Crypto & China Woes: Nvidia’s Disappointing Q4 Earnings might be a Foregone Conclusion

In late January, the chip giant lowered its fourth-quarter revenue guidance to about $2.2 billion from its previous expectation of about $2.7 billion. Nvidia cited the weaker economic conditions in China and the disappointing sales of its datacenter and gaming platforms the reason for this decline.

Now, on February 14, Nvidia is set to report its Q4 fiscal 2019 results that is expected to see a sharp decline due to cryptocurrency and China woes. Since last October, Nvidia’s stock price has corrected by about 50 percent following the company's weak guidance for Q4.

Following the crypto price crash, CEO Jensen Huang made a pre-warning two weeks before the Q4 earnings announcement about the decline due to excess mid-range channel inventory. It is expected that the company will take pricing cuts to clear its crypto related inventory as the crypto market has been currently in the longest ever bear market and is still projected to remain so in 2019.

The demand for graphic cards has faded with the drop in crypto prices. And while the company launched RTX, a new line of chips in August last year, the pricing of chips is very high and doesn't seem to pull significant demand.

The company expects to clear its crypto related inventory by mid-2019 which is likely to result in price cuts. In turn, this will weigh on its overall earnings. This means a disappointing earnings announcement might be a forgone conclusion.

The US China trade war is likely to have a significant impact on the its earnings as well as China and Taiwan accounts for about 50 percent of the Nvidia's total sales.

The Datacenter growth will also be affected as during the last month of the quarter, the management had stated that some of the deal weren’t closed by the company. When it comes to Tegra Processors and SOC (system on a chip) modules for gaming consoles, primarily Nintendo switch, Nintendo has already revised its selling target to 17 million from 20 million.

The Q3 revenue of Nvidia were down because of dip in SC module sales which is expected to continue in Q4 as well.

“Following the company's somewhat chilly guidance cut … we believe the shares are likely to remain hamstrung,” Bernstein analyst Stacy Rasgon said in a note to investors titled “A splash of cold water? Downgrading to Market-Perform.”

“The latest cut appears much more fundamentally demand-driven, with the question of the ‘true' run-rate of the gaming business remaining up in the air for now.”

Analysts surveyed by Bloomberg are expecting an adjusted earnings of $0.84 per share on $2.3 billion in revenue.

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