Nvidia Exceeds Estimates: Earnings Live Blog

Eric Jhonsa

Chipmaker Nvidia NVDA handily beat revenue and earnings estimates for the October quarter (fiscal third quarter) on Wednesday, reporting sales of $4.73 billion (up 57% year over year) and non-GAAP EPS of $2.91 (up 63%). That compares to consensus estimates among analysts polled by FactSet for revenue of $4.42 billion and non-GAAP EPS of $2.58. 

Nvidia also said it expects January quarter revenue of $4.8 billion, plus or minus 2%, which is above the $4.4 billion consensus estimate. “Nvidia is firing on all cylinders, achieving record revenues in Gaming, Data Center and overall,” said Jensen Huang, founder and CEO of Nvidia, in a statement.

TheStreet and RealMoney’s tech columnist, Eric Jhonsa, is analyzing the company's earnings report, as well as the call with analysts that's scheduled to begin at 5:00 p.m. ET.

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Eric Jhonsa
Eric Jhonsa

Editor

Nvidia's call has ended. Shares are down 2.9% after hours to $521.49 after Nvidia, which was up 128% on the year going into earnings, beat October quarter estimates and issued above-consensus January quarter sales guidance.

Gaming segment revenue rose 37% annually, aided by both PC gaming GPU and console processor strength. Data Center segment revenue, benefiting from strong hyperscaler demand and the Mellanox acquisition, rose 162%.

Shares slipped a bit during the earnings call, as Nvidia forecast that Mellanox's revenue would see a "meaningful" sequential decline in the January quarter due to the end of shipments to a major Chinese OEM (quite possibly Huawei). On the flip side, the company indicated other Data Center segment sales would be up Q/Q, as would (in spite of seasonality and supply constraints) Gaming segment revenue.

Thanks for joining us.

Eric Jhonsa
Eric Jhonsa

Editor

Huang with some closing remarks. Says Nvidia had a terrific quarter and is "firing on all cylinders." Goes over recent product launches and AI-related milestones. Calls data centers "the unit of computing" going forward, and reiterates his enthusiasm for the pending Arm deal.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether Nvidia plans to launch an Ampere-based successor to the Turing-based T4, and which other Ampere SKUs are on the way.

Huang: We've probably launched "a third to a half" of all the Ampere SKUs we plan to launch, and perhaps less. We haven't yet launched Ampere-based laptops, and there will be more Ampere-based data center solutions (in addition to the A100).

Eric Jhonsa
Eric Jhonsa

Editor

Question about what Mellanox's April quarter growth will look like, and whether Huawei was the OEM that's impacting FQ3/FQ4 sales.

Kress reiterates it was a Chinese OEM, but doesn't give a name. Says Nvidia is taking Mellanox revenue guidance a quarter at a time.

Huang says he expects all future data centers will feature high-speed networking, with all traffic encrypted. Asserts Mellanox is "in the early innings" of growth.

Eric Jhonsa
Eric Jhonsa

Editor

Another question about Mellanox. What kind of growth does Nvidia expect going forward? Also, when will Mellanox's DPU sales inflect?

Huang: Long-term, every computer in the world will be built like a data center, and every data center node will be built like a data center itself. This increases the value proposition of DPUs that can offload security functions and thus reduce the attack surface for servers. We think 20%-40% of cloud data center CPU resources are consumed by overhead tasks, and DPUs can offload them. We think every server will one day have a DPU in it. I'm very excited about this business.

Eric Jhonsa
Eric Jhonsa

Editor

Question about whether core (non-Mellanox) Data Center revenue is being affected by customer digestion.

Huang: Our revenue is more affected by manufacturing constraints and the availability of supply. We would appreciate shorter cycle times and more agile supply chains. But the world is constrained at the moment.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Mellanox's recent growth. What are the biggest drivers of it? And when will the ramp for Mellanox's (recently-announced) 400G InfiniBand products take off?

Huang: Data Center GPU sales aren't influenced much by product digestion at customers. They're being driven by new product launches, new workloads, etc. Networking (Mellanox) sales are more tied to CPUs. Disaggregation of workloads across a number of data center server nodes increasing the importance of high-speed networking, and Mellanox's products are the best. Enterprise CPU launch cycles can affect the timing of Mellanox's sales.

That last comment could be a reference to Intel's pending Ice Lake server CPU launches and AMD's pending Milan launches, both of which are expected to see enterprise shipments ramp in the first half of 2021.

Eric Jhonsa
Eric Jhonsa

Editor

Question about competition from internally-designed AI silicon from cloud giants (e.g., Amazon's Inferentia, Google's TPUs).

Huang: The vast majority of the world's AI models are doubling in size in a matter of months. The vast majority of the world's inference is still done on CPUs. Companies are still figuring out that they should be doing inference on accelerators, and we have a very competitive end-to-end stack for it. We're ramping quite nicely at Google, Amazon, Microsoft, Alibaba and others. We think cloud AI deployments are our largest growth opportunity near-term.

