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Nvidia Q4 Fiscal 2019 Preview: Expect Sharp Decline In Top & Bottom Line Amid China And Crypto Woes

Jen-Hsun Huang, president and chief executive officer of Nvidia Corp., speaks during the company’s event at the 2019 Consumer Electronics Show (CES) in Las Vegas, Nevada, on Sunday, Jan. 6, 2019. CES showcases more than 4,500 exhibiting companies, including manufacturers, developers and suppliers of consumer technology hardware, content, technology delivery systems and more. (Photographer: David Paul Morris/Bloomberg)© 2018 Bloomberg Finance LP

Nvidia (NASDAQ:NVDA) is set to report its Q4 fiscal 2019 results on February 14, and it will likely see a sharp decline in its top line, as well as the bottom line, primarily due to China and crypto currency woes. The company will likely take pricing cuts to clear its crypto related inventory, and this will weigh on the overall earnings. Nvidia’s stock price has also corrected by roughly 50% since October last year, following the company’s weak guidance for Q4, which was further revised on the downside last month. We have created an interactive dashboard analysis ~ What To Expect From Nvidia’s Q4 Fiscal 2019. You can adjust various drivers to see the impact on the company’s overall earnings, and price estimate. Below we discuss our forecasts.

Expect Revenues To Decline In Low Twenties Percent

We forecast the company’s total revenues to decline in the low twenties percent to $2.25 billion in Q4 fiscal 2019, slightly above the company’s revised guidance. This decline will be led by the company’s GPU segment. The U.S. trade war with China will likely have a significant impact on Nvidia’s performance, given China, along with Taiwan, accounts for 50% of the company’s total sales. Datacenter growth will also be impacted, as the company’s management stated that some of the deals weren’t closed toward the last month of the quarter. The company’s overall performance will likely be impacted by the crypto hangover as well. GPUs used for crypto mining impacted the PC OEM (original equipment manufacturer) revenues, which were down 40% in the previous quarter. The company expects to clear crypto related inventory by mid-2019, and this will likely result in price cuts. Crypto currencies have seen massive decline in the recent past, and the demand for graphics cards have faded, which were earlier sought for crypto mining. While the company did launch its new line of chips, RTX in August 2018, the pricing of chips is very high, and so far it appears to have not seen any significant demand.

Looking at the Tegra Processors, revenues have grown in the recent years, led by its automotive business, as well as SOC (system on a chip) modules for gaming consoles, primarily Nintendo Switch. While Nintendo saw great holiday season sales in late 2018, it revised its target of selling 20 million consoles to now 17 million consoles, given the weak sales in the first half of the fiscal. In fact, Nvidia’s Q3 fiscal 2019 revenues were down in low single-digits, due to a dip in SOC modules sales. This trend will likely continue in Q4 as well. Given these trends, and expected pricing cuts that will impact the company’s overall margins, we forecast the company’s adjusted earnings to decline in mid-thirties percent to $1.12 per share in Q4 fiscal 2019. We currently have a $203 price estimate for Nvidia, which we will revise post the Q4 earnings announcement.

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