Tech-Report blasts GeForce FX

[KimB]

NVIDIA isn't Microsoft; they can't sell NV30 chips below cost and still expect to be in business the next day. They've got hundreds of millions of dollars in R&D they need to recover from this line of products, and it's not going to be recovered from budget chips alone, especially if they're losing more money every time they sell a high performance chip.

nVidia has a heck of a lot of cash on hand right now (I forget the exact number, but I think it's a few hundred million). That, and nVidia is making a huge amount of money off of its other chip lines. A low-volume product like the GeForce FX won't make a huge impact.

 

[Joe DeFuria]

That, and nVidia is making a huge amount of money off of its other chip lines. A low-volume product like the GeForce FX won't make a huge impact.

First of all, the trend with nVidia seems to be less and less profit each quarter, until this past quarter where they lost money.

Second, do not underestimate the impact of mindshare.

I agree that the GeForceFX being a success in terms of units sold, is probably, as you said, not going to make a huge immediate impact. However, if the GeForceFX is a "failure" in terms that it hands technology mindshare over to ATI, that could indeed cause real damage going forward.

I whole-heartedly agree with David Orton's comments at CFSB. He basically said that it is key to go after high end market because it raises the brand and the technology. It validates what you've created is real and competitive. If you come in second in high end then you'll fall into second in value as well.

Not to switch gears too drastically, but this is again on reason why I predictied PowerVR would not become a major player. They never went after the high end. It's foolish to look at the high-end simply as a "niche market." It's the market that validates your product and brand, and helps immensely to sell the rest of your product line, where presumably the bulk of your money is made.

 

[Entropy]

I whole-heartedly agree with David Orton's comments at CFSB. He basically said that it is key to go after high end market because it raises the brand and the technology. It validates what you've created is real and competitive. If you come in second in high end then you'll fall into second in value as well.

Not to switch gears too drastically, but this is again on reason why I predictied PowerVR would not become a major player. They never went after the high end. It's foolish to look at the high-end simply as a "niche market." It's the market that validates your product and brand, and helps immensely to sell the rest of your product line, where presumably the bulk of your money is made.

Actually, what I found most interesting about what Orton said, was that the bulk of the money is NOT made at the low end. The low end and high end was roughly equal, with the mid somewhat smaller. This directly contradicts what has been bandied about here as "accepted truth".

Of course, this depends on just how you define low-mid-high end.

Nevertheless, it makes sense that the higher voulmes in the low end is offset by the smaller margins in this segment.

I fully agree with the importance of the high-end to drive both technology and design as well as brand recognition and marketability.

Entropy

 

[SirPauly]

I whole-heartedly agree with David Orton's comments at CFSB. He basically said that it is key to go after high end market because it raises the brand and the technology. It validates what you've created is real and competitive. If you come in second in high end then you'll fall into second in value as well.

I agree 100 percent with David Orton's comments as well. To under-estimate mind-share is a grave mistake, imho.

 

[JF_Aidan_Pryde]

In summary: if you want to win the volume sales, you have to win the high end.

 

[Ailuros]

Not to switch gears too drastically, but this is again on reason why I predictied PowerVR would not become a major player. They never went after the high end. It's foolish to look at the high-end simply as a "niche market." It's the market that validates your product and brand, and helps immensely to sell the rest of your product line, where presumably the bulk of your money is made.

Measures between an IP selling company and the usual graphics card companies aren't even comparable.

In the first case the company is relying far too much on it's customer's demands/desires and business decisions.

Last but not least Imagination Technologies doesn't have just one market to concentrate on. If an opportunity will show up for a high end graphics core for whichever market, they will take the opportunity and most likely deliver.

No company like that will spend millions of dollars just to sit on a pretty design or even prototype, go out and say "looky what we can do". Even if they will re-appear with a high end design in the foreseable future, it won't be solely concentrated on the PC graphics market, but aimed for multiple markets, probably the PDA/mobile market included, where the optional Vertex Geometry Processor for MBX is already dx8.1 compliant.

 

[Joe DeFuria]

Measures between an IP selling company and the usual graphics card companies aren't even comparable.

I didn't say they were. I'm saying an "IP Selling Company" doesn't have much of a chance in the PC market.

Last but not least Imagination Technologies doesn't have just one market to concentrate on....

I didn't say they did.

I understand that you are trying to justify IT's business model as a whole. That's not what I'm objecting to. (In fact, I already said that I believe the model to be perfectly viable for 'closed system' technologies, like PDAs, consoles, etc.)

Again, I'm only saying that the business model is not a good fit for the PC space. Do you agree or disagree?

 

[kid_crisis]

nVidia has a heck of a lot of cash on hand right now (I forget the exact number, but I think it's a few hundred million). That, and nVidia is making a huge amount of money off of its other chip lines. A low-volume product like the GeForce FX won't make a huge impact.

I think it's closer to 850 million, or about $6 dollars a share cash.

First of all, the trend with nVidia seems to be less and less profit each quarter, until this past quarter where they lost money.

They were actually cash flow positive last quarter. They took a write-off for options, but that's a paper loss (i.e., stock dilution, not money spent).

 

[Joe DeFuria]

They were actually cash flow positive last quarter. They took a write-off for options, but that's a paper loss (i.e., stock dilution, not money spent).

A loss is a loss. It's not paper. They decided to basically compensate employees who were holding poorly valued stock options. This was a decision made in efforts to keep them from leaving nVidia.

 

[kid_crisis]

A loss is a loss. It's not paper. They decided to basically compensate employees who were holding poorly valued stock options. This was a decision made in efforts to keep them from leaving nVidia.

I agree with the second part, though it does have the added benefit of removing some of the options overhang, which is used to calculate the earnings per share (down to ~150 million shares from ~170 mil).

But saying there is no difference between an options loss and a monetary or cash flow loss is a bit of a stretch. Nvidia distributed about 5 million shares for options, which results in a stock dilution of about 3%. If they then take a writeoff for that amount, there are in a sense doubly punishing the stock, since earnings are decreased AND the stock is diluted. However, from a business standpoint it makes sense to take the writeoff, since then the company can pay less taxes (increasing their cash reserves even further).

Intel has come out and said they would not be counting options losses against earnings precisely because they consider it a "double whammy" type of effect, so there is still some debate amongst companies as to how this is handled.