Eric Jhonsa
Eric Jhonsa

Editor

Question about how much Nvidia's FQ4 revenue and opex seeing a boost from an extra week, and what seasonality will look like afterwards.

Kress: The extra week will likely benefit revenue, but it's tough to quantify. Gaming and Data Center revenue could see a boost from it, but maybe not as much as the extra days would suggest. Opex will likely be "relatively flattish" from FQ4 to FQ1.

Eric Jhonsa
Eric Jhonsa

Editor

Question about Gaming and Data Center visibility into the April quarter.

Huang: We have a lot of channel inventory visibility for gaming GPUs. We've had a very successful Ampere gaming GPU launch. It took our second-gen ray-tracing/DLSS offerings to really deliver the performance that gamers wanted. This is going to be a very strong product cycle. The A100 has also seen a great reception. Has seen major cloud adoption, and we're now ramping into enterprises.

Eric Jhonsa
Eric Jhonsa

Editor

Follow-up question about what Nvidia can do to drive greater on-premise adoption of its offerings.

Huang: The shift to remote work due to COVID is a near-term headwind here. But we're seeing great adoption in some verticals such as healthcare and manufacturing. Robotics are a growth area.

Eric Jhonsa
Eric Jhonsa

Editor

Jensen Huang: Inference demand continues growing. The "technology pressure" here is enormous as AI models keep growing in size. Both the A100 and our inference initiatives are doing great.

Eric Jhonsa
Eric Jhonsa

Editor

First question is about Mellanox. Looks like you're guiding for FQ4 Mellanox revenue of ~$500M, which suggests the rest of the Data Center business is still growing. Do you feel non-Mellanox Data Center sales are affected by macro pressures or cloud digestion?

Kress: Non-Mellanox Data Center revenue is expected to be up Q/Q. Mellanox will be down meaningfully Q/Q, but is still expected to be up ~30% Y/Y. Hyperscaler demand remains extremely strong. A100 and T4 demand are both very good.

Eric Jhonsa
Eric Jhonsa

Editor

Shares are now down 3% after hours (the FQ4 Mellanox and Data Center guidance appear to be weighing). The Q&A session is starting.

Eric Jhonsa
Eric Jhonsa

Editor

Kress: Gaming revenue is expected to be up Q/Q in FQ4, in spite of seasonal pressures. Data Center is expected to be down slightly Q/Q.

Auto and ProVis are expected to be up Q/Q, while OEM & Other is expected to see a seasonal Q/Q decline.

Eric Jhonsa
Eric Jhonsa

Editor

Kress going over Nvidia's efforts with Mellanox to offer data processing units (DPUs) that combine networking and CPU offload functions, with the help of Arm CPU cores and in some cases a GPU. Also highlights the recent unveiling of Mellanox's 400G InfiniBand offerings, which are due to start sampling in Q2 2021.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia's stock has slipped a bit during the call: Shares are now down 1.9% after hours.

Eric Jhonsa
Eric Jhonsa

Editor

Regarding Mellanox, Kress notes FQ3 sales benefited from shipments to a Chinese OEM (possibly Huawei) that aren't expected to recur. As a result, Mellanox sales are expected to see a "meaningful" sequential decline" in FQ4.

Eric Jhonsa
Eric Jhonsa

Editor

Kress: Nvidia products (GPUs and/or networking) are within close to 70% of supercomputers on the latest Top500 supercomputer list.

Eric Jhonsa
Eric Jhonsa

Editor

Record sales were also recorded for Nvidia's smaller/less costly T4 GPU, which is often used for inference workloads.

Eric Jhonsa
Eric Jhonsa

Editor

Notes the very strong numbers the A100 put up when running inference tests involving the popular MLPerf benchmarks.

Eric Jhonsa
Eric Jhonsa

Editor

Kress going over recent Data Center partnerships and customer wins, including ones related to supercomputer deployments and vaccine research.

Eric Jhonsa
Eric Jhonsa

Editor

Also notes that (in addition to strong cloud demand) A100 sales ramped among traditional enterprises ("vertical industries" clients), aided by DGX A100 server sales.

Eric Jhonsa
Eric Jhonsa

Editor

Kress: Data Center revenue benefited from the A100 server GPU ramp, strong Mellanox demand, and record inference-related sales.

Eric Jhonsa
Eric Jhonsa

Editor

Automotive revenue benefited Q/Q from auto plants resuming production, and from sales involving "AI cockpit" solutions (for example, Mercedes' MBUX system). On a Y/Y basis, sales were hurt by the ramp-down of what Nvidia calls "legacy" infotainment processor solutions.

Eric Jhonsa
Eric Jhonsa

Editor

Kress: The initial response for Nvidia's Omniverse collaboration platform for content creators has been "phenomenal."

