What a strange stretch it’s been for the graphics card market, particularly for Nvidia. At the moment, multiple factors have led the company to drop its guidance for Q4 2019 by half a billion dollars. Revenue expectations for the quarter are now $2.2 billion, down from $2.7 billion. According to CNBC, Nvidia shares dropped 12% after the new figures were announced.
According to Nvidia, and also what we can see with our own eyes, timing played a role in the current situation. While riding high on its Pascal architecture wins, the cryptomining boom threw everything out of whack for Nvidia. Demand spiked, and for a while there, it was hard to find any graphics cards to buy, let alone for a reasonable price. In an investor letter (PDF), Nvidia CEO Jensen Huang said that the company adjusted production in response, but then demand dropped off.
That left Nvidia with lots of inventory, largely mid-range Pascal GPUs, at a bad time—right around a new architecture launch. "We delayed the planned production ramp of several new products to allow excess channel inventory to deplete," wrote Huang. But the company’s ambitious Turing architecture launched in August with the announcement of the RTX 2070, 2080, and 2080 Ti graphics cards. The Titan RTX broke cover in December, and CES 2019 saw the debut of the mid-range RTX 2060 card and the mobile versions of RTX for laptops.
Turing’s promises are enormous and represent a new way of looking at graphics, beyond rasterization. But in a chicken-and-egg conundrum, RTX is facing a lack of widespread game support, which appears to be hampering sales. Huang suggests that customers are waiting for "further demonstrations of RTX technology in actual games," as well as for prices to drop, before plunking down their dollars.
Further, Huang cited global financial woes as having a negative impact on sales. "As we worked through Q4, the global economy decelerated sharply, particularly in China, affecting consumer demand for NVIDIA gaming GPUs," he said.
In other words, Nvidia has a lot of excess inventory that it’s struggling to move because of the global economy, a lack of demand from cryptominers, and its own new products. But the new gaming products aren’t picking up the slack either, because buyers don’t yet feel compelled to spring for RTX cards in droves.
A final tidbit involves Nvidia’s datacenter GPU business. Huang downplays missed sales expectations by saying, "Purchases can be large and are not always periodic or predictable." That is true enough, but it doesn’t assuage the concerns raised by the sentences that follow: "As the quarter progressed, customers around the world became increasingly cautious due to economic uncertainties. A number of deals did not close in the last month of the quarter." The issue, then, seems to be less about the natural ebb and flow of large datacenter customer purchases and more about global economics. One of those things is not like the other.
Predictably, Huang ended his investor letter on a high note, professing optimism in the company’s strategy and opportunities for more growth thanks to the appealing RTX 2060, RTX-powered notebooks, RTX workstation GPUs, more upcoming partnerships in the datacenter, and autonomous driving partnerships.
Final details will emerge during Nvidia’s February 14 earnings call, where the company will discuss Q4 2019 financial results and presents guidance on Q1 2020.