Intel’s Sandy Bridge Could Spell the End of Nvidia’s Integrated Business

December 21st, 2010 by Trefis Team
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Nvidia (NASDAQ:NVDA) is a leader in the graphics cards business and competes with AMD (NYSE:AMD) and Intel (NASDAQ:INTC). The graphics cards business is essentially comprised of discrete graphics cards and integrated graphics cards. While discrete graphics cards high performance appeals to gamers and professionals who require high-end computing, integrated graphics is aimed to support minimal graphics requirements of a PC.

Intel has dominated integrated graphics business, which accounts for majority of graphics card shipments. However, with its introduction of Sandy Bridge chips, Intel could expand its dominance and potentially end the integrated graphics business in a few years by replacing it with its CPU/GPU hybrid. Although Nvidia’s integrated graphics segment could be nearly wiped out by this move, we believe that the impact will be limited and Nvidia may even gain from its increased push of discrete graphics cards.

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The Future of the Integrated Chip Business

Intel’s introduction of CPUs with embedded GPUs early next year could well imply the demise of the integrated graphics business. Sandy Bridge is likely to be a significant improvement over integrated graphics performance and could also result in cost savings for system makers. This is likely to trigger the shift from integrated graphics to a CPU/GPU hybrid. As a result, we forecast that integrated as % of total GPUs should decline in the next 3 years.

Nvidia has a low share of the integrated graphics market and primarily relies on sales of discrete graphics cards and so Sandy Bridge’s launch would not have a much of a stock impact. We estimate that even if integrated chips as a % of total GPUs (for both notebooks and desktops) remained as is instead of going down to zero, upside to our price would be close to 10%.

Discrete Graphics Take Up the Slack

There could be upside to our current price estimate if PC makers go for Nvidia’s discrete graphics cards to supplement Sandy Bridge’s graphic capabilities. Nvidia states that demand for discrete graphics remains strong and above historic levels. Additionally, the company is looking to mitigate the impact of Sandy Bridge on its graphics business and has secured contracts with PC manufacturers to pair its GeForce GPUs with Intel’s Sandy Bridge CPUs in about 200 new products expected to be launched in first half of 2011. [1].

This could potentially help Nvidia gain share in discrete graphics market as well as lead to improvement in trend for discrete as % of GPUs. As a result, Nvidia could more than compensate for the loss resulting from expected demise of integrated graphics. Below you can see how improvement in discrete as % of total GPUs and Nvidia’s discrete GPU market share for desktops alone can impact Nvidia’s price estimate.

You can see the complete $13.43 Trefis price estimate for Nvidia’s stock here.

Notes:
  1. NVIDIA Achieves Record Number of Design Wins for Intel ‘Sandy Bridge’ PC Platform, Nvidia press release, Dec 16 2010 [↩]