Analyst Opinion - I’m not a big fan of public wars between companies. They tend to focus the firm on their competitor rather than their customers and these fights also tend to get people to do stupid things and miss big opportunities. For instance, if Apple had been focused on going to war with Microsoft at the end of the 90s they likely would have missed the iPod, which actually saved the company. By taking the war with Microsoft off the table it potentially opened the firm to an incredibly lucrative additional opportunity.
Last week NVIDIA’s CEO made clear what many of us had known for some time. There was a war brewing between Intel and NVIDIA that Intel actually started by creating Larrabee. Many had thought the more likely war would be between AMD and NVIDIA once AMD bought ATI, but that sure isn’t what we are seeing now. Apparently, AMD and Nvidia are getting along relatively well right now and both look at Intel as their major problem. In effect, Larrabee is driving NVIDIA and AMD back together as partners.
I believe these folks should all be focused on the big problem of relatively boring products and customer disinterest, which is pulling down the entire segment. With market and economic outlooks trending negative, I’d be trying to get folks together to address these problems rather than focus everyone on attacking each other.
Having said that let’s look at how these companies stand up against each other.
Intel is viewed as a platform owner while NVIDIA is not. While AMD clearly can come close to matching Intel in terms of total product coverage, they don’t have the market share that would let them own any of the related platforms. We call the PC platform Wintel for a reason, but that doesn’t mean Intel is invulnerable.
Like any entrenched and dominant player Intel is hard to beat on their home turf. Intel actually is a major player in graphics even though, for the most part, Intel graphics haven’t been that great (and that is an understatement). In fact, the class action litigation that Microsoft is experiencing right now probably wouldn’t exist if Intel graphics had been stronger.
NVIDIA knows graphics: They are the dominant player in this segment of the PC market. The graphics market cycles faster than the processor market and Nvidia has proven to be a capable and powerful competitor in their segment. Currently you get a better performance bump for your PC by buying a more powerful graphics card then you do by buying a faster processor and this has worked to NVIDIA’s advantage.
With initiatives like CUDA, focused on nontraditional PC computing areas, NVIDIA has also showcased an aptitude for looking at related opportunities, which may become vastly more powerful in the future. Nvidia maintains massive support in the PC gaming community and is currently the leader, particularly at the high end, of both the PC gaming and professional workstation graphics segments.
AMD is a blend of Intel and Nvidia. While not as strong in the processor or graphics segment as its competitors, they have a processor which NVIDIA lacks and a vastly stronger graphics technology then Intel. But they are running second in both markets and are currently trying to pull these technologies together to make something new and different. Strangely enough, they seem to be going out of their way to avoid a war with NVIDIA but are locked into an ongoing bloody war with Intel.
AMD is in transition and, if they can complete this transition, could emerge as the most aggressive in terms of total performance at any given price. But, while this transition isn’t easy, it shouldn’t force a major change in how games are written that Intel’s path is likely to require. In short, it doesn’t necessarily lock out NVIDIA and it is the lock out implied by Intel’s Larrabee that appears to have started this latest war.
Handicapping the fight
NVIDIA is well in its comfort zone, but the overall drag on computer gaming and Vista adoption is hitting the company hard these days. However, at least they are taking the least risk and have the most to gain short term, if the conditions weighing on gaming improve - or when there is a general increase in the need for graphics performance. Intel poses little short term risk to Nvidia. In the long term, Intel has a significant positional advantage, if it can change the game.
The CPU builder is attempting to change the graphics game significantly and turn the market into a dramatically different direction. If they can pull it off, the result would be devastating to both NVIDIA and AMD, both of which are on different paths. But Intel has a bad track record with graphics, Microsoft support hasn’t yet emerged (and may not emerge), and the result isn’t due until 2010. In addition, Intel has yet to demonstrate the level of competence in this area needed to take out firms that have dominated the performance areas of this market for years.
AMD has accepted a major risk trying to find a way to create a more cost effective high performance platform. But current performance is hampering AMD’s ability to generate the needed resources to make the moves the company needs to make in a timely fashion. They may be able to co-exist with NVIDIA and the two of them together could possibly block Intel from taking the market away from the current graphics architecture.
All will come down to whether Intel can do what they have never been able to do in the past and create a truly competitive fast moving graphics architecture, while attracting critical gaming developers to it, supported by Microsoft, and/or whether NVIDIA and AMD can cooperate enough to block Intel’s efforts.
Wrapping Up: There is no purpose in a war
In a market largely suffering from malaise and paper thin margins, I personally think that a war, regardless of who started it, is foolish. The real enemies of better margins and revenues are unexciting products that people aren’t buying. Fixing these issues would allow all of these companies to be more successful, more profitable and their customers would be much happier.
Having said that, in a graphics war, the combination of NVIDIA and AMD/ATI will be very difficult to overcome even with Microsoft’s support and Microsoft has not given that support yet (and has historically not been fond of Intel’s efforts to dramatically change existing markets), Intel’s success is a long shot.
Larrabee, to me, appears to suddenly be a bridge too far.
Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently he provides his services to most of the major technology and media companies.