After the AMD / ATI merger: Will Nvidia GeForce still compete with ATI Radeon?

Posted by Scott M. Fulton, III

Markham (Ontario) - The key reason processor producer AMD sought to merge with graphics card manufacturer ATI was to enable itself to produce a complete performance platform for mobile computers, complete with CPU, chipset, and GPU. That ATI was one of the world's two principal producers of high-performance graphics cards for OEMs and system builders was an incidental bonus, based on TG Daily's assessment of the information given it by both companies. But does this mean that after the deal is consummated over the next four months, assuming all regulatory hurdles are cleared, one of the most powerful brands in high-performance computing may gradually cede that market to its chief competitor, Nvidia?

As ATI Senior Vice President Rick Bergman told TG Daily, the answer to that question has yet to be fully determined. "We haven't made any brand decisions yet," said Bergman. "I think everybody in both companies recognizes that ATI has a powerful graphics brand. That's one of the decisions that we just haven't made: What are we going to do with the ATI Radeon graphics brand?"

In June, ATI reported that its fiscal Q3 2006 revenues were a healthy $652.3 million, reflecting a generally upward trend. But after cost of revenues and expenses were accounted for, income for the period just barely topped $27 million, after having reported a loss for the same period a year ago. ATI doesn't break down its income into divisions, so there's no way you can peer into the quarterly numbers to see how much of that revenue comes from Radeon cards, and how much from integrated graphics components - what AMD perceived to be ATI's most desirable feature.

"We're certainly not trying to drive Nvidia to Intel. We want to continue working with Nvidia, just like we have been."

Hal Speed, marketing architect, AMD

So with AMD pumping $5.4 billion into ATI, exactly how much of that investment reflects AMD's valuation of ATI's stake in the high-performance market? We asked AMD marketing architect Hal Speed. His response wasn't exactly specific. "The mainstream notebook market, as well as the broader commercial client market in desktop and notebook...was really the driving force behind this [merger]," Speed told TG Daily. "Obviously, ATI has a wealth of strength in the notebook segment, both for integrated chipsets and discrete notebook GPUs...The commercial client market is a little different than where we had traditionally been on the consumer/desktop side, so that's really been the driving force behind this."

The ATI acquisition will help AMD gain broader exposure to the lucrative commercial market. Will ATI then continue to provide AMD with exposure to the premium performance desktop market? As ATI's Bergman told us, "Our marketing teams, now that this has been launched, can start doing the market research, and discussing with customers where we go from here. But I expect you'll continue to see ATI and Radeon in the future."

The prospects for Nvidia and Intel

For now, ATI's prolonged presence in performance is an expectation, if not a certainty. What does this mean for Nvidia? With ATI already very likely to lose Intel as a customer, suddenly there appears to be an almost automatic expansion of the relationship between Intel and Nvidia. (CORRECTION 1 August 2006: Contrary to reports, ATI did not lose Intel's bus license.) Although Intel does manufacture its own integrated graphics components already, Nvidia has a powerful and trusted brand, which could conceivably resonate better with some consumers. And with no one else on Nvidia's or Intel's dance card right now, shouldn't we just cut to the chase and declare them a couple already?

"We're certainly not trying to drive Nvidia to Intel," AMD's Speed told us. "We want to continue working with Nvidia, just like we have been. They're a valuable partner for us for chipsets as well as for GPUs." But Speed acknowledged there would be direct competition between the combined company and Nvidia for discrete GPUs, though he declined to specify market segments.

"The good thing is, that's still an open standard," said Speed. "It's a PCI-Express interface, and our goal is to continue to make leading-edge performance GPU cards, and we think competition is good for the industry, and it helps advance performance, and all the consumers and your readers benefit from that."

"Nvidia's got to face reality: If they want to grow, they have to get into other markets."

Jim McGregor, editor, In-Stat Microprocessor Report

Rather than render Nvidia a de facto Intel partner, under an understood "enemy-of-my-enemy" theory, ATI public relations director Chris Evenden believes the combined company's strategy going forward is to maintain its current competitive position with Nvidia by keeping it in the loop. "Just because two companies combine doesn't mean that somehow we're going to exclude other companies from working with us on platforms, or any other part of the ecosystem," said Evenden. "We still very much want to work with Nvidia."

Customers will continue to demand choice, Evenden stated, especially with regard to how a system is constructed. So if customers want an Nvidia chip, they should have it. "We're not going to hamstring Nvidia in any way," he said. "We're going to give them exactly the same access to all the information they've had before - which, by the way, is a great deal of access. It's far more than Intel gives anyone in its ecosystem. So we expect Nvidia to carry on very strongly in that area." Nvidia did not respond to our invitation to comment for this and other stories on this topic.


Can Nvidia compete using its own platform?

"Nvidia's got to face reality: If they want to grow, they have to get into other markets," remarked Jim McGregor, editor of In-Stat's Microprocessor Report. "I doubt ATI is going to get out of offering the high-performance chipsets, so I wouldn't give the market to Nvidia just yet. But whether or not they will actually be able to garner additional revenue from Intel, I wouldn't necessarily give them that [deal] either."

"Probably the knee-jerk reaction is...Nvidia should be rushing into Intel's arms. But I don't think that's quite the case yet."

Jim McGregor, editor, In-Stat Microprocessor Report

The way McGregor sees it, there may be nothing certain that emerges from this deal for Nvidia and Intel. Just because Intel doesn't have a presence in performance graphics today, he said, doesn't mean it won't have one tomorrow, and Nvidia doesn't necessarily have to play a role in that. Intel is as interested in building new platforms as AMD; but with one consumer platform already garnering success - Centrino - Intel has already proven it can meet the demands of its ODM customers without relying on anyone else's intellectual property. In other words, it can take the dance floor on its own and still command the floor.

So Nvidia's next move with regard to Intel could depend on whether ATI appears to cede its share of the high-end market. And if ATI does that, McGregor believes, then it's cutting off its own lifeline. "It's a lot easier to dumb something down than it is to build it up," he told TG Daily. So do I think ATI's going to get out of the high-end graphics market? Absolutely not. If they do, they're worthless to AMD...just because that technology that they continue to develop is critical for them to remain competitive from a graphics standpoint. If they gave up that market, I'd say AMD wasted their money."

If Intel continues to go it alone in the platform department, it might not leave Nvidia in the cold, believes IDC semiconductor analyst Shane Rau. In a sense, he told us, Nvidia already has a platform: SLI. It's a concept that requires two or four (maybe more) Nvidia GeForce GPUs, and an Nvidia nForce chipset.

"What is the fate of Nvidia long-term?" posed Rau, beating us to the punch. "Initially, it doesn't look very good, because they're being cut out. Probably the knee-jerk reaction is, 'Oh, they've gotta find a partner, they've gotta get bought, too!' And Nvidia should be rushing into Intel's arms. But I don't think that's quite the case yet. I think there is an argument that these companies can maintain independence based on their ability to provide some independence and some third-party-based differentiation."

Rau believes that a technology platform need not necessarily be comprised of all one brand of silicon, assembled in one prescribed manner. If done properly, a platform can spell out exactly what areas a company can innovate, and still innovate with the system: case in point, the whole PC expansion bus thing to begin with. "OEMs who make the systems want to be able to differentiate," he told us. "They don't want to have all the same silicon in their system. They want to be able to differentiate on something."

"Alienware, Falcon Northwest...don't want to have the same processor, the same chipset, the same graphics, the same networking components as all the mainstream PC OEMs."

Shane Rau, semiconductor analyst, IDC

This could put Nvidia in a strangely advantageous position. Specifically, with AMD and ATI jointly going after ODM customers, responding to what they say they want - a standardized platform - Nvidia could easily go after the same customers and others, responding to something eise they say they want: choice. And for the high-end, performance, and enthusiasts' market segment, Nvidia could end up being the company that exemplifies choice. In so doing, SLI could very conceivably become the platform...of choice.

