Nvidia is known for its bet on cutting edge graphics chips — the kind designed to power a gamer-led metaverse. But a front row to the virtual universe cannot shield it from some very real world problems.
The US company — whose $334bn market value makes it the world’s second most valuable semiconductor maker after Taiwan’s TSMC — has found itself caught out by the increasingly fractious relationship between the US and China.
The White House wants to make it harder for Beijing to obtain advanced semiconductor technology. This week it ordered Nvidia to stop selling two of its top computing chips to companies in China. Nvidia warned that the new licensing requirements could cost it as much as $400mn in lost sales for the current quarter.
A 12 per cent drop in Nvidia’s share price suggests investors believe the losses will increase if Washington moves to widen the scope of its export ban. China is one of Nvidia’s biggest markets. The country accounted for $7.1bn in revenue, or 26 per cent of the group total, last year.
Nvidia cannot easily source alternative markets for its chips. The pandemic triggered a surge in demand for PCs, video game consoles and other electronic devices that Nvidia’s chips power. But consumers are now cutting back on discretionary spending. Sales of tech devices and chip demand have both retrenched.
At Nvidia’s all-important gaming business, which makes graphics processors used in PC gaming, sales fell by a third during the second quarter. Demand is not expected to rebound anytime soon.
It is not alone. Global semiconductor revenue is expected to grow just 7.4 per cent in 2022 and will contract 2.5 per cent in 2023, according to research group Gartner.
But a temporary lull in the chip cycle may not be Nvidia’s biggest worry. The White House’s determination to create a homegrown chip sector has encouraged Beijing to funnel more resources into building up its own domestic chipmakers and suppliers. The desire for self-sufficiency on both sides could change the global chip market for good.