Nvidia CEO names 2 big challenges after disappointing guidance

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Nvidia (NVDA) shares took a hit following the graphics card giant’s Q1 earnings on Wednesday, as the chip maker reported lighter than expected revenue projections for Q2. COVID lockdowns in China and Nvidia’s decision to stop selling products in Russia contributed to the revised guidance, CEO Jensen Huang told Yahoo Finance.

“We're still seeing quite robust demand,” Huang said. “It is the case that the China lockdown affects our sell-through in China, which is a very important market. It is the case that Russia is an important gaming market and there are a lot of gamers in Russia. And so I think those markets [have] presented us with a challenging macro backdrop.”

Gaming contributed to nearly half of Nvidia’s $8.29 billion in total revenue in Q1, topping out at $3.62 billion. The remainder came from its Data Center business, which brought in $3.75 billion, as well as its visualization and automotive efforts.

The already popular gaming industry exploded in popularity at the start of the pandemic, as consumers focused on ways to stay busy while locked in their homes.

That’s paid off handsomely for Nvidia, which has reported record gaming revenue over the last several quarters. But the supply chain crunch and chip shortage, coupled with an explosion in cryptocurrency values, pushed prices of Nvidia’s graphics cards through the roof, putting them out of reach of most consumers.

An Nvidia RTX 3070 Ti, which has a manufacturer’s suggested retail price of $599, was selling for well over $1,000 thanks to the run on available chips caused by the semiconductor shortage and crypto boom.

But supply chain improvements and the crash in crypto prices, which has sidelined cryptominers for the moment, has pushed card prices back to a more palatable range. An RTX 3070 Ti, for instance, is now available for $699. That’s above the suggested retail price, but well below its most expensive price.

“We're delighted to see the supply improve. And it's starting to normalize,” Huang said.

Still, Nvidia is expecting to see just $8.1 billion in revenue in Q2, below the $8.44 billion analysts were expecting

Both China and Russia are popular PC gaming markets, and Nvidia’s graphics cards and chips are often used in gaming PCs. With Chinese citizens unable to leave their homes to purchase or even order cards and chips, and Russia cut off from the market, Nvidia will take a $500 million revenue hit in Q2.

Still, Huang explained, demand for gaming products is incredibly strong and continues to grow even more than during the peak of the pandemic.

“Overall, gaming demand around the world, year-over-year, the sell-through is still higher than last year,” Huang said.

“Even when considering the China COVID lock downs, and not selling at all to Russia. And so the gaming market is good.”

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Got a tip? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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