At this moment, the latest quarterly reports of the three brothers Intel, NVIDIA Corp and AMD have been released. Intel takes the lead and NVIDIA Corp finishes. Due to the high base caused by the hot market last year, there has been a double decline in revenue and net profit this year.

However, the share prices of the three companies have deviated significantly this year. AMD has risen 60% this year, while NVIDIA Corp has only risen 12%, and has not yet outperformed the Nasdaq. Intel is even worse, with negative gains this year.

Shares in NVIDIA Corp jumped 5.59 per cent in after-hours trading after the latest earnings report. Generally speaking, the focus of this financial report is"Financial report foresight | NVIDIA Corp's last financial report was" too humiliating ", this time it is about Lao Huang's face."It has been mentioned in this article, the specific quality of the financial report, let's further explore.

Brief introduction of Q2 Financial report

Interpretation of NVIDIA Corp's last financial reportNVIDIA Corp's Financial report interpretation: return to 2017 or Dream back to 2018? "In one article, our original view was that "I am afraid this financial report is sorry for your market capitalization of hundreds of billions of dollars", which may be a little harsh.But there is one thing to be clear first. Huang Renxun is a master of "expectation management". Don't think that the financial results are good when EPS exceeds expectations.

• NVIDIA Corp's Q2 revenue was 2.579 billion US dollars, down 17% from the same period last year and up 16% from the previous month.
  

• GAAP's net profit was $552 million, down 50% from a year earlier and up 40% from a month earlier.

• Non-GAAP 's net profit was $762 million, down 37% from a year earlier and up 40% from a month earlier.

• GAAP's gross profit margin was 59.8%, down 3.5pcts from the same period last year and up 1.4pcts from the previous month.

In terms of business, only data center business and professional visualization business have not picked up this quarter. In NVIDIA Corp's game business, which accounts for the highest share of revenue, Q2 revenue declined at a slower rate than the same period last year, up 24.5 per cent from the previous month. The best-performing car business was the only year-on-year increase in revenue.

In terms of gross profit margin, when AMD and Intel stabilized one after another, NVIDIA Corp also caught up. Q2 GAAP gross profit margin of 59.8%, down 3.5pcts, month-on-month increase in 1.4pcts, basically on a par with Intel. To some extent, the improvement of gross margin is inseparable from the collapse of DRAM prices on the cost side of raw materials.

What is also interesting is that NVIDIA Corp's inventory dropped 15.6% month-on-month and declined for two consecutive quarters. Inventory details disclosed in the financial report showed that raw materials decreased by 41% month-on-month, in products by 15%, and finished products by 12%. Inevitably reminiscent of the latest RTX Super and GTX16 series graphics cards, once again sigh the accuracy of the old yellow knife.

It is expected that the data center business is weak.

As the only company with only GPU data center business among the three giants of CPU/GPU, NVIDIA Corp has natural hidden dangers similar to Intel, but does not have the appeal of Intel data center business.Therefore, we think that NVIDIA Corp may not only buy Mellanox for the sake of product diversification, but also learn from Intel to create a data ecology.

Back to the data center business level, as expected this quarter, NVIDIA Corp and Intel data center revenue declined again. Yesterday's Lenovo financial report made us feel that NVIDIA Corp had already pinched a sweat. Lenovo, a downstream data center customer, saw its data center revenue fall 17% in its latest quarter.

Data source: company financial report

In that case, AMD's data center business is really "the hope of the whole village". However, while AMD data center business revenue continued to grow, GPU data center revenue also declined compared with the previous month, while NVIDIA Corp data center (GPU) revenue also increased by 3.3%. It shows that the pot is not NVIDIA Corp, and the pot should be carried by the recession of the industry.

Automobile business and Switch contribute to the outbreak of Tegra

NVIDIA Corp's Tegra business revenue fell 55% year-on-year and 12% month-on-month in the last financial quarter. Q2 now reports that Tegra's revenue is $475 million, up 1.7% from a year earlier (previous value-55.2%)A month-on-month increase of 140%! Revenue reached an all-time high in a single quarter.

Before"the share price of Nintendo soared, and NVIDIA Corp collected money silently."According to the article, Switch is the only remaining game console among the three console manufacturers that uses NVIDIA Corp's SoC. According to Nintendo's latest filing in FCC in the United States, both Switch and Switch Lite have replaced NVIDIA Corp's SoC model and NAND storage model. The new Tegra SoC carried by Switch achieved an increase in month-on-month income. But the exact contribution to performance is unknown.

In the future, we are optimistic about Tegra SoC's performance at the Nintendo Switch shipping peak (Q3 and Q4 Christmas season). In addition to Switch, the explosion of Q2 Tegra performance is also directly related to the automotive business.

NVIDIA Corp's auto business surpassed expectations this quarter, with revenue of $209 million, an increase of 29.81% over the same period last year, and a month-on-month increase of 25.9%, an all-time high. In view of the sharp decline in Intel's Mobileye revenue growth rate in Q2 compared with the same period last year, NVIDIA Corp's automobile business surpassed Mobileye again after six quarters. According to the financial report, such a good performance is largely inseparable from the cooperation agreements signed by NVIDIA Corp with Volvo, Toyota and other automakers.

RTX helps the game business pick up slightly

Finally, let's take a look at NVIDIA Corp's core business-- game business. NVIDIA Corp's Q2 game business had revenue of $1.313 billion, down 27.26 per cent from a year earlier and up 24.46 per cent from a month earlier. Mainly due to the outstanding performance of RTX and GTX16 series of new products. According to Steam's July hardware statistics, Nvidia's market share remains unchanged from June, remaining at a high of 75.53%.

However, the market share of specific graphics cards has changed greatly. There has been a big decline in the GTX10 series, and GTX1060, which ranks first in market share, has dropped 0.66pct. It is worth noting that RTX products still maintain steady growth, GTX16 series of new products market response is also good. The space for replacement of graphics cards in the game market is still huge.

In addition, the collapse in the price of raw material DRAM may be helpful to improve gross profit. DRAM manufacturers' revenue fell another 9% month-on-month in the second quarter of 2019, and the price decline is expected to continue. The video memory of the new RTX Super series has not been improved, and Yingwei has less pressure to reach this end.

In short, according to the financial report, the notebook graphics card market is NVIDIA Corp considerable growth point. At the same time, we believe that the future growth point of PC is also in the notebook market. The Max-Q technology tailored by NVIDIA Corp for notebooks has greatly narrowed the performance gap of graphics cards between notebooks and desktops and has a broad market space.

Summary

On the whole, in addition to the better-than-expected performance of the automobile business, the recovery of the game business is also remarkable. But I was disappointed after reading the Q3 guidelines given by the company.

在NVIDIA Corp's Financial report interpretation: return to 2017 or Dream back to 2018? "We optimistically assume that the month-on-month growth rate in the second half of fiscal year 2020 is consistent with that in fiscal year 2018. Full-year revenue fell 5% year-on-year, close to the company's goal of flat revenue for the full year.

However, the company's Q3 guidance was $2.9 billion in revenue, up 12.4% from a month earlier (probably a common trick of Lao Huang), below our forecast of 18.2%. So even if Q4 grows by 10.4% month-on-month, full-year revenue will fall by 7%, moving further away from being flat. And it is almost impossible for Q4 to grow by 10.4% month-on-month, because last year's performance was at its best.(FY19Q1)It barely achieved $3.2 billion in revenue in a single quarter.

Unless the game business and data center business strengthen at the same time, we think that NVIDIA Corp's annual revenue will decline by more than 10 points compared with the same period last year.