& # 39; Crypto hangover & # 39; Hammer Nvidia's view, shares fall 17 percent

(Reuters) – Chip Designer Nvidia Corp. NVDA.O ) on Thursday's forecast disappointing sales for the holiday quarter, straining the blame on unsold chips that collects distributors and dealers after evaporation of the cryptocycle mining bomb.

Santa Clara, California-based company, also posted sales as lost expectations for the third quarter. Shares dropped almost 17 percent in late trading to $ 168.32.

For decades, Nvidia has provided playing cards to increase computer graphics, but in recent years, cryptocurrency miners have adopted the company's cards to make bets to riches.

CEO Jensen Huang said the prices of Nvidia's playing cards had risen with the crypto watch unit, and drove some buyers away. As the frenzy was reduced and short-term prices fell, Nvidia expected sales volume to grow again when buyers who were priced out came back.

But this process was slower than Nvidia expected, says Huang, saying he expects inventories to be at normal levels by the end of this quarter.

"Crypto hangover lasted longer than we expected," Huang said at a conference call. "We thought we had done a better job of managing the crypto dynamics," he added later.

As a result, Nvidia stopped delivering some of its medium sized chips to retailers, where they stacked up in the warehouses and slopes of the stores. The company said that reserves for inventories expanded more than five times in the third quarter to $ 70 million and that the same provision had more than tripled for the first nine months of the fiscal year to 124 million dollars.

The inventory provisions reduced Nvidia's gross margin by 1.8 percentage points in the quarter to 60.4 per cent, although margins continued to increase from 59.5 per cent the year before. The margins were also held down by $ 57 million in costs related to their previous generations of chips following the sharp decline in cryptocurrency mining demand.

Nvidia also said that revenue from personal computer makers declined by almost 40 percent due to lower demand for GPU products targeted for use in crypto-currency mining.

Nvidia said turnover in the quarter is expected to be $ 2.7 billion, plus or minus 2 percent, well below analysts' average estimate of $ 3.40 billion, according to IBES data from Refinitiv.

Kinngai Chan, analyst at Summit Insights Group, said the problem was that stockpiles of Nvidia's older game chips, based on a technology called Pascal, rose even though the demand for new chips released in August was weaker than expected. Chan also said that demand was vaguely for Nvidia's chips in data centers, where they are often used for artificial intelligence, such as teaching computers to recognize images.

"But we are also surprised at the under- $ 3 billion outlook" for the fourth quarter, Chan said.

Trade conflict between the United States and China may also weigh on Nvidia, analysts said. Tariffs on many Chinese goods will rise to 25 percent from January 1.

"Nvidia's construction of inventory indicates that the escalating tariffs have begun to crush manufacturers," analysts at Investing.com, Haris Anwar said.

In an interview with Reuters, Huang said that tariffs were not "a factor", and that the decline from the crypto exchange rate was the only reason for stockbuilding.

Last year, the competitor Advanced Micro Devices Inc. ( AMD.O ) owed a weaker demand for chip from the crypto mine for its lower than expected fourth quarter forecast. AMD's shares fell 7 percent after Nvidia sent results after the market stopped Thursday. Shares of chipmaker Micron Technology Inc ( MU.O ), which sells the memory of Nvidia for their playing cards, dropped 3.3 percent in late trading.

Income from Nvidia's closely monitored data center chip business increased 58 percent to $ 792 million, but lost the analyst's estimate of $ 820.4 million, according to FactSet.

The company operates cloud computing services from customers including Amazon.com Incs ( AMZN.O ) Amazon Web Services, Microsoft Corps ( MSFT.O ) Azure and Alphabet Inc ( GOOGL.O ) Google Cloud.

During the investor announcement, analysts noted that these companies seem to slow down their overall spending on data centers. Huang told Reuters that specific applications for Nvidia's chips, such as machine learning, were still expanding.

"Our overall penetration of the world's data centers is still relatively small," Huang said. Nvidia's net income rose to $ 1.23 billion, or $ 1.97 per share, in the third quarter ended 28 October, from $ 838 million, or $ 1.33 per share, the year before.

Excluding items, Nvidia achieved $ 1.84 per share. Total revenue increased by 20.7 percent to $ 3.18 billion.

Analysts had averaged revenue of 3.24 billion dollars on average.