What Factors Will Impact Nvidia’s Fiscal 2020 Earnings?
Nvidia (NASDAQ:NVDA) recently posted its Q4 fiscal 2019 results. While the company’s top line was a beat, its adjusted earnings were below our estimates. Revenues declined in the mid-twenties percent, with both GPU, as well as Tegra Processors segments seeing a sharp decline in sales. Earnings plunged over 50% to $0.80 per share on an adjusted basis, amid lower margins. Looking ahead, the company has guided for a weak Q1, as it continues to struggle over crypto-related inventory. We have created an interactive dashboard analysis ~ A Quick Snapshot of Nvidia’s Q4 Performance And Trefis Estimates For The Fiscal 2020. You can adjust various drivers to see the impact on the company’s overall earnings, and price estimate. Below we discuss our forecasts. In addition, here is more Information Technology data.
Expect Revenues To Decline In High Single-Digits In FY 2020
We forecast the company’s total revenues to decline in high single-digits in fiscal 2020. The GPU business will likely see sales of a little under $9.30 billion, while Tegra Processors’ revenue could decline to $1.45 billion. This can primarily be attributed to a slowdown in the Chinese economy, which has impacted the consumer demand for GPUs, according to the company’s management. Note that China and Taiwan combined account for over 50% of the company’s total sales. In addition, the company’s Turing graphics card sales so far has been lower than expected, given the high pricing. Also, the crypto hangover is expected to impact the Q1 results as well. Crypto currencies have seen a massive decline in the recent past, and the demand for graphics cards has faded, which were earlier sought for crypto mining. While the company did launch its new Turing architecture in 2018, the pricing of these cards was very high, and so far it appears to have not seen any significant demand. However, with its launch of GTX1660Ti later in this month, the company could see some uptick in sales. GeForce GTX 1660 Ti will be Nvidia’s first Turing 12nm gaming graphics card without the real-time ray tracing capability. The new card is rumored to outperform several other cards, and it could help Nvidia revive its GPU sales.
Looking at the Tegra Processors, the trend in revenues have been volatile in the recent past, led by its automotive business, as well as SOC (system on a chip) modules for gaming consoles, primarily Nintendo Switch. The company posted a 50% dip in Tegra Processors’ revenue in Q4 fiscal 2019, due to lower shipments of SOC modules. Nintendo also revised its target of selling 20 million consoles to now 17 million consoles in the current fiscal, given the weak sales in the first half of the year. This trend will likely continue in the near term as well. Given these trends, especially in GPUs, the company could see further pressure on its operating margins. We forecast the company’s adjusted earnings to decline in low double-digits to $5.90 per share in fiscal 2020. Our price estimate of $176 for Nvidia is based on a 30x forward price to earnings multiple.
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