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Nvidia's Gaming Revenue Plunges, Jensen Announces Price Cuts

Nvidia Prelims
(Image credit: Nvidia)

Nvidia has released preliminary financial results for the quarter which ended on July 31, 2022, its Q2 FY23 results. The purpose of Nvidia’s prelims (opens in new tab) seems to be to warn investors that it has had a significantly worse quarter than it had projected. In brief: Nvidia previously projected $8.10 billion in revenue for Q2 FY23 (guidance from May), but the company has now revised the figure to $6.70 billion. That’s about 21% off the target when taken as a whole. Of particular interest to our readers is the primary reason for this revenue miss – it reflects lower than expected gaming revenue, said Nvidia.

And the major revenue slip, but that isn’t all. In the background figures, we can see gross margin – the ‘profit’ Nvidia makes on sales before any deductions - has collapsed from 65.1% to 43.7%. Moreover, if we attribute most of the $1.4 billion shortfall to gaming, as it is implied to be, then that would indicate gaming sales slipped approximately 40%.

(Image credit: Nvidia)

The revenue by market segment chart from the prelims shines light on the rebalance of Nvidia’s books, in the wake of this gaming bombshell. Gaming has long been Nvidia’s mainstay, no matter how much it talks about automotive, AI, digital twins, data center, robots and so on. In the chart above, you can see that with revenue 44% down QoQ and down 33% YoY, Gaming is now very much in the shadow of Data Center. Moreover, Data Center is still on the up, and Automotive looks like it is enjoying a surge. In summary: Nvidia’s diversification (from gaming) strategy is keeping its boat afloat.

Price Cuts Necessary

Nvidia CEO Jensen Huang made a statement to accompany these prelims. “Our gaming product sell-through projections declined significantly as the quarter progressed,” said Huang. “As we expect the macroeconomic conditions affecting sell-through to continue, we took actions with our Gaming partners to adjust channel prices and inventory.” The Nvidia CFO also chirped in to complain about the adverse financial effect of long-term purchase agreements. Nvidia made these commitments during the components shortages, which were a major story in 2021 and earlier in 2022.

What Jensen Said to Tom’s Hardware in May

At an Nvidia Q&A session in May, Tom’s Hardware's Paul Alcorn asked Jensen Huang directly about the potential for disaster with regard to pre-ordering production capacity. This question was asked in the context of very clear signs the crypto crash wasn’t a temporary blip on the radar. Huang’s answer started with an assertion that “The market for GPUs is so different now.” Supporting his statement, the Nvidia CEO said that the GPU market is triple the size compared to ahead of the last crypto crash, and it is more diverse - with double the number of workstations, a 10x larger cloud GPU business, and so on.

On the topic of prepayment and its potential pitfalls, Huang implied that prepayment had become an industry norm due to lead times. Indeed, other chip design firms will have had to compete in this prepayment market with TSMC, Samsung and others, to secure capacity during the recent crunch. It will be interesting to see the scale of output Nvidia has secured for Ada Lovelace / GeForce RTX 40 graphics cards. If Huang was right in May, and “all the different ways that we sell our graphics chips have changed a lot since the last generation of crypto,” then Nvidia should weather this storm better this time around.

(Image credit: Nvidia)

Ampere Price Slashing Continues

We have been regularly reporting on graphics card pricing declines since about the start of the year. However, it must be said price cuts are getting pretty spectacular no. We spotted EVGA slashing its GeForce RTX 3090 Ti GPUs to $1,149 this weekend, a price nearly 45% below MSRP.

So it looks like Nvidia partners are really feeling some urgency to cut prices and clear stock of Ampere graphics cards ahead of the arrival of Lovelace-based 40-series cards, with their purported massive performance increases across the range.

Nvidia says that it will release its full and final Q2 FY23 results on Tuesday, August 23. At that time, the management will discuss the results in greater detail, and there will be an opportunity for analysts and investors to ask questions during an earnings call.

 

Mark Tyson
Freelance News Writer

Mark Tyson is a Freelance News Writer at Tom's Hardware US. He enjoys covering the full breadth of PC tech; from business and semiconductor design to products approaching the edge of reason.

