Nvidia Pricing Spine-o-meter: 3 of 5 Vertebrae

英伟达 , a fabless chip and software company focused on accelerated computing, had a challenging quarter ending 30 October 2022.?Revenue declined 17% to $5.9 billion and EBIT declined 78% to $0.6 billion.?

What led to the poor performance??According to management earnings call held on 16 November 2022, temporary exogenous factors but they would prefer to not focus upon. Management sentiment is the past is past, let's discuss the strategy to capitalize on secular industry trends.

Nvidia has business units focused on Gaming, Data Center, Professional Visualization, Auto, and OEM & Other.?

The Gaming business unit declined 51% over same quarter last year.?According to CFO Colette Kress , gaming suffered a temporary challenge in inventory (too much in the channel) and reduced demand in China due to COVID lockdowns.?Forward-looking, the Nvidia Ada Lovelace GPU architecture sold out quickly in many locations indicating future demand will be robust.

The Data Center business unit grew 31% over same quarter last year despite “macroeconomic challenges, new export controls and lingering supply chain disruptions” according to CFO Colette Kress.?Growth is driven by the demand for cloud computing and AI solutions.?

The Professional Visualization business unit declined 65% over same quarter last year.?While management expects this sector to improve and added significant customer brands, it appears they are tempering expectations on the timeline for strong results in this sector.

And the Auto business unit grew 86% over same quarter last year driven by an increase in demand for AI automotive solutions.

Overall, Nvidia’s strategy is based on the hypothesis that Moore’s law is dead and Amahdal’s law is reigns. A not so subtle overture to a belief that Nvidia is the future and Intel is the past.?Removing the jargon, the technical approach to making computing faster and cheaper for the past 50 years by making circuits smaller is reaching limits set by the rules of quantum mechanics and thermodynamics, and a new approach, the one Nvidia is using, is required to keep progressing.??

Given my science background, I found Nvidia’s claim very appealing. (My PhD is in quantum mechanics and thermodynamics.)

Given my business background, I know Intel and others won’t idly sit on the sidelines.?(My MBA is in corporate strategy and marketing.)?This industry is characterized by what D’Aveni would term "Hypercompetition", and no one should count their chickens before they hatch.?

Volatility in revenue and earnings is the norm for companies in high-growth and semiconductor industries.?Nvidia recent quarter’s results show they too are subject to this volatility.?As to their future, it is a gamble on their management team and the belief that their hypothesis regarding industry trends and market strategy is correct.?

And while I greatly enjoyed the name-dropping of a plethora of business brand names, the interjection of specific products and their market reception indicators, and the overall clarity by which CEO Jensen Huang related evolving customer and industry needs to market strategy in their earning’s call, management statements were uninformative regarding Nvidia’s pricing capability.

Research into the quality of Nvidia’s pricing team indicated a positive state of affairs.?Pricing professionals were found in sales price controller, analyst, data scientist, manager, and director roles. Pricing was an important part of the responsibilities of product managers, salespeople, business development managers, and business unit managers or vice presidents.

At Nvidia, pricing itself can be identified as a core capability.?

Given the importance and capability of pricing at Nvidia as indicated in financial reports, management comments, and our pricing team research, and given their recent business performance, we have come to the following conclusion as of January 2023.

Nvidia Pricing Spine-o-meter:?3 out of 5 vertebrae.

NVDA (Nvidia Inc.) rose slightly from 163 on the day prior to their earnings call to 166 roughly one month later. 2022 revenue of $26.9 B with a 37% operating margin and P/E ratio near 68.

Contact Wiglaf Pricing for your Pricing Spine-o-meter(TM) to benchmark against competitors and discover where your pricing practices can be improved.?