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Nvidia expects no shift in Intel marketing strategy

Nvidia expects no shift in Intel marketing strategy
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First Published: Thu, Nov 19 2009. 09 16 PM IST

 Open competition: Jen-Hsun Huang, co-founder and chief executive officer of graphic chips maker Nvidia.
Open competition: Jen-Hsun Huang, co-founder and chief executive officer of graphic chips maker Nvidia.
Updated: Thu, Nov 19 2009. 09 16 PM IST
Mumbai: The $1.25 billion (Rs5,800 crore) truce between Intel Corp. and Advanced Micro Devices Inc. (AMD) hasn’t convinced graphics chip maker Nvidia Corp. that the world’s No. 1 manufacturer of semiconductors is about to change its aggressive marketing strategy.
Open competition: Jen-Hsun Huang, co-founder and chief executive officer of graphic chips maker Nvidia.
“It (the settlement) is just the beginning and not the end, by far,” said Jen-Hsun Huang, co-founder and chief executive of Nvidia, which leads the world in stand-alone graphic chips. Intel agreed on 12 November to pay the money to AMD to settle a 2005 lawsuit that the latter filed accusing Intel of using unfair methods, such as discounts, that pushed customers away from AMD’s chips.
The founder of the $4 billion Nvidia, however, considers the settlement a watershed as it’s the first time the $36 billion Intel has publicly agreed not to adopt tactics that AMD alleged were stifling competition and thus denying computer users the benefits of innovation. While Intel denied any wrongdoing, it also agreed not to adopt business practices that, according to its biggest rival, stifled competition.
At the end of September, Intel had an 81% market share in the sale of central processing units, or CPUs, while the share of AMD was 18%, according to Arizona-based PC components research firm Mercury Research.
The settlement isn’t significant enough to act as a deterrent, Nvidia’s chief said.
“That’s less than a speeding ticket. If you told someone that they can break the law for 30 years and after that they get a speeding ticket, that’s not exactly discouraging. That’s not going to fundamentally change their behaviour,” Huang said in an interview during a trip to India.
AMD’s India spokesperson said the settlement will help the chip maker improve market share.
“This is a historical settlement for the microprocessor industry. The settlement will set transparent ground rules for open, competitive markets, with which Intel, in full public view, has agreed to comply,” said Ramkumar Subramanian, vice-president, sales and marketing, AMD India, in a statement after the deal. “Fair and open competition dictates that the best product wins and market forces prevail.”
Nvidia is currently engaged in its own legal tussle with Intel in the US over the cross-licensing of technology as well as tactics used to outsell the smaller company. Nvidia alleges that Intel bundles the graphics chip along with the CPU and prices it such that the smaller company is unable to compete, even as the latter claims to have a better product.
Intel has a 53% share of the graphics chip market, while Nvidia and AMD have 25% and 20%, respectively, according to Jon Peddie Research, a California-based graphics hardware research firm.
An Intel spokesperson rejected Nvidia’s contention. The company was comparing the “list price for the stand-alone versus a negotiated price for the bundle”, he said. Intel’s “pricing is all above costs” and “meets the legal standards worldwide”.
“Any discounts we have offered represent healthy and normal market competition, from which consumers benefit,” the spokesperson added.
Nvidia has 1,000 engineers, nearly one-fifth of its employees, in India who undertake research and design graphics chips. Although PC ownership levels are low, the rapidly expanding mobile phone market in India has convinced Huang that the country will be key to future growth.
The settlement with AMD won’t help Nvidia, he said.
“Our business is not CPUs. The settlement with AMD does nothing to protect my GPUs (graphics processing units). If Intel wants to prevent you from having a good graphics experience, they can. They just have to pay customers to not take Nvidia’s products. And they do,” Huang said.
“They essentially give customers such enormous discounts for not buying from us. That’s not going to change. We are going to have fight our own fight; and I hope that governments around the world will acknowledge that Intel’s behaviour does not apply just to AMD, it applies to all the companies in the PC ecosystem,” Huang said. Intel has around 20 times the 5,000 employees that Nvidia has, according to Huang.
When contacted, Intel said that its business practices are “fair, lawful and pro-competitive”.
Asked specifically about Nvidia’s allegation regarding discounts, an Intel spokesperson said: “We have never and will never engage in conditional rebates. We believe that the semiconductor market segment is functioning normally, and that healthy competition is benefiting consumers through greater innovation and lower costs.”
Huang insisted that legislation was required to protect Intel’s smaller rivals.
In May, the European Commission (EC) found that Intel offered “conditional rebates and payments” that required Intel customers to purchase all or most of their computer chips from them. It was also found that Intel made “payments to prevent sales of specific rival products”.
As a punitive measure against such violations of fair competition norms in Europe, EC imposed a fine of €1.06 billion (Rs7,346 crore now) on Intel and ordered the company to “immediately bring to an end” such practices. Intel has appealed the EC decision.
Intel is also facing antitrust investigation by the Korea Fair Trade Commission, the state of New York as well as the US Federal Trade Commission over similar practices.
One area that Intel and Nvidia are betting on is the system-on-a-chip, or SoC, where graphics, audio- and video-processing funcationalities are integrated on to a single chip to reduce cost, power consumption and size. Devices such as televisions, mobile handsets and mobile Internet devices are driving the demand for sophisticated SoCs.
“Nvidia’s success is dependent on the widespread adoption of its processors for 3D (three-dimensional) graphics in consumer applications,” Glen Yeung, an analyst with Citigroup Global Markets, said in a 5 November report on Nvidia.
With the increasing importance of graphics in various applications such as gaming, Intel is planning to get into the fray with its own high-end GPU, Larrabee, expected to hit the market in early 2010.
Huang said his company has tried to stay clear of the CPU business and concentrate on graphics to avoid direct confrontation with Intel.
“Our corporate strategy is very simple—just don’t do what they do. If Intel is the largest basketball player, let’s just not play basketball. Let’s focus intensely on visual computing. Don’t go near them, because you are going to fail. Don’t build CPUs, because they will just price you out,” Huang said.
Nvidia is focusing on changing the game by working towards GPUs that can perform parallel processing better than a generic CPU, preparing for a market in which GPUs become an essential complement to a CPU rather than optional hardware for graphics enthusiasts.
Earlier this month, Nvidia tied up with India’s Infosys Technologies Ltd to start a technology centre that focuses on creating software which best exploits the parallel processing capabilities of Nvidia’s GPUs.
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First Published: Thu, Nov 19 2009. 09 16 PM IST