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Wall Street’s eyes will be on chip maker Nvidia (NVDA) when it announces its Q4 2019 earnings on Feb. 14. The Santa Clara, California-based company has hit quite a rough patch over recent quarters, and in January revealed that it was slashing its Q4 revenue estimates from $2.7 billion down to $2.2 billion for the quarter.
The cut comes as China’s economy begins to slow and as consumers become more hesitant about discretionary spending — putting a damper on graphics card sales.
Key data points for the company will be the number of graphics processing units (GPUs) sold, the health of its data center business, and its overall performance in China, where it has major exposure. And based on its guidance update, none of those numbers will look very pretty.
China, data centers and crypto
Nvidia, named Yahoo Finance’s company of the year in 2016, faces troubles in China, where the ongoing trade war with the U.S. has added to a slowed economy and cut into consumer discretionary spending.
China is one of the Nvidia’s largest markets, bringing in $704 million in revenue in Q3 2019. That’s surpassed only by Taiwan, which captured $929 million in revenue, and the nebulous Other Asia Pacific, which brought in $742 million.
With fewer gamers purchasing GPUs in general due to a lack of games that take advantage of the Nvidia’s new RTX graphics chips and the slowing economy taking money out of consumers’ pockets, China’s gamers could have a major impact on Nvidia’s Q4 earnings.
Data center sales, which accounted for $792 million in revenue during Nvidia’s third quarter, are also expected to take a hit in Q4. In his shareholder letter, Huang explained that global economic trends lead to customers holding off on closing data center deals in the last month of the quarter.
Finally, Nvidia is also still dealing with the fallout from the cryptocurrency bubble bursting. With prices of currencies like bitcoin plunging over the past year, fewer consumers have been purchasing the graphics cards they originally sought to create mining computers.
The backlog of inventory meant Nvidia held off on pushing out newer graphics cards, which cut into potential sales of the updated products. It’s not just a lack of interest hurting crypto-related sales, either. Dedicated application specific integrated circuits or ASICs, have proven to be better mining machines for cryptocurrency than the general purpose graphics cards that Nvidia produces, resulting in fewer sales for the chipmaker.
Gamers are waiting on buying new cards
While Nvidia has made a turn into the artificial intelligence and machine learning businesses in recent years, the company still relies primarily on gaming for the lion’s share of its revenue.