By Asa Fitch
Nvidia Corp. said chip sales in some of its key markets started to recover in recent months even as it posted a fourth-straight quarter of lower earnings and said that its revenue decline wasn't over.
The Santa Clara, Calif.-based company Thursday said revenue linked to its cloud-computing activities improved sequentially in its fiscal third quarter. Gaming revenue, which made up more than half of overall sales, was also up strongly sequentially. But both segments were still lower than in the year-prior period.
Nvidia reported a 27% drop in net income to $899 million. Adjusted earnings per share, the chip maker's more closely watched earnings measure, fell to $1.78 from $1.84 a year ago, well above the $1.58 analysts surveyed by FactSet expected.
The company last year enjoyed strong sales in its third quarter, driven both by customers in China, who placed orders ahead of looming tariffs on some U.S. goods, and by demand for chips used for cryptocurrency mining. Without those benefits, Nvidia's sales fell to $3.01 billion in the quarter ended Oct. 27, down from $3.18 billion a year ago and above analysts' projections.
The sales challenges aren't over. The company's revenue forecast in the current quarter of around $2.95 billion came in short of analysts expectations.
Nvidia has long led the market in graphics-processing chips for personal computers. Users in recent years found new applications for the powerful processors, including for cryptocurrency mining, which helped bolster demand. More recently, cloud-computing giants such as Amazon.com Inc., Alphabet Inc.'s Google unit and Microsoft Corp. have embraced the chips to offer artificial intelligence-related applications on their systems.
Intel Corp., the largest U.S. chip maker by revenue, last month signaled that data-center demand was improving after topping earnings expectations and raising its outlook. Cloud computing, a model where customers rent out computing resources instead of using their own machines, also drove Microsoft's stronger-than-expected quarterly earnings last month.
Nvidia's gaming division, which accounted for more than half of its revenue, got a boost from sales of Nintendo Co.'s new Switch Lite gaming console, which uses the company's chips. Nintendo said it sold 1.95 million of the devices in the third quarter, helping Nvidia's gaming segment to a 26% revenue increase compared with the second quarter.
Nvidia is also facing stiffer competition. Advanced Micro Devices Inc., Nvidia's main graphics-chip competitor, has gained market share by introducing new hardware that uses the tiniest transistors available, allowing its chips run faster and more efficiently.
Nvidia earnings could be dented further if the U.S. moves ahead with a plan to impose a 10% tariff on computers imported from China next month as part of a long-running trade dispute.
Nvidia said the closing of its nearly $7 billion deal to buy networking company Mellanox Technologies Ltd. -- a key aspect of a strategy to offer a wider set of hardware tools to customers -- could be delayed. That deal, reached in March, has been approved by U.S. regulators. Talks are still ongoing with authorities in China and Europe, which could push out the closing date into early next year, Nvidia said.
Once the deal closes, Nvidia said it would resume share repurchases that it put on hold as it built up cash to pay for the acquisition.
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