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Pacific Crest chip analyst Michael McConnell this morning warns that there are some “dark clouds forming” for Nvidia (NVDA) and Advanced Micro Devices (AMD), based on his listening to comments from Asia’s supply chain.

McConnell, who has Sector Weight ratings on shares of both AMD and Nvidia, writes that he was surprised by the sudden negative tone about “desktop” graphics cards:

By far, the most surprising development during our quarterly supply-chain conversations in Asia was a notable tone change at several first-tier desktop graphics card manufacturers surveyed regarding sell-through and inventory levels in the channel. Our specific findings were as follows: High-end NVIDIA GeForce GTX 1080 and 1070 card inventory levels have risen to 2 to 2.5 months in the channel versus targeted levels of 1 to 1.5 months due to weaker-than-expected sell-through in late October and November. Two weeks ago, desktop graphics card manufacturers began to experience order pushouts and cancellations of GTX 1080 and 1070 cards from channel customers ahead of the holiday season. Given the excess supply situation, GeForce GTX 1080 pricing has dropped ~10% in the channel, with desktop card manufacturers now unwilling to order product due to perceived working capital risk. Given the weaker-than-expected sell-through of higher ASP GeForce GTX 1080/1070 product and higher sales mix of mainstream GeForce GTX 1060/1050, not one desktop graphics card manufacturer we surveyed is expecting sequential revenue growth in calendar Q4, with forecasted sales declines of 5% to 15% q/q. We note this contrasts with NVIDIA’s guidance for sequential revenue growth in its gaming segment (62% of sales) in FQ4 (Jan.), after record-high sales in FQ3 (up 59% q/q, 65% y/y). Sales of AMD’s desktop RADEON 480/470 graphics cards were also characterized as disappointing QTD.

The question for both stocks, writes McConnell, is whether “inventory controls” the companies have set up will help things come February:

Given weaker-than-expected desktop graphics card sell-through and oversupply, we believe NVIDIA and AMD have now implemented inventory controls to channel card manufacturers. Desktop graphics card manufacturers believe that sell-through trends over the Chinese New Year holiday are likely to determine whether channel card inventory can be reduced at end customers in January, or if this sales correction will continue into February and the remainder of calendar 1Q17 given weaker seasonality.

Shares of Nvidia are down $3.72, or 4%, at $88.11, while shares of Advanced Micro are rising 42 cents, or 4%, to $10.75, following that upgrade this morning over at BMO Capital.