Nvidia on Wednesday announced its financial results for the second quarter of its fiscal year 2023. The results were a mixed bag as its client PC businesses suffered declines, but its automotive and data center businesses thrived.
Nvidia's gaming, professional graphics, mining, and OEM business segments were down significantly both sequentially and annually, which is why it had to warn investors that it expects slow sales of gaming and ProViz graphics products to persist for a while. Meanwhile, the company said that it plans to talk about its next-generation Ada Lovelace architecture next month but never revealed when actual GeForce RTX 40-series graphics boards will be available.
By contrast, Nvidia's data center and automotive hardware shipments were up significantly compared to the same quarter a year ago. They will be up again in Q3 FY2023 now that the company's Hopper H100 compute GPUs are in total production and ready to ship.
“With respect to Hopper, we are in full production now and we are racing to get Hoppers to all of the CSPs (cloud service providers) who are who are dying to get it,” said Huang. "It goes with our HGXs, which is multiple Hoppers on a on a system tray. It is really a supercomputer on the motherboard, if you will, and it goes along with networking gear and switch gear. There are enormous amounts of resources applied from all of the CSPs around the world and ourselves to to get Hopper to them. We expect to ship a substantial [number of] Hoppers in Q4.”
“We will get through this [inventory correction] over the next few months and go into next year with our new architecture,” said the head of Nvidia. “I look forward to telling you more about it at GTC next month.”
Nvidia revenue for Q2 FY2023 totaled $6.704 billion, down 19% sequentially and up 3% year-over-year. The company's net income dropped to $656 million, down 59% quarter-over-quarter (QoQ) and 72% year-over-year (YoY). In addition, Nvidia's gross margins collapsed to 43.5% from about 65% in recent quarters.
Gaming, ProViz, Mining, and OEM Down
During its second quarter of fiscal 2023, Nvidia encountered multiple challenges, including macroeconomic conditions (inflation and uncertainty among consumers), high inventory levels in the channel (as the company aggressively sold its graphics cards in prior quarters), softening demand from the end user (both because gamers are expecting Ada Lovelace to launch shortly and because of uncertainties), inventory corrections by partners, and lowering prices of graphics cards as a result of softening demand as well as increased supply from both Nvidia and its competitors.
As a result of the challenging environment, Nvidia's gaming revenue dropped to $2.042 billion, down from $3.061 billion in Q2 FY2022 and $3.620 billion in Q1 FY2023.
"These decreases were primarily attributable to lower sell-in of gaming products, reflecting reduced channel partner sales due to macroeconomic headwinds," said Colette Kress, chief financial officer at Nvidia. "In addition to reducing sell-in, we implemented pricing programs with channel partners to address challenging market conditions that are expected to persist into the third quarter."
It should be noted that Nvidia's gaming revenue in Q2 was still significantly higher when compared to the $1.654 billion in the second quarter of the company's FY2021 (~calendar Q2 2020). It indicates that the chip designer benefited greatly from increased demand for discrete GPUs for gaming PCs, increased prices of standalone graphics cards, and the crypto mining craze.
Nvidia sold some $7 billion in graphics processors to partners in Q4 FY2022 and Q1 FY2023. However, it now has to ship fewer GPUs due to lowered market demands, and these will sell at lower prices. Meanwhile, it's preparing to launch its next-generation Ada Lovelace family, which it will describe next month at its GTC event, and needs to clear out existing GPUs.
"We are navigating our supply chain transitions in a challenging macro environment and we will get through this," said Jensen Huang, chief executive of Nvidia.
Nvidia's professional visualization business earned the company $496 million in Q2 FY2023, down 20% quarter-over-quarter and down 4% when compared to the same quarter a year ago. Nonetheless, sales of Nvidia's professional GPUs were up 144% compared to sales of Proviz solutions in the same quarter two years ago.
In recent years, Nvidia's OEM and 'other' businesses (which started to include CMP solutions in early 2021) were never too strong as the company shifted focus to gaming graphics processors. Therefore, it was not particularly unexpected to see Nvidia's OEM revenue total $140 million, down 11% sequentially (because of lower notebook OEM sales) and 66% year-over-year (because of negligible sales of CMP mining GPUs).
Data Center and Automotive Up
But while sales of PC components were down for Nvidia, sales of its parts for data centers and automotive applications were up significantly.
After Nvidia's data center revenue reached $3.806 billion (up 1% QoQ and 61% YoY) in Q2 FY2023, it is safe to say that Nvidia is more of a data center company than a PC gaming company. Meanwhile, the company said it had to delay the delivery of specific data center orders from Q2 to Q3 due to supply chain disruptions. As a result, it could not get the components it needed to ship some of its more complex products (i.e. Hopper H100) while pulling in $287 million for orders initially scheduled for delivery.
While Nvidia has been in the automotive business for quite a while, its automotive unit has never earned a lot as it focused on infotainment systems, so many called it the company's worst-performing business. But in Q2 FY2023, Nvidia's automotive earnings totaled $220 million (and exceeded $200 million for the first time), up 59% sequentially and a 45% increase compared to the same quarter last year. The company expects its automotive business to grow as automakers adopt its Nvidia Drive self-driving and AI cockpit solutions.
Mixed Outlook
Nvidia projects its Q3 FY2023 earnings to be $5.90 billion ±2%, representing a sequential decline of 12% and an annual decline of 17%.
The company expects sales of its gaming and professional graphics processors to decline quarter-over-quarter as its partners are making inventory adjustments while the company is preparing the market for the GeForce RTX 40-series rollout. Speaking of the Ada Lovelace family, it is noteworthy that Nvidia promised to talk about its next-gen GPU architecture at GTC, which takes place from September 19 to September 2022. However, it never revealed its projections about the financial impact of the new family on its earnings this fiscal year.
But while sales of GPUs for PCs may not be impressive this year, Nvidia hopes that its data center and automotive revenues will be up. The company says its next-generation H100 (Hopper) compute GPU is now in full production. It will be able to ship its expensive SXM modules to its data center partners and pricey DGX systems to those who need an out-of-box supercomputer.