Eric Jhonsa
Eric Jhonsa

Editor

Regarding pro visualization, Kress says notebook workstation GPU demand was strong, while desktop workstations were softer. Strength in certain verticals such as healthcare.

Eric Jhonsa
Eric Jhonsa

Editor

Kress also notes Amazon and Facebook's recently-announced cloud gaming services are powered by Nvidia GPUs.

Eric Jhonsa
Eric Jhonsa

Editor

There are now 5M users for the GeForce Now cloud gaming service.

Eric Jhonsa
Eric Jhonsa

Editor

Kress: Nvidia's sales for gaming laptops saw double-digit growth again, and the company saw record console processor sales.

Eric Jhonsa
Eric Jhonsa

Editor

Says demand exceeded expectations, and that it "may take a few more months" for RTX 3000 supplies to match demand.

Eric Jhonsa
Eric Jhonsa

Editor

Kress going over the recent RTX 3000 GPU launches. Calls demand for them "overwhelming" (retailers would probably agree).

Eric Jhonsa
Eric Jhonsa

Editor

Kress: There's "excellent" demand for Ampere GPUs across product lines.

Eric Jhonsa
Eric Jhonsa

Editor

Kress is now talking.

Eric Jhonsa
Eric Jhonsa

Editor

IR chief Simona Jankowski is going over Nvidia's safe-harbor statement.

As usual, CEO Jensen Huang and CFO Colette Kress are on the call. Typically, Kress shares prepared remarks, after which both Kress and Huang field questions from analysts.

Eric Jhonsa
Eric Jhonsa

Editor

The call is starting.

Eric Jhonsa
Eric Jhonsa

Editor

The call should be starting in a couple of minutes. Here's the webcast link:

Eric Jhonsa
Eric Jhonsa

Editor

Worth keeping an eye out for during the call: Any comments shared about the impact supply chain constraints/product shortages had on either FQ3 sales or FQ4 guidance. Like a lot of other gaming hardware, the RTX 3000 series (manufactured by Samsung) remains sold out at retail, and wafer supplies remain tight at TSMC, which makes most of Nvidia's other GPUs.

Eric Jhonsa
Eric Jhonsa

Editor

Providing a bit of a boost to EPS: Nvidia's non-GAAP tax rate was just 5.9%, below guidance of 7-9%. January quarter tax rate guidance is also at 7-9%.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia ended its October quarter with $10.1B in cash and close to $7B in debt.

$806M worth of free cash flow was generated during the quarter, while $2B was sent to Softbank as part of the Arm deal.

Eric Jhonsa
Eric Jhonsa

Editor

As a reminder, Nvidia's call starts at 5PM ET. I'll be around to cover.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia's quarterly revenue trend. Gaming revenue just eclipsed a 2018 quarterly high (set back when Nvidia was seeing a lot of demand from cryptocurrency miners) of $1.81B.

Eric Jhonsa
Eric Jhonsa

Editor

Due to both organic spending growth and Mellanox, Nvidia's non-GAAP operating expenses rose 42% Y/Y to $1.1B, which is near guidance of $1.09B.

On a GAAP basis, opex was up 58% to $1.56B. That number includes $100M worth of expenses related to the Mellanox deal and the pending Arm deal.

Eric Jhonsa
Eric Jhonsa

Editor

Inventories totaled $1.49B at the end of FQ3, up $90M Q/Q. But with revenue growing strongly, days sales outstanding fell by 3 to 77.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia notes Mellanox (part of the Data Center segment) accounted for 13% of its revenue, a figure that implies quarterly revenue of ~$614M.

For comparison, Mellanox reported Q3 2019 revenue of $335.3M last year.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia's FQ3 performance by segment. Gaming benefited from strong consumer demand, including for the Nvidia-powered Nintendo Switch, and the RTX 3000 launches. Data Center is benefiting from the A100 server GPU ramp and large AI training and inference investments by cloud giants.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia is also guiding for a 65.5% January quarter GM, plus or minus 0.5%.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia's non-GAAP gross margin was 65.5% -- down 0.5 points Q/Q, up 1.4 points Y/Y and in-line with guidance.

Eric Jhonsa
Eric Jhonsa

Editor

The company notes the strong performance of the OEM & Other segment, which among things covers non-gaming PC GPUs and Jetson embedded computing boards, was driven by strong demand for entry-level notebook GPUs.

Eric Jhonsa
Eric Jhonsa

Editor

Nvidia: "COVID-19 continues to affect our business in both positive and negative ways, although there is uncertainty around their duration and impact. Our Gaming and Data Center market platforms have benefited from stronger demand as people continue to work, learn, and play from home. In Professional Visualization, stronger demand for mobile workstations due to work-from-home trends was partially offset by lower demand for desktop workstations. In Automotive, customers’ production volumes have largely returned to pre-COVID levels. In our supply chain, stronger demand globally has limited the availability of capacity and components."


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