including the GeForce RTX 2080 and 2070, impacted results.
Meanwhile, revenues from Datacenter increased 12% year over year but declined 14% sequentially to $679 million. Growth in sales of Volta architecture products including NVIDIA Tesla (NASDAQ:TSLA) V100 and DGX systems drove year-over-year improvement.
Slowdown in fourth-quarter sales was broad-based across verticals, markets and geographies. Many of its data center deals did not close in January as economic uncertainties made customers increasingly cautious. Hyperscale and cloud purchases decreased both sequentially and on a year-over-year basis. A temporary pause in cloud spending weighed on results. However, with growth in AI-related investments by cloud giants, demand is likely to pick up.
Automotive revenues in the reported quarter totaled $163 million, reflecting a 23% rise year over year and a decline of 5% sequentially. The year-over-year improvement was driven by autonomous vehicle development deals and the growing adoption of AI-based smart cockpit infotainment solutions. Decline in legacy infotainment was a dampener.
Moving to Professional Visualization, revenues improved 15% year over year but dipped 4% sequentially to $293 million. Strength across both desktop and mobile workstation products is a key driver. Management mentions that applications in fields like data science, AI and VR and the need for thin and light mobile workstations are boosting growth for this segment. During the quarter under review, the company had key wins from Boeing (NYSE:BA), Google (NASDAQ:GOOGL), LinkedIn (NYSE:LNKD) and Toyota for applications including AI and robotics.
OEM and IP revenues plunged 36% year over year and 22% sequentially to $116 million due to absence of crypto-currency mining GPU sales.
Margins
NVIDIA’s non-GAAP gross margin contracted 610 basis points (bps) from the year-ago quarter to 56%. Margins were affected by around $128 million in charges for excess DRAM and other components due to the current market conditions and lower-than-anticipated revenues.
Non-GAAP operating expenses escalated around 24% from the year-earlier quarter to $755 million due to higher R&D expenses. As percentage of revenues, operating expenses were up to 34.2% from 20.9% in the prior-year quarter.
In dollar terms, non-GAAP operating income tanked 60% year over year to $479 million. However, NVIDIA’s non-GAAP operating margin was down to 21.7% in the quarter under review from 41.3% in the year-ago quarter.
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