Nvidia’s Unprofitable Cryptocurrency Mining Chip Business Causes Departure
Count me Out! Nvidia Announces That its Cryptocurrency Business is Never Coming Back
By the second quarter of this year, it's been announced that Nvidia has taken significant losses, getting to the point that, according to CEO, Colette Kress, that the company will have to pull away from any cryptocurrency ventures, and cryptocurrencies as a whole.
From Many, Less – How $100 Million Dropped to $18 Million
Expectations were far higher for many of those who invested in Nvidia, especially when considering that the company renowned for making high-powered graphics cards had made a major play into the worlds of cryptocurrency and mining.
In particular, this optimism surrounded its mining venture, from which, the company eagerly awaited profits of and possibly over $100 million, and even believed that the revenue would climb up to $400 million by the second quarter and by the end of 2018.
What they got? A whole lot less than they would have liked. It was reported that the actual revenue stood at only 18% of the company's forecasted revenue of $100 million. Taking into consideration the fact that there was clearly a massive discrepancy between projected and actual revenue, Kress stated that this is a venture that proves too underwhelming for Nvidia to continue to produce for.
“Whereas we had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward.”
This unfortunate news of Nvidia's meager returns was officially made available to the public back in early 2019 when the cryptocurrency market reached the total market capitalization of $90 billion, with Bitcoin hovering around the $19,000 mark. As of August, the value of Bitcoin remains in the mid-$6,000 range with the valuation of the crypto market below $300 billion.
Overall, Nvidia reported that they were 82% off in terms of their expected revenue from the cryptocurrency market, this shortfall, interestingly, mirrors the underlying decline that the crypto market faced within the same space of time. While bitcoin recorded a 69 percent decline from its all-time high, other cryptocurrencies such as ether and bitcoin cash recorded 80 to 90 percent losses since January 2018.
One of the other reasons for Nvidia's pivot away from cryptocurrency mining was due, partly, to the underwhelming returns from the venture, but also from the fact that its overall returns from its primary business have proven overwhelmingly successful in contrast.
In contrast, its data-center business since 2017, has clawed in revenues culminating in an 83% increase, translating to $760 million in revenues. It's anticipated that by the third quarter of 2018, that the returns from this area of the business would draw in a further $755 million in sales thanks to its data centers. Overall, this would push up its quarterly revenue to $3.25 billion.
Is the Crypto Market Unprofitable?
In the past, and currently, both Nvidia and the company's CFO have come out as relatively hostile to the cryptocurrency market, while also being generally negative towards catering to the cryptocurrency mining demographic. Despite the fact that Nvidia has not had the best perspective of the industry, but, other key players such as Bitmain and Samsung have seen significant success in the sector, seeing a rise in profits.
Bitmain, as one of the examples, has become on of the biggest organizations in the history of the cryptocurrency market. This year has seen Bitmain achieve a high watermark regarding its success, as it reaches a total market valuation of $18 billion, this is ahead of its planned Initial Public Offering (IPO) taking place in Hong Kong.
At its core, the China-based company relies on its footing as a cryptocurrency mining equipment manufacturer to remain profitable, and throughout 2018, it has proven more than successful at doing that. Bitmain announced that it has recorded a higher profit than Nvidia by bringing in over a billion dollars in profit.
In contrast, in the second quarter of this year, Nvidia proved successful at doubling its profit margin, from $550 million to $1.1 billion. But in the first quarter of 2018, Nvidia recorded only 50 percent of the profit recorded by Bitmain.
According to a report from the news company, Fortune, it cited an email that it had received from Bitmain, regarding the company's forecasted profits over 2018 and beyond.
“Bitmain reportedly brought in $1.1 billion in net profit just in the first quarter of 2018. According to the email, a conservative estimate of what the company could earn in net profit for the full year hovers at approximately $2 to $3 billion.”
Earlier this year, Samsung, South Korea's biggest conglomerate, announced that it would be entering the cryptocurrency mining market, especially when it comes to the manufacturing aspect. Samsung has also announced its continued interest in catering for this market after initial positive returns on its products.