nVidia has enjoyed a nice business in selling integrated chipsets for both AMD and Intel motherboards, but the company is about to lose a tidy chunk of income due to shifts in the landscapes at both CPU companies.
Its chipset business, which is nVidia’s media and communications processor (MCP) line, accounted for $708 million in fiscal year 2008. In the company’s most recent quarter ended July 2009, MCP sales were $237 million, which would put it on track for an annualized rate of almost $1 billion. Losing that kind of revenue would hurt any company, least of all one under siege like nVidia, which is feeling heat from AMD (NYSE: AMD) in its main business, graphics processors.
But that’s exactly what it looks like will happen. Due to a combination of changes in the technology and a legal battle with Intel, nVidia may lose most of its MCP business in the next few years. Its ION platform, which combines an Atom processor with its GPU technology, falls into the MCP category and continues to thrive, but chipsets are looking like an endangered species.
nVidia (NASDAQ: NVDA) has been in a legal feud with Intel (NASDAQ: INTC) for some time over this issue on Intel platforms. Intel insists that nVidia obtain a new bus license to make chipsets for the Nehalem generation of motherboards, while nVidia insists its older license for the Core 2 architecture carries over.
Back in February, Intel asked a judge to make a declaratory judgment on the efficacy of the case, but now Intel says the case will go trial next summer just to get the judge’s decision.
With things in limbo, nVidia issued a statement Thursday that said due to “Intel’s improper claims to customers and the market that we aren’t licensed to the new DMI bus and its unfair business tactics, it is effectively impossible for us to market chipsets for future CPUs. So, until we resolve this matter in court next year, we’ll postpone further chipset investments for Intel DMI CPUs.”
In short, it looks like there won’t be any nVidia chipsets based on Nehalem motherboards. Not that that was a huge loss. Dean McCarron, president of Mercury Research, said that nVidia’s AMD business is much larger than the Intel business because Intel is so dominant on its own platform.
But there’s a problem on the AMD side of the plate. For starters, AMD has seen sales slip in the down economy. Secondly, AMD is now making a very aggressive push to promote its CPU, GPU and chipsets all in one package with its Vision initiative. Come 2011, AMD releases Fusion, which will integrate the GPU onto the CPU and make chipsets irrelevant.
“AMD’s chipset business is growing. AMD certainly is pushing very hard on chipsets and there are benefits to using an all-AMD chipset with an integrated processor. The whole AMD Vision thing is AMD-on-AMD. You don’t get a Vision sticker for your laptop if it’s an AMD CPU on an nVidia chipset,” said Nathan Brookwood, research fellow with Insight 64.
Next Page: nVidia optimistic, analysts confused
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Systems and hobbyist Web site Fudzilla said that Drew Henry, senior director of platform products at nVidia, told the site that since AMD’s CPU business is doing so badly and since its market shrunk so much, “it is simply not economically viable for Nvidia to continue developing chipsets for AMD. They simply cannot make enough money.”
nVidia optimistic, analysts confused
However, an nVidia spokesperson said that’s not the case. “On AMD platforms, we continue to sell a higher quantity of chipsets than AMD itself … We expect our MCP business for both Intel and AMD to be strong well into the future,” he said in an e-mail to InternetNews.com.
What leaves both analysts confused is why nVidia is fighting for a market that is clearly going away. Granted that is $1 billion in revenue and you don’t just toss that away, but the strategies of AMD and Intel will clearly leave no room for any chipsets in the coming years, nVidia’s or their own. It’s like fighting to keep the floppy disk market alive.
“Both Intel and AMD are focusing on highly-integrated processors and it’s eroding the traditional chipset market,” said McCarron. “Where we are now with Nehalem, there’s still a chipset to handle I/O. When that gets integrated, then the chipset goes away. There are compelling reasons not to integrate everything, but the history of PCs is integration.”
Brookwood adds “I’ve been saying for a year the chipset business is history. That’s not news. It’s just that it’s starting to play out now. The only thing the judge [in the Intel case] can do is overrule Moore’s Law, and I don’t know any judges that have done that lately,” he said.
“It’s not a legal issue in my book. From my perspective, this is technology marching on and causing a shift in the definition of markets,” added Brookwood.