Even though Nvidia Corp. expressed strong intention to capture the market of chipsets with integrated graphics for Intel Corp.’s microprocessors, industry analysts believe that is it too early for the company to attack that direction, as it may be harmful financially.
“There are three reasons why we believe it might be premature for Nvidia to attack the low-end Intel-based chipsets,” said Satya Chillara, an analyst with Pacific Growth Equities LLC.
Graphics chips and core-logic sets designer Nvidia Corp. recently said it would offer chipset with built-in graphics core for microprocessors by Intel Corp, which will be a major change in the company’s strategy for chipsets, as previously Nvidia concentrated only on high-end core-logic for Intel’s central processing units, not on the so-called integrated graphics processors (IGPs) usually found in cost-effective computers. But analysts believe there are at least several reasons for the company not to launch Intel-oriented IGPs as soon as possible.
“First, we believe Nvidia cost structure for these low-end ICs is not as efficient as their AMD-based chipsets. Moreover, we estimate that Nvidia’s high cost structure could persist for the next two quarters. Second, in our opinion, the gross margins in this space will be challenging and pose a risk to performance,” Mr. Chillara said.
Previously Nvidia’s management had downplayed the importance of the market of cost-efficient core-logic sets for Intel processors, saying that it would hardly be able to earn sufficient profits there due to low margins. However, now that ATI is going out of the Intel chipset business and will pose more competition in the market of chipsets for AMD, Nvidia seems to be reconsidering it positions and is planning to change its tactic, as even supplying moderately popular nForce IGPs for Intel chips, Nvidia will either be able to receive tens of millions of dollars in sales. For example, ATI Technologies blamed lower than expected sales of chipsets (for Intel’s microprocessors) in its last quarter for $140 million lower revenues, which outlines how large and significant this market is.
According to Pacific Growth Equities, gross margin of ATI’s IGPs for Intel processors was about 15%, well below Nvdia’s gross margin of nearly 50%.