What’s Behind NVIDIA’s Q2 2023 Revenue Losses? – XR today

Jensen Huang, CEO and President of NVIDIAreportedly took a significant pay cut after his company missed its financial sales targets in its second-quarter earnings report.

According to media reports, he received compensation worth $21.4 million, down 10% from the previous year.

The company released Huang’s earnings in its 2023 annual report. However, he added that NVIDIA had not offered Huang his full payment due to the shortfall.

Huang bagged a financial package that included a base salary of $996,216 and $19.666 million in stock. He also received an additional $693,710 in compensation for life insurance, travel, security and the like.

Although continued losses have hurt NVIDIA’s earnings, the company is expected to become the biggest chipmaker, Reuters reported in February. It comes as Intel reportedly continues to struggle in the chip manufacturing market, leading to widespread layoffs and resource cuts.

NVIDIA Q2 Revenue Report Figures

As of February 22, NVIDIA reported quarterly revenue of $6.05 billion, down a massive 21% from the prior period last year. Revenue for the year was also flat compared to last year at US$27 billion.

Additionally, its quarterly and annual returns to company shareholders peaked at US$1.15 billion and US$10.44 billion, respectively.

Diluted earnings per share under generally accepted accounting principles (GAAP) also fell 52% from a year earlier, totaling $0.57. Non-GAAP earnings per diluted share also fell 33% to $0.88.

In a statement, Huang hailed his company’s adoption of artificial intelligence (AI). He said it was at an inflection point, leading to its widespread adoption across industries.

He continued,

We are ready to help customers take advantage of breakthroughs in generative AI and large language models. Our new AI supercomputer, with H100 and its Transformer Engine and Quantum-2 network structure, is in full production

However, Huang cited the post-pandemic downturn as the reason for plummeting sales figures. Despite this, gamers had enthusiastically embraced the firm’s Ada architecture graphics processing units (GPUs).

The new devices take advantage of NVIDIA’s artificial intelligence neural rendering technologies, resulting in significantly faster processing times.

He explained,

Fiscal 2023 was a challenging year, with macroeconomic headwinds, channel inventory corrections, COVID-19, and product architecture transitions impacting many of our businesses. As a result, our fiscal 2023 revenue and non-GAAP operating income performance did not meet the pre-established CC (Compensation Committees) targets for executive compensation.

However, the company called on shareholders to vote for its 2023 executive compensation plans, adding,

As we enter fiscal 2024, we expect to see new product architectures on the rise, along with new opportunities in areas such as generative AI and language models, Nvidia cloud services, and scanning.

Thoughts on NVIDIA’s Q2 2022 Revenue

The news comes after NVIDIA’s second quarter 2022 results sparked fears of mass layoffs.

The report echoed market sentiments amid waves of layoffs at Meta Platforms, Microsoft, Amazon and other tech giants from August to November last year.

Increased competition from rival Advanced Micro Systems (AMD) also reflected concerns from NVIDIA’s second quarter 2022 earnings reports and the current 2023 annual report.

Huang also stressed that the company does not plan to lay off customers and will increase its efforts to retain talent.

In a note sent to Business Insider, he said at the time: So what does this mean for us? Do we have a layoff? No. Instead, we’ve given raises to take care of your families, because you’re all facing skyrocketing inflation.

Brief analysis of NVIDIA’s challenges

Demond Cureton, senior reporter for XR Todayanalyzing the events surrounding NVIDIA’s latest earnings reports.

NVIDIA has created clear distinctions in its promoted technologies, namely the adoption of generative AI technologies and its industry metaverse solutions. Following its NVIDIA GTC event, the company unveiled its CloudXR 4.0 technologies and announced several strategic partnerships.

In July last year, NVIDIA also partnered with Siemens to realize use cases for smart factories, digital twins, and blockchain-based verification systems. Many of these solutions are based on the Omniverse solution, which coordinates and hosts metaverse technologies for enterprise customers.

According to a recent Q2 report, Siemens recorded impressive margin increases and all-time highs for digital industries and smart infrastructure. Orders received by the company topped 23.6 billion and revenue jumped 15% to 19.4 billion from 17 billion in the second quarter of last year.

Roland Busch, President and CEO, Siemens AGsaid in a statement that the company has reached unprecedented heights for its digital industries and smart infrastructure technologies.

He added: Our very strong results show that we have the right strategy, the right technology and the right team to help our customers become more competitive, resilient and sustainable.

Siemens recently partnered with NVIDIA at a FREYR battery factory in Norway to showcase its industrial metaverse technologies. Using digital twins, the two companies launched a state-of-the-art platform to monitor and automate plant operations. The two revealed their partnership at the Hannover Messe show last month.

NVIDIA struggles in the GPU market

However, on NVIDIA’s side, Huang told investors in his report that the company faced a tough 2022.

He further explained,

Our business has been impacted by economic headwinds, geopolitical tensions and a product supply chain that has moved from severe shortage to excess. NVIDIANs have risen to meet every challenge while inventing new technologies and capabilities that put us at the center of the most exciting opportunities in computing history.

Rampant inflation in many developed countries, including the United States, United Kingdom and European Union, has caused headwinds in the economy of many businesses. Additionally, the energy crises of the ongoing Russian-Ukrainian war have exacerbated the difficulties of many companies.

However, NVIDIA also faces a set of side issues: falling demand in the cryptocurrency market. The company’s RTX graphics processing units (GPUs) have fallen due to greater instability between cryptocurrencies.

Further crackdowns from the U.S. Securities and Exchange Commission (SEC) and other global agencies and the risks associated with bitcoin mining and use have further depressed demand.

Potentially, with reduced demand for cryptocurrency mining, the main cause of GPU shortages, NVIDIA could seek new revenue streams.

This is likely to target the burgeoning industrial metaverse, as indicated by Siemens’ successes and ongoing generative AI technologies; the main focus of its GTC event in April.

CloudXR to the rescue?

NVIDIA explained that it will focus on developing its latest CloudXR iteration for enterprises. CloudXR 4.0 aims to facilitate XR streaming anywhere in the world, leading to instant low-latency connectivity to remotely stored content. It would also improve resolutions, frame rates and field of view (FoV).

Greg Jones, Director of Global Business Development and Product Management, NVIDIAtold XR Today in April that his company has seen a fundamental trend in streaming services for XR headsets.

He explained at the time,

For graphics processing, these lightweight devices may lack power and resources relative to memory for graphics workloads that support the experiences users want. This is especially true in enterprise use cases where digital models tend to be very large and is likely true for consumer use cases where photorealism is a big driver.

Streamlining solutions could lead the company to potential gains in global markets as companies adopt industrial metaverse systems to improve their operations. It would also improve interoperability and take advantage of 5G edge networks by moving more processing resources to the cloud.

For companies using architecture, engineering, and construction (AEC) tools, these solutions are essential for remote collaboration and real-time model prototyping. Scaling application program interfaces (APIs) would support scalability over the next few years, he concluded.

This indicates that CloudXR would remain a longer-term source of revenue, driving steady subscription streams from customers. Mobile devices and headsets would eventually benefit as metaverse companies grow and take advantage of NVIDIA and competing solutions.

Despite NVIDIA’s current pay cut, I believe the company can overcome the ongoing challenges with a solid long-term strategy. This will diversify its sources of income and ultimately build the industrial metaverse.