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ATI Technologies is looking forward to expand its partnership with Microsoft Corp. beyond the Xbox 360 game console. The firm believes that the technologies it developed for the gaming machine may be used for a number of devices. The main growth opportunities for the graphics company now lie in the consumer electronic devices, thinks its president and CEO.

ATI Hopes for More Products with Microsoft

“Our view is that when we enter a partnership like Xbox with Microsoft, it’s not a one-shot. It’s really a launch on a long-term partnership. So the opportunity is to do much more together in a range of devices, and that’s what we want to do because we believe this technology is ultimately re-deployable in different forms… That’s what we hope ultimately Microsoft will decide” ATI Chief Executive Dave Orton told Reuters Canada in Taipei last week.

The graphics sub-system of the Xbox 360 is powered by a custom graphics chip developed by ATI Technologies that has 48 dynamically allocated Arithmetic Logic Units (ALUs) that can perform both pixel and vertex shaders. ATI claims that the chip is “nearly” Windows Graphics Foundation 2.0-compatible and features next-generation architecture never before used on the PC. In addition to graphics processors ATI also develops chips for digital TV-sets as well as cellular phones.

50/50 for PC/Consumer Business in the Next 5 Years

Dave Orton indicated personal computer graphics chips, which account for roughly 85% of ATI’s revenue, will still be ATI’s foundation in the next several years, but the company’s cellphone graphics and digital television businesses are likely to account for larger and larger shares of the revenue.

“When you just look at what's going to happen in the digital TV market and the cellphone market, and ATI's position in those markets, and the investment we're making, we expect to see high double-digit growth – 50, 70, 80% kind of growth rates, not just for the market itself but ATI’s growth rates in those markets,” Mr. Orton said.

In the meantime, ATI’s director of corporate marketing, Paul Ayscough, said the company was targeting its consumer electronics businesses to account 50% of the revenue in the next five years. Given that ATI is unlikely to gain any additional share in the PC market, the growth rate of the company’s revenue is likely to slowdown, which is confirmed by the company itself.

“We expect a 10 to 20% growth rate next year and the year after. But whether we hit the growth rates of 2003, 2004 and 2005 – I don’t know if we’ll keep that rate going,” Mr. Ayscough said on the sidelines of the Computex computer show in Taipei, Reuters Asia reports.

Non-PC markets are quickly expanding in terms of unit sales, but their revenue role is slighter because such products are usually sold for $5-$50 each, whereas in the high-end PC graphics business chips can be sold for $100 to $200, according to ATI

Analysts expect ATI’s revenues to grow 26% in U.S. dollar terms this fiscal year, or about half the 44% growth the year before. They also expect 12%revenue growth in the next fiscal year through August 2006, and 4 % the year after, according to Reuters Estimates.

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