Thought Leadership
Nvidia reported record figures for Q2, but the business structure reveals a problematic customer concentration.
With a market capitalization of around 4.2 trillion dollars, Nvidia is currently the most valuable company in the world. In the second financial quarter, the company increased its turnover by 56 percent to 41.1 billion dollars – a new record.
Extreme dependence on individual customers
The SEC documents show that only two direct customers are responsible for 39% of total revenue. Customer A contributed 23% and customer B a further 16%. Both are attributed to the Compute and Network division.
The company sells its products via add-in board manufacturers, distributors, OEMs and system integrators. According to Nvidia, an “AI research and deployment company” also contributes significantly to sales via various direct and indirect sales channels.
Growing concentration on a small number of partners
This customer structure is becoming more pronounced: in the first half of the year, 35 percent of revenue was already attributable to just two customers. Nvidia itself warns in its quarterly reports: “We went through periods in which a significant proportion of our revenue came from a small number of customers – this trend could continue.”
A similar picture emerges for outstanding receivables: of the 27.8 billion dollars owed to Nvidia by customers at the end of the quarter, 56 percent is attributable to three direct customers (23, 19 and 14 percent).
USA and Asia dominate geographically
Nvidia’s direct business is heavily concentrated regionally: the USA accounts for half of all sales, followed by Singapore (22%) and Taiwan (18%). China accounts for six percent, all other regions together only four percent.
The gross margin is 73 percent – this means that for every 100 dollars in sales, there is a gross profit of 73 dollars. Despite the record results, Nvidia shares fell by four percent after the presentation of the figures.
