Nvidia stock is down 14% pre-market after the company slashed fourth quarter revenue (and gross margin), blaming China, macroeconomic conditions, and a decline in crypto demand.

The slump is dragging Nasdaq lower also...

Full Statement:

Fourth quarter revenue expected to be $2.20 billion versus previous guidance of $2.70 billion

Gaming and Datacenter revenue below company’s expectations

NVIDIA (NASDAQ: NVDA) today updated its financial guidance for the fourth quarter of fiscal year 2019, reflecting weaker than forecasted sales of its Gaming and Datacenter platforms.

In Gaming, NVIDIA’s previous fourth-quarter guidance had embedded a sequential decline due to excess mid-range channel inventory following the crypto-currency boom. The reduction in that inventory and its impact on the business have proceeded largely inline with management’s expectations. However, deteriorating macroeconomic conditions, particularly in China, impacted consumer demand for NVIDIA gaming GPUs. In addition, sales of certain high-end GPUs using NVIDIA’s new Turing™ architecture were lower than expected. These products deliver a revolutionary leap in performance and innovation with real-time ray tracing and AI, but some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.

In Datacenter, revenue also came in short of expectations. A number of deals in the company’s forecast did not close in the last month of the quarter as customers shifted to a more cautious approach. Despite these near-term headwinds, NVIDIA has a large and expanding addressable market opportunity in AI and high performance computing, and the company believes its competitive position is intact.

“Q4 was an extraordinary, unusually turbulent, and disappointing quarter,” said Jensen Huang, founder and CEO of NVIDIA. “Looking forward, we are confident in our strategies and growth drivers. “The foundation of our business is strong and more evident than ever – the accelerated computing model NVIDIA pioneered is the best path forward to serve the world’s insatiable computing needs. The markets we are creating – gaming, design, HPC, AI and autonomous vehicles – are important, growing and will be very large. We have excellent strategic positions in all of them,” he said.

NVIDIA expects its GAAP and non-GAAP gross margin to be impacted by approximately $120 million in charges for excess DRAM and other components associated with the updated revenue guidance and current market conditions.

The company will provide Q4 fiscal 2019 financial results and Q1 fiscal 2020 guidance on its earnings call scheduled for Feb. 14.

At the same time asa issuing the lower guidance, Nvidia CEO Jensen Huang release his letter to NVIDIA shareholders:

We are lowering our revenue guidance for the fiscal 2019 fourth quarter to $2.2 billion, plus or minus two percent.

We are disappointed to revise our guidance, which was already down significantly. It was a challenging quarter with several extraordinary dynamics. Let me explain what happened and outline the actions we are taking to get our company back to growth.

The Q4 guidance we provided in November reflected the effect of excess channel inventory of Pascal mid-range GPUs that resulted from the sharp decline of cryptocurrency demand. We delayed the planned production ramp of several new products to allow excess channel inventory to deplete, which resulted in the significantly lowered Q4 guidance. Exiting Q3, we estimated channel inventory would be largely depleted within one to two quarters, or between February and April. Our view of that today remains unchanged.

As we worked through Q4, the global economy decelerated sharply, particularly in China, affecting consumer demand for NVIDIA gaming GPUs. Also, with initial shipments of new high-end RTX GPUs selling above MSRP, some customers may have delayed their purchase while waiting for lower price points and further demonstrations of RTX technology in actual games.

Datacenter customers buy NVIDIA GPUs for high performance computing, to train deep learning AI models, and to offer as a cloud computing service. Purchases can be large and are not always periodic or predictable. 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.

Macroeconomic factors are beyond our control. Even so, there are many ways we can grow. We are creating new capabilities for existing markets as well as growing into new markets. Let me outline some of the growth drivers for this year:

First, RTX 2060 for gaming launched at CES with excellent reviews. RTX 2060, priced at $349, is the first Turing™ GPU for the mass market, offering millions of gamers the opportunity to upgrade. For the price of a console, gamers can enjoy next-generation gaming that does ray tracing graphics and AI. At CES, we demonstrated Battlefield V with RTX ray tracing at excellent frame rates. RTX 2060 is now available around the world and is off to a great start. Second, we launched over 40 new models of GeForce RTX™ gaming notebooks - more than doubling the number of GeForce-powered notebooks shipped last year. With our Max-Q platform technology, OEMs can make thin-and-light notebooks that gamers desire. Gaming notebooks represent one of the fastest growing PC segments, and the fastest growing GeForce segment. RTX notebooks will be available starting next week. Third, Quadro RTX™ will be the most significant workstation GPU upgrade in 10 years. Millions of designers and creative artists will, for the first time, be able to work interactively with super high-resolution media and photorealistic 3D rendering, bringing joy and productivity to their work. Fourth, we announced new applications of our datacenter GPUs, including deep learning inference, data analytics, and machine learning, and we created partnerships to bring NVIDIA computing to global enterprise customers. We are working closely with hyperscalers around the world to integrate NVIDIA TensorRT™ and GPUs into their inference production flow. Google TensorFlow is now integrated with NVIDIA TensorRT and Google Cloud Platform is the first CSP to announce availability of NVIDIA T4 Tensor Core GPUs in the cloud. Retail, healthcare, financial, and consumer internet services companies have enormous amounts of business data. They use machine learning to create predictive AI models from data. The compute time to process data and train their AI models can take days to weeks. NVIDIA can accelerate machine learning as we have done with deep learning. NVIDIA created RAPIDS™ - a software stack to accelerate data analytics and machine learning frameworks. RAPIDS does for machine learning what cuDNN does for deep learning. Major cloud and enterprise data science platforms are integrating RAPIDS now, which will open this large market for NVIDIA GPUs. Enterprises around the world increasingly need high performance computing infrastructure to accelerate their data analytics and AI workloads. These systems are state-of-the-art, with complex integration of large-scale computing, networking, and storage software. And direct support is difficult as companies are in diverse industries and locations. We announced partnerships with Cisco, DataDirect Networks, IBM, NetApp, and Pure Storage to create pre-integrated systems that can be sold through their vast global IT channels. These datacenter initiatives - accelerating inference and machine learning, and leveraging partners to reach global enterprises - will grow our market and reduce the volatility of hyperscaler deals. Finally, at CES we announced DRIVE™ AutoPilot, the world’s first commercially available L2+ self-driving car computer. Systems from Tier 1 partners - Bosch, Continental, Desay, Veoneer, and ZF - were on display. Volvo was an L2+ design win. We announced Daimler at CES. DRIVE AutoPilot is a major milestone for us and takes our high-functioning self-driving capability into the mass market.

Q4 was an extraordinary, unusually turbulent, and disappointing quarter. Looking forward, we are confident in our strategies and growth drivers. The foundation of our business is strong and more evident than ever - the accelerated computing model NVIDIA pioneered is the best path forward to serve the world’s insatiable computing needs. The markets we are creating - gaming, design, HPC, AI, and autonomous vehicles - are important, growing, and will be very large. We have excellent strategic positions in all of them.

The NVIDIA you invested in has incredible talent doing important work for our future. The important work we do is only possible with your support. For that, we are tremendously appreciative. This quarter was a real punch in the gut. But your company is resilient, creative, and repeatedly rises to great challenges. We will shake this off and come back strong.

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As one wise-cracking tweeter ( @Hipster_Trader ) noted, "if you liked NVDA at $292 in October, you'll love it at $137..."