Nvidia Q1 2020: Revenue, Earnings Down As Gaming, Data Center Business ‘Pauses’

Nvidia still came in above revenue and earning-per-share expectations on hopes that its accelerated computing strategy including ray-tracing and inference technology for artificial intelligence will drive the company forward.

Nvidia Thursday reported mixed results for its first fiscal quarter of 2019, with revenue and income down sharply but still pleasing investors by beating analyst expectations for the quarter.

The Santa Clara, Calif.-based developer of chips and accelerated computing technology reported revenue for its gaming, data center and OEM sectors were down, with some of the downturn made up by increases in its professional visualization and automotive sectors.

For its first fiscal quarter of 2020, Nvidia reported overall revenue of $2.22 billion, down 31 percent over the $3.21 billion the company reported for its first fiscal quarter of 2019.

[Related: 4 Bold Statements From Nvidia CEO Jensen Huang On The Future Of Computing]

Income on a GAAP basis for the quarter was reported at $394 million, or 64 cents per share, with both figures down 68 percent from last year. On a non-GAAP basis, income for the quarter was reported at $543 million, or 88 cents per share, down nearly 60 percent from last year.

However, Nvidia for the quarter beat revenue expectations by $20 million, and beat both GAAP and non-GAAP earnings per share by 7 cents, according to Seeking Alpha. Investors, in turn, drove the company's share price up by about 2 percent in the first few hours of after-market trading.

For the quarter, Nvidia reported its GPU business saw revenue of $2.02 billion, down 27 percent over last year, while its Tegra processor business fell 55 percent to $198 million.

By platform, Nvidia's first fiscal quarter gaming revenue fell 39 percent over last year to $1.06 billion, data center revenue fell 10 percent to $634 million, professional visualization revenue rose 6 percent to $266 million, automotive revenue rose 14 percent to $166 million, and OEM and other revenue fell 74 percent to $99 million.

Nvidia founder and CEO Jensen Huang said during the company's Thursday quarterly financial analyst call that Nvidia is glad to be returning to growth and that it is focused on driving three growth strategies.

The first is the company's RTX ray-tracing technology, which Huang called the future of gaming and digital design.

"Nvidia RTX is leading the way," he said. "With the support of Microsoft DXR [DirectX Ray Tracing], Epic, Unity, Adobe and Autodesk [and] movie studios like Pixar, industry support has been fantastic."

The second is accelerated computing and artificial intelligence in computing, Huang said.

"The pause in hyper-scale spending will pass," he said. "Accelerated computing and AI are the greatest forces in computing today, and Nvidia is leading these movements. Whether cloud or enterprise or AI at the edge, for 5G or industries, Nvidia's one scalable architecture from cloud to edge is a focal point platform for the industry to build AI upon."

The third is robotics, which Huang said is also called embedded AI, edge AI, or autonomous machines.

"The same computing architecture is used for self-driving cars, pick-and-place robotic arms, delivery drones and smart retail stores," he said. "Every machine that moves, or machines that watch other things that move, whether they're with driver or driverless, will have robotics and AI capabilities. Our strategy is to create an end-to-end platform that expands Nvidia's DGX AI computing infrastructure to Nvidia's Constellation [driverless automobile] simulation to Nvidia AGX embedded and AI computing."

Nvidia is on track to close its pending acquisition of high-performance connectivity technology developer Mellanox by year-end, Huang said.

"Together, we can advance cloud and edge architectures for HPC [high-performance computing] and AI computing," he said.

That pause Huang referred to in the data center spending is in large part a result of hyper-scale data center companies slowing down purchases to digest the capacity they have already acquired.

"At this point, I think it's brutally clear that in the second half of last year they took on a little too much capacity," he said. "And so everybody has paused to give themselves a chance to digest."

However, Huang said, Nvidia's deep learning inference business is doing great.

"We're working with CSPs [cloud service providers] all over the world to accelerate their inference models," he said. "The reason why recently inference activity has gone off the charts is because of breakthroughs in what we call conversational AI. … Across the board, internet companies would like to make their AI much more conversational."

Nvidia is seeing strong AI adoption in just about all industries, Huang said.

"The reason for that is because they have a vast amount of data that they're collecting. … Some 90 percent of today's data was created just two years ago," he said. "And its being created by and gathered by these industrial systems all over the world."

Looking forward, Nvidia expects second fiscal quarter 2020 revenue of about $2.55 billion, plus or minus 2 percent, which is down considerably from second fiscal quarter 2019 revenue of $3.12 billion. However, that 2019 quarter revenue was up 40 percent from the prior year.

Second quarter 2020 GAAP and non-GAAP gross margins are both expected to be above 59 percent, which is down from last year's comparable figures, which were both above 63 percent.