Nvidia cuts cryptocurrency profits out of the equation
Crypto miner demand is directly tied to cryptocurrency prices, so Nvidia also got burnt by the crash.
Cryptocurrency has given Nvidia a sizable earnings boost, with sales to cryptocurrency miners accounting for as much as 10% of the chip maker's profits in the previous fiscal quarter. This wasn't all good news and Nvidia found itself torn between its core customers and seemingly bottomless demand from miners.
There was no ready solution for the company, except to boost production to better keep up with miner demand, or grit one's teeth and hope it passes quickly. Choosing the former means diverting resources into what might be a fleetingly unprofitable area with little future demand. Choosing the latter means upsetting one's core customers, especially if cryptocurrency demand doesn't wane.
Nvidia chose the former. But cryptocurrency miner demand is directly correlated to cryptocurrency prices, so by choosing to invest in miners as customers, it also exposed itself to the unpredictable rises and falls of crypto prices themselves.
Like other crypto hardware manufacturers, Nvidia then got fiscally whiplashed by the ongoing market slump that's run throughout 2018.
Based on previous sales, Nvidia had forecast cryptocurrency chip sales for the fiscal second quarter ending 29 July, of about US$100 million. Instead, it ended up reporting revenue of only US$18 million from the area. Nvidia share prices dropped by 5% in after-hours trading following the report.
Next quarter, Nvidia isn't even thinking about it one way or another.
"We benefited in the last several quarters from an unusual lift from crypto," Nvidia CEO Jensen Huang said on a conference call with analysts, "but at this time, we consider it to be immaterial for the second half."
It might be a sensible move. Even if cryptocurrency prices do pick up again, Nvidia probably isn't leaving too much money on the table by instead focusing on its core markets like gamers and non-crypto data centres. The cryptocurrency mining industry has gotten increasingly crowded, while curveballs like anti-ASIC forks, changing mining algorithms, the rise of alternative non-PoW consensus mechanisms and the sheer unpredictability of cryptocurrency in general, mean it's a headache even for the most dedicated operators.
For a casual entrant like Nvidia, it might well be more trouble than it's worth. Plus, even back in January an investment in the space seemed to be dubious and the gaming card shortage looked like a problem that would solve itself.
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA