Taiwan-based suppliers of graphics cards have accused ATI, graphics business unit of Advanced Micro Devices, and Nvidia Corp. of creating shortages on the market of discrete desktop graphics processing units (GPU). Meanwhile, both ATI and Nvidia have shifted their inventory policies, which does not allow their partners to receive huge discounts when buying graphics chips in large quantities on the last day of a quarter.

A number of recent media publications suggest that ATI and Nvidia have started to reduce supplies of previous-generation high-end offerings, e.g., ATI Radeon HD 4870 X2 or Nvidia GeForce GTX 285, as well as previous-generation 55nm graphics chips in general. Due to short supply of GPUs, graphics board vendors are reportedly even considering to increase pricing of graphics boards in order to fulfill the demand. Some claim that shortages will persist till Q1 2010.

Even though the two designers of graphics chips are streamlining their businesses at the moment, shortage of graphics cards may not be completely their fault. At a recent meeting with financial analysts, Mike Hara, vice president of investor relations at Nvidia, explained that the company’s goal is to have inventory for 30 days of sales, which allows the firm to respond to competitive challenges in a timely manner. ATI’s goal seems to be generally similar: to keep as few chips in stock as possible.

According to Mr. Hara, when Nvidia had inventory for 90 days of sales, big graphics card vendors attempted to make large purchases and demanded huge discounts once a quarter, virtually forcing the chip designer to sell its GPUs at lower prices since otherwise its quarterly results would be affected and in some cases it would be forced to write off older inventory in order to improve sales of newer products.

Market analysts claim that sales of standalone desktop graphics cards are increasing, which is a good news for everyone. Nevertheless, as the competition between ATI and Nvidia is heating up in general and in the high-end market segments in particular, suppliers of graphics cards will have to learn how to act in cases when both chip designers tend to keep as few products in stock as possible.

Tags: ATI, AMD, Nvidia, Geforce, Radeon