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 NVIDIA (NYSE:NVDA) is the only publicly traded company that focuses exclusively on graphics chips. About 80% of the company’s graphics chips go into PCs, with the rest split between servers, handheld devices, and video game consoles. NVIDIA’s primary competitors are AMD and Intel, and NVIDIA and AMD each focus on building graphics chips for high-end products. NVIDIA's long term growth is most threatened by competitors offering platforms that combine several chips using a central processing unit (CPU), operating system, and graphics processing unit (GPU). As a result, the growth of platforms is a major threat to NVIDIA’s core business. Intel released its Centrino platform for notebooks and AMD has a similar platform called Puma. But NVIDIA has tried to get in the game as well, building a platform for netbooks (aka Mobile Internet Devices) known as Tegra which competes head to head with Intel’s Atom platform.[1] However, NVIDIA is at a severe disadvantage to competitors AMD and Intel who have been developing an array of different chips for years, making the transition to platforms far more natural for them. NVIDIA sells the vast majority of its chips to companies that make computers. It is dependent on a small number of these companies as NVIDIA's two top customers account for 25% of the company’s revenue, with its largest customer being Asustek (12% of revenue). NVIDIA and AMD share leadership in the graphics market, and this makes it difficult for NVIDIA to sign many long term contracts. However, NVIDIA does have one major deal with Sony to provide the graphics chips for its PS3 consoles. [2]
[edit] Business Overview[edit] Technology/ProductsNVIDIA produces chips and software that allow a computer to display complex moving images (for example movement in 3 dimensions). The following are the four main product segments along with their primary products: Graphics Processing Unit (GPU): - 62% of revenue in 2007
Consumer Products Business (CPB): - 6% of revenue in 2007
Professional Solutions Business (PSB): - 14% of revenue in 2007
Media and Communications Processor Business (MCP): - 17% of revenue in 2007
NVIDIA also creates customized parts in conjunction with other companies. These are sometimes integrated into the hardware of other companies, and sometimes allowed to stand alone. A customized chip is used in Sony’s next generation game console PS3. NVIDIA chips are used in Intel and AMD products as well. Revenue growth drivers:
[edit] CustomersMore than 80% of NVIDIA’s earnings come from the PC market. Additionally, more than a 25% of NVIDIA’s earnings come from just two of its top customers, its largest being Asustek (12% of revenue). [5] NVIDIA’s market is not just the North American continent; with the expansion of computers and computer gaming, its market includes much of the developing world as well. About 78% of revenues come from Asia, with the largest markets being in Taiwan and China at 31% each. The United States only accounts for 8% of the company's revenue.
[edit] Trends and Forces[edit] Over 80% of Sales Come Fom the PC MarketNVIDIA gets over 80% of its sales from the PC market. NVIDIA is highly dependent on its PC customers, two of which make up 25% of the company's revenues.[7] The commoditization of PCs is one trend that could help gain even more business for NVIDIA. As PC makers try to differentiate themselves they have tried offering graphics chips as standard rather than a costly upgrade. As PC's become more advanced the market for high end graphics could grow as well especially if OEMs are making these chips standard parts. [edit] Evolving Video Game Graphics Means Business for NVIDIAThe video game industry is characterized by its evolving technology and its intense competition, primarily between Sony, Microsoft, and Nintendo. The trend in the industry seemed to be going towards better graphics and more complex gameplay, but the innovative approach of the Wii now puts that trend into question. The Wii does not have incredible graphics, but rather focuses on interesting and widely appealing gameplay. The Wii has out sold both the PS3 and Xbox 360 as of March 2008 - Wii = 24.5M, PS3 = 13M, Xbox 360 = 19M.