Have you ever wondered how AMD’s ATI acquisition and the battle for the mainstream customer in the CPU and GPU markets would impact Nvidia? We did and spent some time with the company to learn about how the company perceives its challenges and opportunities in a rapidly changing graphics market. Will Nvidia be squeezed out of the GPU market or grow even stronger than it is today?

Despite preceding rumors, AMD stunned the IT world in July of last year when it announced that it would acquire ATI for $5.4 billion . Today, the merger is completed and AMD is dealing with the aftershocks of the merger. While we know that AMD will leverage the acquisition to develop products that will allow the company to eventually escape the trap of being a just-CPU manufacturer, to better compete with Intel on a platform level and to create unique products that can differentiate it from its rival, the times have changed.

AMD’s stock price is in the dumpster, a cut-throat price war with Intel has erased profit margins in the desktop and 2P server segment, which was once a key market that has brought tons of cash into AMD. Revenue growth apparently only happens in the mobile and 4P+ server market, while AMD suffers margins in the desktop and 2P server mass-markets in order to keep its market shares.

But this battle between AMD and Intel involves another company: Nvidia. The fact that AMD has swallowed ATI and already confirmed that it will expand its chipset business and keep the discrete graphics cards business, indicates that AMD will aggressively go after the mainstream graphics market. We expect to see the heat increasing around the integrated graphics, in a confrontation that potentially could split the low-end and mainstream graphics market between the dominant CPU manufacturers AMD and Intel.

This scenario raises several questions for Nvidia: How will this battle be impacting the graphics market overall? Is Nvidia strong enough to survive two CPU manufacturers that are going after the lion’s share of the graphics market? Will Nvidia end up as an acquisition target? Will it retreat into a niche like Matrox, the once dominant graphics supplier of the mid-90s? Or is there an opportunity for Nvidia to outpace AMD and Intel?

A look at shipment data and the financials of AMD and Nvidia reveals some interesting details that suggest that dramatic shifts in the graphics industry are happening.  

Nvidia never has looked stronger in shipments than it has in Q4 of 2006. According to Jon Peddie Research, Nvidia held a 53.8% in the discrete desktop graphics market (31.0% including integrated graphics chipsets (IGCs)) and 59.1% in the discrete mobile graphics segment (22.9% including IGCs.) According to Peddie, ATI only trumps Nvidia in mobile IGCs. Overall, the market research firm estimates Nvidia’s current market share at 28.5% and ATI’s at 23.0%.

On the financial side, AMD’s Q4 revenues were just under $1.8 billion with losses amounting to $574 million (which however, were almost completely a result of acquisition resulted-charges). The company already announced that it will miss its revenue target for Q1 2007, which will mean that AMD may not be able to report a profit. Investors are very cautious these days with the AMD stock, which currently hovers around $13, 32% below the price when the ATI acquisition was announced ($19.10) and 63% below its 52-week high ($35.75). AMD currently has about $1.6 billion in the bank and a market capitalization of about $7.2 billion (at market close on March 27, 2007.)

Nvidia, on the other side, most recently reported record quarter revenues of $820 million with profits of about $107 million. The stock price is currently at about $29, up about 62% from the price on the day of the AMD/ATI merger announcement, but down about 26% from its 52-week high of $38.96. Nvidia has about $741 million in cash available and has a current market capitalization of $10.36 billion (at market close on March 27, 2007.)

Clearly, Nvidia is looking great today. But will it last? What does the AMD/ATI merger mean for Nvidia in the long run?

We were curious to find out more about Nvidia’s view of the situation and sat down with Rob Csongor, vice of corporate marketing at Nvidia.
Join us on the next two pages in a chat about market dynamics, where Nvidia sees growth opportunities, an AMD that suddenly is also a competitor, a new relationship with Intel – and products such as AMD’s Fusion. (Note: Unfortunately, we recorded this interview before Intel’s announcement of a CPU that integrates graphics and aren’t making references to that in this interview.)