At a time when both gamers and cloud giants remain avid consumers of Nvidia’s (NVDA) - Get Report products, the company has its hands full meeting all of this demand while dealing with a variety of supply chain constraints.
Nvidia comfortably beat October quarter estimates on Wednesday, while reporting record sales for its gaming GPU, server GPU and game console processor businesses. Gaming segment revenue rose 37% annually, while Data Center segment revenue -- benefiting some from the recent Mellanox acquisition, but also from strong server GPU and Mellanox product demand -- rose 162%.
Nvidia also issued above-consensus January quarter sales guidance. The company forecast Gaming revenue would be up sequentially in what’s typically a seasonally weaker quarter, and that Data Center revenue would see a slight sequential drop, with higher server GPU sales to Internet/cloud giants (the proverbial hyperscalers) offset by a “meaningful” drop in Mellanox’s revenue due to the end of shipments to an unnamed Chinese OEM (believed to be Huawei).
Shares are currently up fractionally in Thursday trading, after having gone into earnings up 128% on the year. Those gains leave Nvidia sporting a $331 billion market cap.
Following Nvidia’s earnings call, I talked once more with CFO Colette Kress (an August interview can be found here, and a May interview can be found here). Here’s what she had to say about Gaming and Data Center segment trends, current supply constraints and expectations for Nvidia’s edge computing and automotive efforts, slightly edited for clarity.
How Nvidia’s desktop and notebook gaming GPU sales are trending, and whether the recent launch of its RTX 30 series desktop GPUs has resulted in a mix shift towards desktop sales.
Kress: “With the RTX 30 series that came out for the desktop, we launched the 3090, the 3080, the 3070. As you know, those are at the high end of our [lineup]. And we are working to keep up with the overall demand that is out there. Our [notebook business is] also getting ready for the holiday season. But yes, the strength in desktops, because of the [RTX 30 series launches], made a slight [mix] shift there. But again, both of them are growing quite well.”
“All three [of Nvidia’s gaming businesses set] records for this quarter -- a record in terms of desktop, in terms of notebooks and in terms of consoles. And the [notebook products] are on their 11th quarter of year-over-year growth. So all are doing well.”
Nvidia’s January quarter expectations for processor shipments to Nintendo, whose Switch console continues seeing very strong demand.
Kress: “Keep in mind, we just [sell] to Nintendo, Nintendo [then] builds and brings [consoles] to market. They are building for the holiday season. So we'll have to wait for Nintendo to announce what they will ask [in terms of] overall demand from us [for fiscal Q4]. But they've had some of the most successful quarters in years. [The Switch] is the most successful console that has been out there. So we're extremely pleased to be a partner with them.”
How Nvidia sees its non-Mellanox Data Center segment sales to traditional enterprises (i.e., its “vertical industries” clients) trending this quarter relative to its sales to hyperscalers.
Kress: “We think about both of them being great opportunities for the overall [fiscal] fourth quarter. We do expect the hyperscalers to grow sequentially as we move into Q4. And our overall compute [business] will also sequentially grow from Q3 to Q4. Now, we have enabled [A100 GPU sales from] OEMs, we've enabled our DGX systems, and we've enabled in terms of putting many of our products within...clouds. So, we've got a continued ramp of the A100 in all of these different areas.”
“And when we finish the quarter, we'll get a good understanding [about] how each one of those ended up growing. But for right now, we're excited that the adoption of the A100 is going well, not only for just [AI] training, but also in terms of inferencing, including [with] the T4.”
Whether Nvidia, whose RTX 30 GPUs remain out of stock at retailers, is also seeing supply constraints within its Data Center business.
Kress: “We are supply-constrained. One, by the overwhelming demand [for] our gaming desktop [RTX] 30 series. And we're going to work really hard over the next couple months to fine-tune that overall supply to meet that overall demand. But additionally, we are also supply-constrained in our overall data center [business].”
“We are continuing to work to help complete very long lead time, cycle time, type of product completions…[The] A100 is a system with a baseboard, our [DGX servers] are full systems. And so getting specifically what the customers’ demand is and quickly trying to build, and meeting not only [demand for] our underlying processors, but capacity for components, capacity for many other [parts] of the overall system, is an important part of our focus right now in Q4. So, yes, we are supply-constrained in both gaming and data center.”
Whether Mellanox could (following an expected January quarter sequential drop) see its sales get a lift in the first half of 2021 from Intel (INTC) - Get Report and AMD’s (AMD) - Get Report planned server CPU refreshes.
Kress: “Mellanox is the market leader in terms of interconnects...And so if there is increasing demand for building out systems for enterprises, it is likely that Mellanox will partake in that, given the strength of their overall platform. Their...existing InfiniBand [products], as well as new products that will come to market for Ethernet as well. So at this time, we're not providing guidance on that, but they have a slightly different [sales] mix than our overall compute [business].”
“But they're also following us quite closely to many of [our] projects that we are doing in the data center with our [cloud service providers] as well as our verticals. So they've got great opportunities to really widely serve a very big part of all types of data center markets.”
Where adoption of Nvidia’s EGX edge computing platform stands today, and expectations for 2021.
“[We’re] still in its early stages [in terms of] creating the edge computing that we will see that links together branch banking, or links together metropolises that are trying to run their cities better. You will also see things out [on] the edge, as they create data centers to deal with the autonomous vehicles that are on the road.”
“So, the overall need is definitely there. The overall ability to run this on the edge and complete all of the inferencing and training that is needed for many of those applications is a need.”
“We're in the early stages. We have many EGX individual servers and/or SuperPODs being created to address many of those markets. But we're still in the ramp of building that [business]. And yes, 2021 [sales] will be bigger than what we're seeing today.
Demand trends for Nvidia’s Automotive segment, and when the company expects volume ramps for design wins involving its Drive ADAS/autonomous driving platform.
Kress: “So right now, what we are seeing is one we're seeing a return of the automotive manufacturing lines in terms of producing cars...That actually was an additional surprise to us for Q3 as [automotive sales] started to sequentially increase.”
“Our AI cockpit design wins are building in more and more models, across more and more different providers. We are still in pilots [for Nvidia’s Drive platform], and continuing to work on an overall [autonomous vehicle] solution. We have an overall pipeline of, let's say, about a $10 billion opportunity. And those [design wins] will begin shipping in calendar 2022.”
TheStreet’s Eric Jhonsa previously covered Nvidia’s earnings report and call through a live blog.