Crypto Slow Down Hits Nvidia
Nvidia Corp predicts disappointing sales as distributors and retailers hold unsold chips while the cryptocurrency mining boom fades. The chip company, based in Santa Clara California, could not fulfill Q3 expectations. Accordingly – shares plummeted by around 17% in trading. Nvidia Corp is a key supplier of gaming cards for boosting computer graphics. However, the sales of the cards skyrocketed after the virtual currency miners began to adopt the cards for crypto mining. According to the Chief Executive of Nvidia, Jensen Huang, their card prices rose with the virtual currency frenzy. This forced regular buyers away.
After the frenzy receded, the prices of cards hit bottom. Accordingly, the company expects sales to grow as buyers return. However, the entire process is slow. But Huang believes that the inventories will come to normal levels by the end of this quarter. In a conference call, Huang said, “The crypto hangover lasted longer than we expected. We thought we had done a better job managing the cryptocurrency dynamics.” That is the reason the chips started piling up because Nvidia stopped shipping few of the mid-priced chips to the distributors and retailers and stacked them up in backs of stores and in warehouses. According to Huang, the inventories provision of the company expanded beyond five-fold in the fiscal TQ 2018 to $70 million. Incidentally, the same provision tripled in the first nine months of the fiscal year.
One of the reasons for the decline in the mining of cryptos can be due to an increase in hacking and criminal activities. A cybersecurity firm, Palo Alto Networks recently discovered a fake updater of Flash Player. The scammers use the legitimate Adobe Flash Player updates to hide mining malware.
Lower Demand for GPU Products
The company stated that its revenue coming from personal computer makers declined by around 40% because of the decline in the demand for GPU products used for mining cryptocurrency. Nvidia predicted that its revenue for the current quarter will be plus and minus 2% of $2.7 billion. It is considerably less than the average estimate of $3.40 billion by the analysts. The semiconductor analyst at Susquehanna, Christopher Rolland stated that mining Ethereum using the flagship graphics card from Nvidia is no longer profitable. Rosenblatt Securities with buy rating and $315 price target stated that Nvidia is facing a serious problem with the crypto related inventories and in the near future, it may affect the data center and strong gaming momentum.
An analyst at the Summit Insights Group, Kinngai Chan says that the older gaming chips of Nvidia inventories pose a big problem. It is causing a surplus of chips followed by a weak demand for new chips in August.