Chavi Mehta, Jane Lanhee Lee

(Reuters) -chip designer Nvidia Corp (NASDAQ:) Corp foresaw a decline in its videogame chips sales during the current quarter and surprised some analysts when it outlined new supply-chain problems resulting from China’s COVID-19 lockdowns.

Jensen Huang, Nvidia Chief Executive said to Reuters that Nvidia will see a decrease in gaming revenues by 5% for this quarter compared to last quarter.

Huang indicated that “all in all the gaming market has slowed down.” Nvidia is reducing its China sales due to the weaker market demand. He said that Nvidia also takes a hit in Russia, and has a slower sell-through in Europe.

Nvidia shares plunged 6.7% in extended trades, despite Nvidia’s earnings and first-quarter revenue exceeding analyst forecasts. Due to concerns about aggressive U.S. Federal Reserve interest rate hikes, the shares have fallen 40% this year.

Inflation worries are becoming more widespread in the United States as people weigh their purchases of electronic devices like video games consoles and laptops.

Nvidia predicted second-quarter revenues of $8.10 Billion, plus/minus 2%. According to IBES data, Refinitiv found that analysts expected an average of $8.45 billion in second-quarter revenue. This was minus 2%. The lower forecast also included a reduction of approximately $500 million related to Russia and COVID lockdowns. Colette Kress, Chief Financial Officer, stated that the figure of $500 million included approximately $400 million in lost gaming revenue in China and Russia and an additional $100 million in lost data center sales to Russia.

Kress informed analysts during the earnings call that China’s COVID locksdowns had an impact on logistics and were also affecting consumer spending.

Senior portfolio manager for Synovus Trust (NYSE:) Trust Dan Morgan said that it was strange that a company which had mastered the supply challenges so successfully, suddenly ran into a bump.

Summit Insights Group Analyst Kinngai Chau said nearly every tech company that missed its outlook was to blame Russia-Ukraine conflict, and China’s COVID lockingdowns. He expected Nvidia to face more downturns going forward.

A different analyst seemed more positive.

Logan Purk, an analyst at Edward Jones stated that “the pullback after hours” is a response to geopolitical events beyond the control of the company, and not a weakening market environment. Purk also pointed out the fall in Nvidia’s share price.

According to experts, Nvidia’s gaming business will likely be hit by higher inflation and lower graphics chip prices.

The cryptocurrency market’s downturn also affected demand for Nvidia’s graphics processing units. These are highly valued by cryptocurrency miners. Kress (CFO) stated in Wednesday’s statement that Nvidia experienced a 52% decline in its “OEM & Other Revenue” category over the past year, due to decreased revenue from cryptocurrency mining processors.

As more companies shift to cloud computing and integrate artificial intelligence into their business operations, the demand for data centers clients has remained strong. Kress stated that the increase in automotive sales and gaming will be offset by this shift. Record revenue of data centers was recorded at $3.75Billion in the first quarter, an increase of 83% over last year. Record gaming revenues of $3.62B were also recorded in the first quarter, up 31% from last year.

For the May quarter, revenue rose 46% to record $8.29 Billion. The company’s earnings were $1.36 per share, surpassing estimates of $1.29