Intel (INTC 1.81%) recently set its sights on NVIDIA (NVDA 1.48%) with two big moves into GPUs. First, it partnered with AMD (AMD 1.86%) to integrate the latter's Radeon graphics into a new chipset for laptops. Second, it formed a new Core and Visual Computing Group, led by AMD's former Radeon chief Raja Koduri, to develop its own discrete GPUs.
This threatens NVIDIA in two ways. First, Intel chipsets with integrated Radeon graphics could hurt NVIDIA's push into mobile GPUs. Second, new discrete GPUs from Intel could break NVIDIA and AMD's duopoly in the add-in board market. Let's take a closer look at Intel's GPU efforts, and why NVIDIA investors should pay close attention.
A look back at Intel's GPU efforts
Intel is already the biggest GPU maker in the world thanks to the reach of its integrated graphics (Intel HD and Iris) solutions. Intel initially introduced the Intel HD integrated graphics processors (IGPs) in 2010, then updated them with higher-performance Iris and Iris Pro versions in 2013.
Intel also signed a graphics cross-licensing agreement with NVIDIA in 2011 to settle a long battle over the breach of a chip-licensing agreement in 2004. This was a win-win situation for both chipmakers -- Intel gained access to some of NVIDIA's graphics technologies, while NVIDIA received licensing payments of $66 million per quarter. That agreement expired earlier this year, slightly impacting NVIDIA's earnings, and Intel didn't renew the deal.
Intel's IGPs are good enough for casual computing tasks and light gaming, but they can't match the performance of NVIDIA and AMD's discrete GPUs, which are used for high-end gaming, scientific applications (like cryptocurrency mining), and machine learning tasks in data centers.
Understanding Intel's game plan
Demand for Intel's x86 CPUs in PCs and data centers remains stable but unremarkable, with single-digit year-over-year revenue growth rates. Adding more graphically advanced CPUs and discrete GPUs to its portfolio could offset that sluggish growth, and complement Intel's higher-growth Internet of Things (IoT), non-volatile memory, and programmable chips units.
With a near-80% share of PC CPUs and a 99% share of data center CPUs, Intel enjoys tremendous advantages when it introduces new chips. It can bundle its discrete GPUs with new CPUs at steep discounts, which makes them attractive to OEMs, businesses, and mainstream consumers.
It can also slash its production of Intel HD and Iris chips to promote sales of its new Radeon-powered chipsets or discrete GPUs, or add optimizations to give its discrete GPUs an edge against competing cards when they're paired with Intel CPUs.
Intel also plans to halt NVIDIA's advance into the data center market, where enterprise customers have been pairing NVIDIA GPUs with Intel's Xeon CPUs for machine learning tasks -- causing customers to delay CPU upgrades in favor of GPU purchases.
Intel plans to counter that trend with Knights Mill, a new Xeon Phi chip optimized for machine learning tasks with the aid of the FPGAs (field programmable gate arrays) it acquired from Altera. If Knights Mill falls short of expectations, Intel can add its own discrete GPUs to that bundle, which could cause big problems for NVIDIA's growing data center business.
Intel's expanding reach into GPUs could also complement its recent investments in connected cars and computer vision chips, which include its acquisitions of Mobileye and Movidius and its autonomous driving partnership with BMW and Fiat Chrysler. This could hurt NVIDIA's automotive chip business, which supplies Tegra CPUs and its Drive PX autonomous driving platform to higher-end automakers.
Should NVIDIA investors worry?
NVIDIA shares have fallen 11% since Intel made its GPU-related announcements in early November. Intel was only partly responsible for that decline, since other issues -- like concerns about its valuation and a bubble in the cryptocurrency market -- also weighed down NVIDIA's stock.
But looking ahead, Intel -- which didn't really threaten NVIDIA this year -- looks ready to retaliate against the GPU maker in PCs, data centers, and connected cars. I still think NVIDIA is a solid long-term investment, but investors shouldn't dismiss the growing threat which Intel poses to its core businesses.