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Chip stocks took a tumble Monday after Nvidia lowered its guidance for its Q4 2018. The company revised its quarterly revenue guidance from $2.70 to $2.20B due in part to “deteriorating macroeconomic conditions, particularly in China”.
Nvidia fell 13.8 percent on Monday and it’s statement added to growing concerns about the Chinese economy. Apple also cited slowdowns in the Chinese market when it issued its own revenue warning earlier this month.
A lot of semiconductor companies are currently worried about soft demand in China, but technologically speaking, Nvidia remains in a solid position. Now granted, technological capability isn’t the only thing that dictates company sales, but barring global recession, these are problems Nvidia should be able to solve. Hopefully, the US and China will resolve their trade differences, which will help to calm the market overall.
The first thing that went wrong for this graphics specialist was that sales of its gaming-oriented graphics processors fell short. NVIDIA previously warned that gaming revenue during the quarter would be affected by the fact that the company had stopped shipping midrange desktop graphics processors in a bid to bring channel inventory levels back down to more sensible levels after the so-called “cryptocurrency hangover .”
Last November, CEO Jensen Huang was saying:
“The crypto hangover lasted longer than we expected and we were surprised by that, but it will pass.”
According to NVIDIA, the “reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations.”
Last year, chief financial officer Colette Kress was warning:
“Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward,”
Its competitor, AMD, had likewise cautioned that a drop in demand for GPUs by miners would “materially” impact its GPU business.
The company wrote:
“In Gaming, NVIDIA’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations. However, deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs.
In addition, sales of certain high-end GPUs using NVIDIA’s new Turing architecture were lower than expected. These products deliver a revolutionary leap in performance and innovation with real-time ray tracing and AI, but some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.”
They also added how Q4 was an extraordinary, unusually turbulent, and disappointing. However, they are still pretty much confident in their strategies and growth drivers.
Jensen Huang stated:
“The foundation of our business is strong and more evident than ever – the accelerated computing model NVIDIA pioneered is the best path forward to serve the world’s insatiable computing needs. The markets we are creating – gaming, design, HPC, AI, and autonomous vehicles – are important, growing, and will be very large. We have excellent strategic positions in all of them.”
What Does the Future Holds?
Not much has changed for Nvidia in the past 30 days and it still maintains a lock on the high-end GPU market. It is still the overwhelming favorite in HPC, AI, ML, and other professional GPU applications. AMD and Intel both have ambitions in these spaces, but Intel’s GPU won’t even be in-market until 2020.
If Turing’s price is weighing on its sales, Nvidia has an option: Cut prices. Trimming price on the RTX 2070 and 2080 would undoubtedly boost sales of these GPUs and ameliorate any sales declines based on cost.
Apple Seems to Be Joining Nvidia in Downward Spiral
The iPhone maker has said it won’t publish an actual number of units sold. Guidance from CEO Tim Cook earlier in January already shows unit sales may have fallen.
Shark Tank co-host Kevin O’Leary said :
“We’re going to be light on units, it’s going to make grown men weep in the semi space because the multiplier effect is going to be brutal.
It could mean Apple suppliers, like Broadcom and Analog Devices, join Nvidia in a downward spiral. Broadcom shares have fallen 0.12% during trading today, Analog Devices stock is down 0.34%.”
Other chip stocks fell on the news as well. Advanced Micro Devicesdropped 8 percent, and Mellanox Technologies fell more than 3 percent. Chip stocks had been on the rise just last week after four companies beat earnings expectations for the quarter. Twenty-nine out of 30 stocks on the PHLX Semiconductor Index were positive on Jan. 24, marking the index’s seventh-best day in a decade. The index fell more than 2 percent on Monday.