"I think differentiation and segmentation kind of go hand in hand," remarked IDC's Rau. "I think segmentation is partially driven by the fact the market gets so big that not everybody can do everything well, so they pick something that they can do well and they do it so well that it becomes a niche, or eventually a segment unto itself." He pointed out specific examples: "Alienware, Falcon Northwest - small, but differentiated PC companies who decided to address high-end PC enthusiasts, and they want to continue to have that differentiation. They therefore don't want to have the same processor, the same chipset, the same graphics, the same networking components as all the mainstream PC OEMs. They want to mix and match; they want to have the best processor they can get - for their purposes, from an Intel or an AMD. Then they've got to find the best chipset they can get, and that may not be from Intel or AMD, it may be from Nvidia. So you can start to see an argument that Nvidia could play both sides of the fence by offering some ability to differentiate, to innovate, within an Intel platform or an AMD platform."

The Nvidia platform today, said Rau, "doesn't have a central processor unit, but it does have GPU technology, of course, and now [Nvidia] has a chipset business. They have the SLI technology, which requires two or more Nvidia GPUs and an Nvidia chipset put together. This is a platform approach, and they've been able to do this successfully; they pressured ATI to come up with a similar solution [Crossfire]. So if you want to have this technology, you couldn't do it with Intel silicon. You couldn't do it with AMD silicon alone. You needed to go to Nvidia for this. So I think that is an example of how Nvidia can survive by innovating and providing differentiation for its OEM customers."


Whose PC is it, anyway?

There's an emerging theory that the central processing unit is becoming less and less responsible for defining what a PC truly is, and therefore, who it sells to. Two other components are shedding their ancillary roles, and stepping up to define how powerful a system can truly be: the chipset and the graphics processor. AMD last week placed a huge gamble on this theory being correct.

As ODM customers continue to drive the mobile computer market toward a role as the dominant segment, IDC's Shane Rau believes it will take on some characteristics of the embedded device market, much like handsets today. In such a market, differentiation will be achieved through a kind of segmentation that leads to specialization - devices that distinguish themselves from one another through their function, and that are less general-purpose than they are today.

"That's one of the decisions that we just haven't made: What are we going to do with the ATI Radeon graphics brand?"

Rick Bergman, Senior Vice President, ATI

The way Rau sees it, there are now a total of five serious players in the chipset arena: Intel, Via Technologies, SiS (for as long as it hangs on), Nvidia, and now the combined AMD/ATI. Market forces being what they are, the drive towards consolidation could conceivably push this number down to three, with Via actually surviving, perhaps thriving. "I think Via was probably the first company positioned for a platform approach," said Rau, "because they brought in all the silicon, and talked about connected computing years before we saw our first products from the other companies."

Rau's model foresees the possibility of platform-based devices emerging from the mobile PC space, but not necessarily requiring the mobile aspect. ODMs, therefore, could craft such things as point-of-sale systems and specialized thin clients, using low-cost PC components instead of higher-cost ASICs, but still maintaining many of the characteristics of embedded systems. In such an environment, Rau concluded, Via "could be leading the segmentation...It may be Via who saw this earlier than everybody else, and then started running in that direction."

The other players in Rau's model will likely include Nvidia, with or without a partner. "For any company that wants to survive," he said, "they're going to look for mechanisms to do so. That mechanism is often based on, if you can't do it better than somebody else, then you take what resources you have and apply them in different ways."

What would Nvidia's formula be? Rau projects another take on the combined CPU/GPU approach ATI and AMD alluded to last week, with platforms including - but not limited to - game consoles, where the graphics processor assumes the principal role. "The more specialized [devices] are in terms of graphics, the more the system partitioning may be pushing towards the GPU, where the GPU may be the dominant processor inside of the system, the big honcho that does the heavy lifting," he said. "And it might be a more modest central processing unit to do some general-purpose stuff; or you might see the GPU taking on some of those central processing features, but it's still a matter of graphics being the head honcho in the system."

