NVDA inventory

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#1

When something happens with one of the companies I am following unexpectedly, I try and go back and see if I could have seen it coming.

A question was asked on the previous conference call (2Q) about inventory,

Matt Ramsay

Thank you very much. Colette, I had a couple of questions about inventory, the first of which is, I understand you’ve launched a new product set in ProViz, and the Datacenter business is obviously ramping really strongly. But, if you look at the balance sheet, I think the inventory level is up by mid-30% sequentially and you’re guiding revenue up 3% or so. Maybe you could help us sort of walk through the contributions of that inventory and what it might mean for future products? And secondly, if you could talk a little bit about the gaming channel, in terms of inventory, how things are looking in the channel, as you guys see it, during this period of product transition? Thank you.

Colette Kress

Sure. Thanks for your questions. So, when you look at our inventory on the balance sheet, I think it’s generally consistent with what you have seen over the last several months in terms of what we will be bringing to market. Turing is an extremely important piece of architecture, and as you know, it will be with us for some time. So, I think the inventory balance is getting ready for that. And don’t forget, our work in terms of Datacenter and what we have for Volta is also a very, very complex computer in some cases in terms of what we have also in terms of there. So, just those things together, plus our Pascal architecture is still here, makes up almost all of what we have there in terms of inventory.

Jensen Huang

Matt, on the channel inventory side, we see inventory in the lower end of our stack. And that inventory is well-positioned for back-to-school and the building season that’s coming up on Q3. And so, I feel pretty good about that. The rest of our product launches and the ramp-up of Turing is going really well. And so, I think the rest of the announcements we haven’t made, but stay tuned. The RTX family is going to be a real game-changer for us. And the reinvention of computer graphics altogether has been embraced by so many developers. We’re going to see some really exciting stuff this year.

No mention of inventory issues from crypto. Jensen even says “on the channel inventory side, we see inventory on the lower end of our stack”.

And now from this quarterly conference call:

I’m curious, Jen-Hsun, what needs to happen to work down this midrange Pascal inventory? Is it pricing? Is it something else? Because the thinking was that this could be cleared within the October quarter, but it hasn’t. Do you think people were waiting for Turing to come out and maybe that created some kind of pause? And then as part of – part B of that question, maybe Colette, how should we think about seasonality in the April quarter given that you mentioned it could take 1 or 2 quarters to work down this inventory?

Jen-Hsun Huang

Yes, well, we came into Q3 with excess channel inventory post the crypto hangover. We expected the pricing in the marketplace to decline and decline slower than we expected and – but while it was declining, we were expecting sales volume to grow, demand to grow and for pricing to be – for volume to be elastic with pricing. I think it just took longer than – the pricing took longer than we expected, and the volume increase took longer than we expected. At this point, most of the pricing has come down to its – and slightly below its prelaunch levels. And so I’m hoping that – I’m hopeful that now that pricing has stabilized, that customers will come back and buy. I guess when pricing is volatile in the channel, it probably freezes some people waiting for prices to stabilize, and that took longer than we expected frankly. But now that it’s at the right levels, our expectation is that the market will return to normal. 1060 is the #1 selling graphics card in the world, and we decided not to sell anymore into the channel for the upcoming quarter to get the channel an opportunity to sell through the inventory it has. And so we’ll keep our eyes on it, but our expectation is that inventory levels will come back to normal by the end of the quarter.

So last quarter when asked about inventory Jensen says “on the channel inventory side, we see inventory on the lower end of our stack”.

And this quarter when asked about inventory Jensen says “we came into Q3 with excess channel inventory post the crypto hangover”

Looks like he either mis-spoke or mis-led last quarter. Either way not good.

Jim

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#2

So last quarter when asked about inventory Jensen says “on the channel inventory side, we see inventory on the lower end of our stack”.

And this quarter when asked about inventory Jensen says “we came into Q3 with excess channel inventory post the crypto hangover”

Good catch, Jimbo.

Matt
Long NVDA

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#3

We expected the pricing in the marketplace to decline and decline slower than we expected and – but while it was declining, we were expecting sales volume to grow, demand to grow and for pricing to be – for volume to be elastic with pricing. I think it just took longer than – the pricing took longer than we expected, and the volume increase took longer than we expected. At this point, most of the pricing has come down to its – and slightly below its prelaunch levels. And so I’m hoping that – I’m hopeful that now that pricing has stabilized, that customers will come back and buy.

Reread that about 4-5 times, and you get more irritated and less confident in mgmt each time. I remember this part of the CC very clearly, and it was not a good feeling.

When times are great, it is a big party and it is ok to be loose with the specifics and tout the future. When you are going into the worst collapse since I have been watching NVDA (maybe late 2015?) you should know it is therefore the most important CC of the past few years and you should be prepared accordingly.

Your responses should be crisp, clear, concise, and well-prepared. The above just sounds like someone winging their way thru an answer. I honestly wonder if Huang just got too used to being a rockstar and a beloved company the past 3 years. Colette may or may not be competent (she sure didn’t get the inventory forecast right) but she doesn’t inspire confidence on the call either.

It was a trainwreck and a bit disheartening because it could have been managed so much better, starting with the Q2 CC.

That is probably last thing I will say on NVDA outside of touting cool stuff they will/are still doing from time to time, and that will most likely be on NPI as off-topic.

Turning the page on this one.

Dreamer

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#4

So last quarter when asked about inventory Jensen says “on the channel inventory side, we see inventory on the lower end of our stack”.

What he meant was there is inventory of lower end NVDA gaming GPUs. Not low inventory. Inventory #s are give in 10Q and people would have called him out.

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#5

One more reason to not stick around:

Nvidia: I’m Surprised That You’re Surprised $NVDA
https://seekingalpha.com/article/4222840

In a case of do as I do, not as I say, we are presented with CEO Huang. Huang has rarely sold above $10 million worth of his company’s stock. In fact, the only other time that he did so, was in August and November 2007. In August 2007 he sold $30 million worth of stock and in November 2007 he sold another $15 million. With the benefit of hindsight, his timing was impeccable as the stock would not return to those heights for approximately another 8 years. Now, more recently in September 2017 CEO Huang has started once again selling large amounts of Nvidia stock, worth $18 million. Wise investors, should at least, pause and consider, whether, in time, Huang would prove to be prescient this time around too?

8 Likes
#6

When times are great, it is a big party and it is ok to be loose with the specifics and tout the future. When you are going into the worst collapse since I have been watching NVDA (maybe late 2015?) you should know it is therefore the most important CC of the past few years and you should be prepared accordingly.

Your responses should be crisp, clear, concise, and well-prepared. The above just sounds like someone winging their way thru an answer. I honestly wonder if Huang just got too used to being a rockstar and a beloved company the past 3 years. Colette may or may not be competent (she sure didn’t get the inventory forecast right) but she doesn’t inspire confidence on the call either.

It was a trainwreck and a bit disheartening because it could have been managed so much better, starting with the Q2 CC.
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That “feeling” right there is why I dumped more than half my shares as quickly as I could. I’ve never been that hasty before, but for my largest holding, I felt less than zero confidence… I actually almost sold it all, but another part of me reminded myself that I’d already made enough profit to cover more than that >half already, and it would be good to keep holding “some.”

I also can’t believe how unprepared it seemed to be. If they really did just completely miss the numbers, that’s worse than just not being prepared to speak about it. But either case undermines their credibility.

I wouldn’t be surprised to see a new CFO come along after this kind of a tumble…