After declining tangibly in the first quarter of the year, the market of add-in graphics boards rebounded in the second quarter both in terms of unit sales as well as average selling prices (ASPs). Market tracking firm Jon Peddie Research believes that one of the main reasons for the market recovery is introduction of cost-effective DirectX 10-compatible graphics chips.

According to Jon Peddie Research, about 21.1 million add-in-board (AIB) units were shipped in Q2 2007, along with about $5.8 billion in revenue (street value), which means that average selling price increased to $274, the highest ASP in about one and a half years and dramatic increase over the Q1 2007. The market research firm also noted that the Q2 was more than just a rebound making up for the Q1 drop, as the quarter looked respectable viewed in the year-to-year context as well, with units up 10.6%.

With Q1 now thankfully appearing as an anomaly, JPR sees a healthier short-term outlook on the market. Both AMD and Nvidia recently released more mainstream-priced product derived from their latest generation graphics processing units (GPUs). Nvidia has pushed out the cost-reduced GeForce 8600, 8500 and 8400 series to complement the top-of-the-line GeForce 8800 models in April, whereas AMD introduced its ATI Radeon HD 2600 and 2400 in May, offering up its latest R600 generation technology at lower price points as well.

It should be noted that Advanced Micro Devices started to ship its mainstream ATI Radeon HD 2000 products in June, which means that the lion’s share of DirectX 10 hardware now belongs to Nvidia. According to another market tracking firm Mercury Research, Nvidia in the second quarter of calendar 2007 supplied 75% of DirectX 10-compliant hardware.

JPR believes that the long-term, big-picture trend that will continue to pressure the AIB market is the encroachment of graphics processors integrated in chipsets (integrated graphics processors, IGPs). IGPs have vaulted Intel to the top of the graphics heap, taking a big chunk of the market formerly owned by add-in boards housing discrete graphics processing units. And beyond IGPs, the market will also have to deal with pressure from the impending combination of CPU+GPU coming in 2008.