But market forces being what they are, like a universe that expands and then contracts again, Rau thinks companies will be compelled to align their various technology segments, resulting in the end in the usual duopoly. "I think what probably will play out is, what was happening in multiple, parallel markets - processor, chipset, graphics - is now going to happen across two companies. The Intel/AMD dynamic, as far as processors, will continue, but then the kind of duopoly that was going on in graphics between Nvidia and ATI will continue, except it will be AMD/Nvidia."

In-Stat's Jim McGregor disagrees...completely. "Basically, I can see where they're coming from," he told us, "[believing that] chipsets are key because they're going to determine what key features are in the system, from I/O ports to interfaces to graphics...Yes and no."

Or so McGregor said, but really more no than yes. As he explained, what's really driving the evolution of the PC is consumer usage models. The UMPC is one example of a platform designed around a usage model - it isn't particularly a working example, he concedes, but he believes by its next generation, it will be. "Obviously it's a lot cheaper to do one solution and just not use certain things, than to develop fifteen different chipsets for fifteen different market segments. So I wouldn't go so far as to say that you're going to have a different chipset for each market. I don't think ATI or Intel or anybody wants to build different chipsets for each niche market."

Which is the whole idea of a platform, really, as McGregor explained - a way to prevent segmentation from taking hold across the board, and dividing PCs into glorified embedded systems without the embedding. Manufacturers are looking for the most common solution, he said, to fit the widest possible range of usage scenarios. But to accomplish this, don't forget that integration is also taking place on the intra-chip level. As 22 nm lithography becomes something foreseeable perhaps within this decade, CPU manufacturers will be looking toward how much they can integrate onto the chip itself.

"With the transistor budgets increasing so significantly, are we going to get to a point where it just doesn't make sense to have separate graphics solutions?" asked McGregor. "And especially with a focus on power consumption and performance and everything else...it's getting to the point where, in a lot of cases, it may not. And that's the challenge that ATI and Nvidia both face: Where do they go from here? So it doesn't surprise me [that] ATI was looking for alternatives."

What prevents AMD and Intel from just taking the plunge today and integrating graphics, northbridge, and chipset functions onto the central processor right now, believes McGregor, is the need for the functionality those other components provide to be thoughtfully tried and tested in the field. "Nothing gets integrated onto the processor or the chipset in the first generation." For example, there's talk today about whether Wireless USB should at some point be integrated into a single-silicon solution. But the talk stops just after the point where the question is raised...Nobody wants to be the one to have to give it a try first.

"OEMs who make the systems want to be able to differentiate. They don't want to have all the same silicon in their system."

Shane Rau, semiconductor analyst, IDC

"I would say the chipset plays a key function in terms of determining the system configuration," stated In-Stat's McGregor, "but all those new technologies that are really going to increase the market inflection point are going to be discrete solutions for the first and second generation."

One part of McGregor's model does not differ significantly from Rau's: He sees the chipset market consolidating to as few as four major players, with Via finding its own niche and surviving comfortably. But GPU manufacturers - with ATI still in the mix - must continue to develop their own IP, even if it inevitably becomes consolidated into a general-purpose processor three or more generations down the road. For that IP to develop, it needs a staging ground, a proving field, a place for the market to determine which components truly perform and which don't.

For that reason, McGregor says, the premium graphics card segment can and must survive. "You still have to have a good performing solution, because if you don't, what ends up happening is, then [as a consumer, I might find myself] asking, 'Do I want an Intel solution, or do I want an AMD solution?' Well, if the processors are relatively equivalent, and I want it for this particular segment of the market - say mobile entertainment, 17" mobile computers - I want something that's got real high-end graphics...If the processors are equivalent, it comes down to the graphics solution."

All our wild projections inevitably come around full-circle to the following revelation: Without the enthusiast graphics segment of the market, neither the ATI division of AMD nor the Nvidia division of Nvidia will know what deserves to be integrated within a mainstream platform, and what doesn't. Whether or not AMD has actually come to this realization is not yet clear, but even if it hasn't, unless Nvidia drastically changes its course in the coming months, its own future in the performance segment may actually have just been secured.