NVIDIA’s Q4 Sales Guidance Miss Hints at a Slowdown in China

NVIDIA cuts its sales guidance

On January 28, NVIDIA (NVDA) announced a cut in its sales guidance for its upcoming results for the fourth quarter of fiscal 2019, which it’s expected to release on February 14. The chip maker cited weakness in sales in the gaming and data center markets due to a slowdown in demand in China (MCHI) (FXI) accelerated by trade war fears.

The news of the guidance cut made investors jittery, which was reflected in NVIDIA’s stock price, which tumbled more than 13% on January 28.

NVIDIA’s Q4 Sales Guidance Miss Hints at a Slowdown in China

Fourth-quarter guidance

The company has slashed its fourth-quarter revenue forecast from $2.7 billion to $2.2 billion, as it expects soft gaming sales due to deteriorating macroeconomic conditions in China. Its revenue forecast is also lower than analysts’ expectation of $2.48 billion.

The company is also expecting its data center sales to miss analysts’ expectations, as “customers shifted to a more cautious approach” in the quarter. NVIDIA’s cloud-computing business is also not performing well. Along with softer sales guidance, NVIDIA expects its adjusted gross margin for the fourth quarter to contract significantly by 6.5 percentage points to 56%.

The $500 million reduction in the company’s fourth-quarter sales guidance added to its worries, as it had already forecast weaker-than-expected revenue during its third-quarter earnings call. The company had expected its fourth-quarter sales to miss estimates by $700 million mainly due to weak gaming revenue in China and a drop in cryptocurrency demand.

Trade war concerns

The trade war between the United States (SPY) and China has also been pressuring NVIDIA. China’s economy is struggling as it faces falling demand amid US tariffs.

Currently, US President Donald Trump has imposed a 10% tariff on $200 billion worth of imported Chinese goods, but he’s warned that the tariffs might increase in the near term. The president is concerned about China’s trade practices, including intellectual property theft, nontariff barriers, and cybertheft.