Chip giant Intel (INTC -0.28%) made a critical error as it prepared its Arc graphics cards for launch earlier this year. The company tried to use the software drivers from its integrated graphics products as the foundation for the drivers for the new cards, a move that made sense in theory. Why start from scratch if you don't have to?

Intel learned the answer to that question the hard way: Those integrated graphics drivers were incapable of delivering adequate performance for a discrete graphics card. The company was forced to drop its target of shipping 4 million units this year as the resultant software issues delayed the launches of its Arc 750 and Arc 770 graphics cards.

For the launch, Intel focused on making sure the Arc cards performed well on modern games using the latest graphics application programming interfaces (APIs). It was largely successful: Reviewers at Tom's Hardware found the Arc 770 handily outperformed NVIDIA's RTX 3060 on average. The problem was that the performance in individual games was erratic.

Graphics drivers are complicated pieces of software, and individual games often need specific optimizations. That's an area where Intel had a lot of catching up to do when its Arc graphics cards launched in October. The cards performed well across many modern titles, but had problems with older titles.

Making progress

Providing acceptable performance with older video games is important, particularly for a mid-range graphics card like the Arc 770. Games like Dota 2 and Counter-Strike: Global Offensive are still wildly popular, often topping the list of most-played games on Steam. These games run on older versions of DirectX, a popular API, and are a weak spot for Intel's graphics cards.

But Intel is plugging away at its graphics drivers and making some real progress. The latest release from Intel delivers huge performance gains for older titles using DirectX 9. As reported by Tom's Hardware, the new driver increases average frame rates by as much as 80% in games like Counter Strike: Global Offensive, League of Legends, and StarCraft 2. It also makes gameplay smoother overall by minimizing jarring frame-rate drops.

Poor performance in older games was likely a sticking point for many gamers who were considering jumping over to Intel. It still has more work to do, but the chipmaker is making good progress at eliminating the main disadvantage of its Arc graphics cards.

A multibillion-dollar opportunity

There's no good reason why Intel can't establish itself as a major player in the graphics card market. Its debut Arc cards are good products that were held back a bit by immature software, and that is a situation that will be remedied over time. Intel has proved capable of putting out solid hardware, at least for the mid-range segment of the gaming market.

Jon Peddie Research estimates that the graphics card market will be worth $39 billion a year by 2026, and it expects Intel's entry into that market to ultimately boost overall unit shipments of these cards next year. The graphics card market right now is in turmoil, driven by bloated inventories and sluggish demand. But Jon Peddie Research expects this to be a growth market in the long run.

Intel has one advantage over rivals Nvidia and AMD: It can pick and choose which chips it manufactures itself and which chips it outsources to third-party foundries. The first batch of Intel's Arc graphics chips was manufactured by TSMC using its N6 (6 nm) process node, ensuring they provide enough performance and efficiency to go toe-to-toe with the competition. If Intel can regain its lead in manufacturing in the coming years, it could ultimately shift production in-house and realize meaningful cost and performance advantages.

While Intel's entry into the graphics card market was a bit messy, the company should not be underestimated. Intel is fixing the software problems that are holding it back, and both Nvidia and AMD should prepare themselves for a more competitive graphics card market in the years ahead.