  • ezst036
    Admin said:
    Nvidia's Gaming Revenue Plunges, Jensen Announces Price Cuts : Read more

    Nvidia's Gaming Mining Revenue Plunges, Jensen Announces Price Cuts
    There, I fixed it.
    Reply
  • InvalidError
    So different... yet so similar.
    Reply
  • Giroro
    "Gamers" don't buy $2,000 500 Watt GPUs. I would go one further and say that your stereotypical mainstream gamer can't buy a $2000 GPU. If Nvidia's executives disagree, then they're either too rich for their own good, or they spend way too much time watching their own sponsored content on YouTube.
    "Gamers" are kids, teenagers, young adults, college students. This market segment usually isn't going to spend more money on entertainment than they did on their car.
    Mainstream gamers buy $200 GPUs that outperform consoles, and can be slotted into their parent's old office PC with a 450 Watt Power supply. It's always been this way.
    Nvidia does not currently sell a product that fits this description. Gamers can't buy a product that doesn't exist. It's not complicated.

    At the end of the day, almost anybody who works hard enough to afford a high-end PC is either using it for work, building/tweaking PCs as their full time hobby, or is otherwise too busy being an adult to actually use their gaming PC to play games.
    Reply
  • elforeign
    Gee, what do you know? Gaming revenue down by 44% when GPU prices are at astronomical levels. I never would have expected people to not buy GPUs for thousands of dollars. I think 599, maybe 699 is a reasonable price for a top shelf GPU (i.e x90 (including ti model). 499/599 for x80, 399 for x70, 299 for x60

    I was able to get an ASUS 3080 for 749.99 + tax and even that felt high. Hopefully these suits realize not everyone makes 5 million a year and has $1000 as pocket change.
    Reply
  • octavecode
    Every action has a consequence mister Jensen
    Reply
  • bigdragon
    Looks like Nvidia drove a lot of gamers away while milking that miner and scalper market. I expect that the projections for the 40-series are scaring some executives right now. "Line goes up!" is going to be a lot harder without the crypto and scalping crowds pumping up profits. Good to read about price drops on the 30-series, but those drops need to get a lot bigger at every performance tier.

    A Playstation 5 was cheaper and easier to find than an Nvidia 30-series last year when I was looking for a gaming upgrade. The only compelling reason to upgrade right now is to improve Blender rendering and Unreal Engine's performance. Simply lowering the triangle count of created content has the same effect for no additional cost.
    Reply
  • peachpuff
    Wooohooo 🥳🥳🥳
    Reply
  • digitalgriffin
    I remember there was a class action by investors when NVIDIA didn't clear disclose how tightly their profits were coupled to the crypto mining boom from last time.

    Now the cycle / trend is repeating, it will get harder and harder to deny that crypto does not adversely affect profits and needs to be noted on SEC filings.
    Reply
  • digitalgriffin
    Giroro said:
    "Gamers" don't buy $2,000 500 Watt GPUs. I would go one further and say that your stereotypical mainstream gamer can't buy a $2000 GPU. If Nvidia's executives disagree, then they're either too rich for their own good, or they spend way too much time watching their own sponsored content on YouTube.
    "Gamers" are kids, teenagers, young adults, college students. This market segment usually isn't going to spend more money on entertainment than they did on their car.
    Mainstream gamers buy $200 GPUs that outperform consoles, and can be slotted into their parent's old office PC with a 450 Watt Power supply. It's always been this way.
    Nvidia does not currently sell a product that fits this description. Gamers can't buy a product that doesn't exist. It's not complicated.

    At the end of the day, almost anybody who works hard enough to afford a high-end PC is either using it for work, building/tweaking PCs as their full time hobby, or is otherwise too busy being an adult to actually use their gaming PC to play games.

    Man I better go back to college so I can be a gamer again. I aged out at by at least 28 years. :p
    Reply
  • -Fran-
    You can see how AMD has been a tad more cauteous:
    On the one hand, AMD's gaming hardware sales boosted 32% year-over-year to $1,655 billion. But on the other hand, the operating income of the business unit increased by only 7%, to $187 million. AMD said that mixed results resulted from slowing demand for consumer graphics cards by gamers and miners following strong 2021, slowing demand for client PCs, and dropping graphics card prices.

    https://www.tomshardware.com/news/amd-posts-70-percent-year-over-year-revenue-increase
    I'm guessing nVidia completely banked on Crypto not crashing before Lovelace and/or their fanbois stark supporters keeping normal people buying. At the very last minute they lossen the leash on their AIBs, which it's like the perfect abuse tale, lol.

    Well, I'm sure there's happy people seeing how the prices of some cards are dropping to more reasonable levels at least. Too bad the Lovelace hype is killing anyone willing to buy those xD

    Regards.
    Reply