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Nvidia Sales Forecast Signals Game Chip Inventory Is Easing

Ian King

(Bloomberg) -- Nvidia Corp. gave a forecast for the current period that showed makers of gaming computers are beginning to order graphics chips again after working their way through an inventory buildup.

Revenue will be about $2.55 billion this quarter, plus or minus 2%, the Santa Clara, California-based company said in a statement late Thursday. That compares with an average analyst estimate of $2.53 billion. The stock jumped as much as 7.4% in extended trading, but pared almost all of the gains after Chief Financial Officer Colette Kress said on a conference call that the outlook for the server market had worsened since the beginning of the quarter. She said the market is hard to predict and Nvidia didn’t update its annual forecast.

Nvidia Chief Executive Officer Jensen Huang is trying to return his company to the growth it showed over the last five years, when revenue more than doubled. To deliver that, he needs Nvidia’s main business -- the graphics chips used in gamer PCs -- to emerge from under a pile of inventory that’s held back new orders. In data centers, where Nvidia’s chips have begun to play an increasing role in artificial intelligence computing, Huang is looking for large companies such as Alphabet Inc.’s Google and Amazon.com Inc.’s AWS to return to expanding their infrastructure spending.

Nvidia offered a cautious outlook for server demand because those big customers, known as hyperscale, have taken what Huang called a pause in spending. He thinks those customers will begin investing again soon.

“The hyperscalers built too much capacity last year,” he said in an interview. “The amount of computation that the world needs is going to go up. The fundamentals of our data-center business are fantastic.”

Net income was $394 million, or 64 cents a share, in the quarter ended April 28, compared with $1.24 billion, or $1.98 a share, in the period a year earlier. Sales declined 31% year-over-year to $2.22 billion. Analysts, on average, had estimated profit of 56 cents a share on sales of $2.2 billion.

Revenue in the quarter gained 1% from the prior period.

Nvidia’s run of consecutive revenue gains, which started in 2014, ended in the fourth quarter. Demand for graphics chips used by cryptocurrency miners dried up after the digital-coin market plunged. The resulting excess inventory caused a slowing of orders of the chips that are more typically used by PC gamers to get the most realistic video.

Huang said three months ago that the first quarter would be the bottom for inventory. The stock increased 20% this year to $160.19 at Thursday’s close.

In data centers, other chipmakers including Intel Corp., have posted weaker earnings and pointed to lackluster spending by cloud providers who are taking a pause after pouring money into new gear last year.

Nvidia’s revenue from data centers declined again in the fiscal first quarter, shrinking 10% to $634 million from a year earlier. Gaming revenue was $1.06 billion, a decline of 39% from the same period a year ago, but a gain of 11% from the preceding quarter.

(Updates with comments from CEO in the fifth paragraph.)

--With assistance from Karen Lin.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Andrew Pollack, Alistair Barr

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