Performance lead in desktop graphics may shift towards Nvidia

Chicago (IL) - Nvidia deeply impressed industry and media with the launch of its 6-series graphic chips. Experts argue that Nvidia's new GPU's might be the beginning of a trend which puts the company slightly ahead of ATI.

Being loyal is most likely not the primary virtue of users who prefer only the fastest graphic chip in their computers. Over the past decade, you had to switch firms at a considerable pace to stay on top of the game. Market leaders tended to loose sight of their competition, be often outrun and ultimately disappeared.

Looking at the early 1990s, Cirrus Logic was the first to stumble. Then, S3 and Western Digital were outpaced by ATI. After Nvidia took the performance and sales lead from ATI, ATI restructured and has been coming back strong since the introduction of the R200 - otherwise known as the Radeon 8 series chips - in mid 2001.

Some analysts however believe that Nvidia might turn the corner to its favor and grab the performance crown back again from ATI. The recently introduced GeForce 6800 might shift the lead. "I think it is highly possible," says Jon Peddie, President of Jon Peddie Research. "[The 6800] is a super-computer on a chip. It has 38 32-bit floating point processors, all of them accessible and programmable, as well as scalar and vector processors."

In terms of technological advance, Peddie expects ATI to improve its graphic chips on an equal level, however believes that Nvidia will stay in front: "ATI's new product new part is also going to be quite powerful, although Nvidia is now the leader with Shader Model 3.0 implementation."

In an economic perspective, ATI and Nvidia are running a close race. While the companies were structured quite different in 2001, both firms now display similar results on their balance sheets.

Stagnating PC sales, competition from ATI and Intel as well as manufacturing problems and also a good portion of overvaluation contributed to Nvidia's decrease in market capitalization from $6.7 billion in mid 2001 to today 3.88 billion. Earnings in comparable quarters decreased in the same timeframe from $34 million to $24 million on revenues of $500 million and $472 million (fiscal Q4/2002 and Q4/2004), respectively.

ATI on the other side was able to catch up from a weaker financial position: It increased its market capitalization from $1.9 billion to $3.96 billion in the same timeframe. Revenues climbed from $266 million to $463 million, earnings are up from $18 million to now at $47 million (fiscal Q2/2002 and Q2/2004). ATI also was able to improve its cash position from about $100 million to $470 million, while Nvidia's available cash decreased from about $700 million to $604 million.

Looking back to 2001, ATI and Nvidia could not have been more different in market positioning, strategy and product families. "Today, ATI and Nvidia look remarkably alike," said Shane Rau, analyst with IDC. According to Rau, both companies have extended their products into similar markets and do not only offer discreet graphics cards - which they have been primarily known for a long time - but also deliver integrated chipsets, mobile and handheld chips as well as products for digital consumer devices such as game consoles.

ATI also has been eating away market share from Nvidia in the desktop graphic board market. Today, Nvidia roughly commands 60 percent of the market, ATI 40 percent with anticipation to take the lead. The total graphics market is lead by Intel with 31.7 percent, followed by ATI posting 25.2 percent and Nvidia with 24.7 percent, according to numbers published by Jon Peddie Research.

One year ago Nvidia still delivered 32 percent of the chips, ATI only 19 percent (Intel: 28 percent). According to Rau, a major success for ATI to increase its market share was to introduce new products just in time for new products such as PCs. This allowed the company to secure design wins it could not reach before.

Peddie however believes that Nvidia is better positioned to react to market changes - such as the current one. "In terms of consistent innovative introductions in the desktop graphics area Nvidia has been the leader. ATI leaped ahead with their last part, but Nvidia had a five year run of new innovations leading the industry. ATI was going through a massive reorganization during some of that time and got things in place for the R300 series - the part speaks for itself."

Even if the technology advance might shift to the favor of Nvidia again, Peddie and Rau agree, that substantial differences in technology resulting in better market positioning cannot be expected, unless "one company makes a major mistake and fails to consistently update its technology every six months."

According to HardOCP, ATI will launch its new R420, likely to be named Radeon X800 Pro, on April 26 with a ship date on May 5, followed by the R423 (Radeon 880XT) on May 31.

Jon Peddie believes that Nvidia will gain back market shares despite ATI's new products. "They still have a very loyal fan and customer base who want to see them succeed." Nvidia will pick up "some market share" with the new GeForce chips until both companies come out with their PCI Express versions, he said. Later on, Nvidia may very well be seen as the more expensive solution for PCI Express.

Apart from the fact, that neither ATI nor Nvidia wants the other company to survive, Peddie believes that the currently balanced market is a healthy environment. Asked, if the market can carry ATI as well as Nvidia, Peddie replied: "Hell yes, it can carry three." The last thing consumers would want is another Microsoft or Intel, he said. "In CPUs we have one dominate supplier three very second suppliers, and a few fourth tier. In Software it's even worse. Has this been good for the industry?"