Shares of Nvidia tanked as much as 17 percent in early trading Monday after the company lowered its revenue guidance for the fourth quarter citing “deteriorating macroeconomic conditions, particularly in China.”
The stock pared some losses by mid-morning to trade 12 percent down. A drop that size trims roughly $12 billion off Nvidia’s market cap.
The warning adds Nvidia to a growing list of U.S. companies facing revenue challenges in China. Apple issued a rare revenue warning earlier this month following slowdowns in the Chinese market, and construction machinery company Caterpillar pointed to lower demand in China in its earnings report Monday morning. A flood of tech earnings reports kicks off this week.
Nvidia reports earnings on Feb. 14, and now expects quarterly revenue of $2.20 billion, down from previously stated guidance of $2.70 billion. The company also said quarterly margin will be impacted by charges related to “current market conditions.”
“Q4 was an extraordinary, unusually turbulent, and disappointing quarter,” CEO Jensen Huang said in a statement. “Looking forward, we are confident in our strategies and growth drivers. The foundation of our business is strong and more evident than ever.”
The company also pointed to headwinds in gaming and datacenters. Other chip stocks fell following the announcement. AMD shed more than 7 percent, Micron fell 6 percent, and Broadcom fell 3 percent.
“A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach,” Nvidia said in a statement.
Here’s the full statement from the chipmaker:
NVIDIA (NASDAQ: NVDA) today updated its financial guidance for the fourth quarter of fiscal year 2019, reflecting weaker than forecasted sales of its Gaming and Datacenter platforms.
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.
In Datacenter, revenue also came in short of expectations. A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach. Despite these near-term headwinds, NVIDIA has a large and expanding addressable market opportunity in AI and high performance computing, and the company believes its competitive position is intact.
“Q4 was an extraordinary, unusually turbulent, and disappointing quarter,” said Jensen Huang, founder and CEO of NVIDIA. “Looking forward, we are confident in our strategies and growth drivers.
“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,” he said.
NVIDIA expects its GAAP and non-GAAP gross margin to be impacted by approximately $120 million in charges for excess DRAM and other components associated with the updated revenue guidance and current market conditions.
The company will provide Q4 fiscal 2019 financial results and Q1 fiscal 2020 guidance on its earnings call scheduled for Feb. 14.
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