Intense Competition Could Slash Nvidia’s Desktop Chip Pricing

November 4th, 2010 by Trefis Team
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Nvidia (NASDAQ:NVDA), which manufactures Graphics Processor Units (GPUs) for desktop PCs, is under stiff competition from AMD’s (NYSE:AMD) ATI Radeon-branded graphics cards. The increasing competition has resulted in a decline in Nvdia’s discrete desktop GPU pricing. We estimate that the average price of Nvidia’s discrete desktop GPU has fallen from around $27 in 2005 to $22 in 2009. [1]

We expect Nvidia’s discrete desktop GPU pricing to continue falling due to a combination of competition and declining component costs. We currently have a Trefis price estimate of $11.77 for Nvidia’s stock, slightly below the current market price of $12.49.

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Nvidia sells discrete desktop GPU under the brand GeForce. These discrete graphics cards are standalone graphics cards which deliver superior graphics performance on PCs and hence are popular among PC enthusiasts and gamers. The GPU off-loads the burden of graphics processing from the CPU. In this way, a dedicated GPU and CPU work in tandem to increase overall speed and performance of the system.

We estimate that Nvidia has gained about 15 percentage points of share in the discrete notebook market from AMD between 2005-07 on the back of its successful GeForce product line. Both Nvidia and AMD cut their prices by 10-20% in December 2008 in an attempt to gain market share from each other. In Q2 as well as Q3 of 2010, AMD maintained a lead over Nvidia in discrete GPU market in terms of shipments, according to a Xbitlabs article citing Mercury Research. [4]

Nvidia could also face competition in the future from Intel (NASDAQ:INTC).  Intel, which already dominates the integrated graphics market, could be a potential threat for both AMD and Nvidia if it succeeds in the discrete graphics market.  [2] [3]

The average of Trefis member forecasts for Nvidia’s Desktop Discrete Graphics Processing Units Pricing indicate an increase from $22.80 in 2010 to $25.30 by 2016, compared to the baseline Trefis estimate of a decrease from $22.30 in 2010 to $19.70 by the end of the Trefis forecast period. The member estimates imply an upside of 4% to the Trefis price estimate for Nvidia’s stock.

Our complete analysis for nVIDIA’s stock is here.

Notes:

1. We’ve taken data on Nvidia’s Desktop Discrete Graphics Processing Units Pricing from Market Watch sample from Jon Peddie Research.

2. Intel Larrabee GPU to take on Nvidia next year

3. Intel drops plans for Larrabee GPU in 2010

4. ATI Maintains Lead on Discrete GPU Market – Mercury Research.