164.59, -37.79, -18.67%) trades lower in response to disappointing results and weak
guidance for the fourth quarter.
The closely-watched chipmaker reported below-consensus third quarter earnings of $1.84 per share on a 20.7% yr/yr increase in revenue to $3.18 bln, which was also shy of expectations.
While the headline results were not that far away from consensus expectations, NVIDIA's guidance for the fourth quarter didn’t meet expectations. The company expects fourth quarter earnings between $1.32 per share and $1.49 per share on revenue between $2.65 bln and $2.75 bln. The earnings guidance range is based off the company's gross revenue, gross margin, expense, tax rate guidance, and an assumption of a flat share count. Both guidance ranges are well below market expectations with NVIDIA's revenue outlook representing a 20.0% shortfall to market expectations.
Looking to sweeten its results, NVIDIA announced a 7.0% increase to its quarterly dividend (to $0.16) and a $7 bln increase to its buyback authorization, which is now at $7.94 bln.
Broadly speaking, NVIDIA blamed a glut of Pascal-based GPUs (GTX1000 series) on its revenue shortfall. Management noted that the normalization of prices of Pascal-based cards has taken longer than expected after last year's volatility in the cryptocurrency market led to a shortage of cards and a surge in prices.
NVIDIA launched a new line of video cards for its gaming segment in late September. NVIDIA CEO Jen-Hsun Huang remained wildly optimistic when discussing the technological leap achieved in the RTX2000 series, but there is still very little content that takes advantage of the new technology. We touched on this issue in our Story Stock comment from November 12.
that comment, we noted that ray tracing technology was being held up by a
delayed release of Microsoft's October 2018 update for Windows 10. That update
was released in the middle of the week with Battlefield V becoming the first
title to enable ray tracing. However, users have noted that ray tracing takes a
big toll on performance. This means that in order to use the new technology
allowed by the RTX series GPUs, users will also need a top-end processor and a
large amount of RAM. In short, taking advantage of ray tracing will not only
require most users to purchase a new (more expensive) GPU, but also spend money
on other system upgrades. This dynamic could hamper the adoption rate of the
new RTX GPUs.
Concerns about the future of NVIDIA's gaming segment have overshadowed performance in most of the remaining segments, where the company saw strong yr/yr revenue growth. Professional visualization revenue jumped 27.6% to $305 mln; Datacenter revenue spiked 58.1% to $792 mln; Auto revenue grew 19.4% to $172 mln. OEM & IP revenue fell 22.5% to $148 mln. Revenue in the company's largest segment—Gaming—increased 13.0% to $1.76 bln.