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Uncertain Macroeconomic Environment Clouds NVIDIA’s Guidance

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NVIDIA’s fiscal 2020 second-quarter revenue guidance

The semiconductor industry is going through a downturn as the US-China trade war slows demand in one of the chip industry’s biggest markets, China. This macroeconomic weakness comes at a time when NVIDIA (NVDA) is struggling to sell through the excess GPU (graphics processing unit) inventory that was created as a result of the end of cryptocurrency demand.

The above trends saw NVIDIA’s revenue fall in the double digits YoY (year-over-year) in the last two quarters after three years of double-digit growth. The company expects the YoY decline to continue for the third quarter in a row and is guiding for a YoY decline of 18.3% in the second quarter of fiscal 2020. The decline comes as data center spending remains weak and the launches of several gaming laptops are delayed due to Intel’s CPU (central processing unit) shortage.

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Sequential growth in sight

On the seasonality front, NVIDIA’s fiscal 2020 second-quarter revenue guidance of $2.55 billion represents sequential growth of 15%, or $330 million. On NVIDIA’s fiscal 2020 first-quarter earnings call, its CFO, Colette Kress, stated that its revenue growth will come from seasonal demand for Nintendo Switch game consoles and some growth in its data center business.

How will fiscal 2020 shake out for NVIDIA?

The company’s fiscal 2020 second-quarter guidance is lower than it was in January, when it said that it expected full-year fiscal 2020 revenue growth of flat to negative. The trade war and data center spending pause has created uncertainty in the demand environment. It remains to be seen how the trade war will unfold and how it will affect NVIDIA’s revenue.

In such an environment, NVIDIA has refused to provide a full-year earnings outlook. However, it expects the second half to be seasonally stronger than the first half. It expects to sell through its excess GPU inventory in the current quarter, which should give way for it to sell more Turing-based gaming GPUs in the third quarter.

NVIDIA will roll out its complete Turing-based GeForce RTX GPU line-up in the second half as more games that support ray tracing are launched. Intel’s CPU shortage should end by June, bringing more gaming laptops to the market. All this will drive NVIDIA’s revenue in the second half.

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