[8] NVIDIA provides the graphics chip from the PS3 which had a focus on delivering very high level graphics, but so far sales for the PS3 have been lower than expected. A shift in the industry towards a Wii ideology could be potentially detrimental to NVIDIA's involvement in the industry. However, if Microsoft and Sony continue to go after better performance and more realistic graphics in their next generation consoles, then NVIDIA will benefit from that trend. [edit] NVIDIA is Set to Capitalize on the Growing Handheld Device MarketIn early 2007, NVIDIA acquired PortalPlayer which makes graphics chips for handheld devices. By gaining PortalPlayer's expertise in this field, NVIDIA gains the capability to offer graphic chips for devices like the iPod and PDA's. Mobile phones and handheld devices are becoming increasingly interactive and offering more multimedia functions. These higher priced devices can afford to price in the cost of NVIDIA's high quality chips, as customers are willing to pay more for their advanced functionality.[9] On June 2, 2008 NVIDIA released its Tegra line of processors. The Tegra is the first single chip computer in the world and will compete directly with Intel's line of Atom processors.[10] The Tegra is designed for handheld devices and mobile internet devices (MID, a.k.a. netbook), and it is about 10x more energy efficient than the competition due to its single chip architecture. A mobile internet device that uses Intel's Atom processor would use about 12 watts of power, while the Tegra would only use 1.3 watts.[11] [edit] Short Product Cycles Creates Opportunities for Gains and LossesCompetitive advantages in a field as fast moving as graphics processing are tenuous and very short lived. A graphics chip product cycle here can last less than a year. Historically, NVIDIA and AMD/ATI have traded the lead in the high graphics market, often in the same year. Gamers and high end computer users are fickle and will jump to whoever wins the latest benchmarks. The huge R&D investments made by these companies makes it nearly impossible to consistently make the best chip year in and year out. However, loss of technology leadership means loss of competitive advantage for NVIDIA, and leads to drastically lower margins through lower revenues and increased R&D spending to catch up. NVIDIA has weathered multiple graphics chip generations and a crippling technology boom and bust cycle. It has emerged triumphant where a long list of competitors (3dfx, Matrox, S3, Creative) have left the industry or gone out of business because they could not keep up with product cycles or compete on price point.[12] To stay on the cutting edge, R&D accounted for 17% of revenues in 2007. In addition, about 65% of the NVIDIA's employees work in the R&D department.[13] [edit] CompetitionNVIDIA’s biggest competition is presently AMD which acquired NVIDIA’s old competitor ATI, the only other graphics company that also puts out high-end graphics chips. They also compete with Intel in the on-board and mobile video markets. NVIDIA has had the upper hand on AMD/ATI over the past few years. The company won such high profile contracts as Sony's Playstation 3, and has stayed on top in the technology race with it's GeForce line of graphics cards. By winning performance benchmark reviews, NVIDIA has gained market share as gamers and video gurus demand the best performance - leading to computer hardware OEMs choosing NVIDIA over AMD for their flagship models. [edit] Threat from PlatformsA potential advantage AMD and Intel have over NVIDIA is the ability to offer platforms. Platforms bundle some combination of chips doing different functions, for example, a central processing unit (CPU), operating system, or graphics proccessing unit (GPU). By bundling a graphics chip into the platform, Intel or AMD can offer its product in a more cost efficient and convenient way while at the same time eliminating the need to buy a seperate graphics chip. This is a major threat to NVIDIA as its core business is to simply sell graphics chips. Intel's Centrino platform for notebooks has been quite successful because it offers a complete CPU, chipset, and wireless interface in one set of products. AMD has a notebook platform called Puma that is similar to Intel's platform, except has superior graphics capability. NVIDIA has released its Tegra platform which is a single chip computer (rather than the traditionally multi chip approach) aimed at handheld devices and mobile internet devices. The Tegra will compete directly with Intel's Atom platform. NVIDIA does not have a platform for PC's, but the Tegra is a step in that direction. However, even though NVIDIA has developed a platform, up until the Tegra NVIDIA has only developed graphics chips. AMD and Intel on the other hand have been developing an array of different types of chips for years, making their transition to platforms far more natural. In the graphics chips world, NVIDIA's Major competitors are Intel and AMD (which recently acquired ATI).
Competition is more more defined according to the ability to stay ahead of new technologies and being able to secure partnerships with other firms in the computer industry.
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