Since Valve has put its faith in OEMs to design and build their own Steam Machines, it's expected that each company is free to use any off-the-shelf PC components. This will give way to many different configurations, ranging from the low to high end, but the interesting market is the one that will be competing directly with the next-generation consoles. Given what a company has recently teased, you'll be surprised by what a Steam Machine can do at that price point.
Priced to compete
iBuyPower, known for offering users serious gaming performance whether they're on a tight budget, willing to spend a month's pay, or anything in between, has teased the first Steam Machine prototype, and it's priced to compete.
The Verge reports that the Steam Machine from iBuyPower is powered by an unspecified multi-core AMD (NASDAQ:AMD) processor and a Radeon R9 270x graphics card, which features 1,280 steam processors running at 1.05 GHz, giving it 2.69 teraflops of computational ability. This Steam Machine will also come standard with a 500GB hard drive, Wi-Fi, and Bluetooth.
In comparison, Sony's PlayStation 4 GPU has 1.84 teraflops of computational performance, and Microsoft's Xbox One has 1.31 teraflops. This is impressive for the R9 270x, which retails at $200. Each console also comes standard with a 500GB hard drive, Wi-Fi, and Bluetooth.
All of this is housed in a case with an integrated power supply that's smaller than what's used in the Xbox One. The most impressive feature, though, is that iBuyPower is pricing it to compete directly with the next-generation consoles with an estimated retail price of $499.
While it's impressive how much power they've managed to squeeze in a box that's priced at $499, it's safe to assume that iBuyPower won't be the only manufacturer able to pull off similar specs at a similar price, nor will it only be powered by AMD.
The battle between AMD and NVIDIA
Initially, AMD looks to be the strong winner in this price range. The R9 270x is, on average, a full 20% faster than its closest competitor at its price range, NVIDIA's (NASDAQ: NVDA) GTX 660. This is important because, despite the PC market being down 11% year-to-date, NVIDIA's GPU business is up 4% year-over-year. The company's success in outpacing the PC market has a large part to do with its success in PC gaming.
AMD has continually lagged behind NVIDIA when it comes to GPU sales. According to Steam's hardware survey stats, the NVIDIA GeForce line is the choice card for PC gamers, accounting for 52.12% of all surveyed hardware, while AMD accounts for only 32.05%.
Even though AMD's graphics and visual solutions division, responsible for designing both GPUs and semi-custom chips, posted strong earnings with an operating income of $79 million, a large part of that was driven by revenue from royalties of semi-custom chips designed for the PlayStation 4 and Xbox One. GPU revenue had declined both sequentially and year-over-year. If it wasn't for the royalties -- which, in one quarter increased revenue by 96% year-over-year -- it's safe to assume the division would've been in the red. With iBuyPower looking to make headlines with its prototype, it's good news knowing that the power the company was able to achieve is in large part due to the use of AMD components.
Since AMD has the performance lead in the mid-tier GPU market, expect the R9 270x to be the choice card for machines that will be competing head-to-head with the PlayStation 4 and Xbox One. Its closest competitor, the GeForce 660, is well over a year old. Its successor, the GeForce 760, while more powerful than the R9 270x, is on average $50-75 more expensive. However, by the time Steam Machines can be bought in retail outlets, prices for off-the-shelf PC components will be drastically different.
Regardless of how successful the Steam Machine will be, both NVIDIA and AMD will benefit from its availability since OEMs will be using off-the-shelf PC components. Although AMD looks to be the best choice in terms of price-to-performance ratio, NVIDIA has recently managed to take the lead back with the most powerful single-GPU card on the market.
Many didn't believe that a Steam Machine could initially compete directly with next-gen consoles in terms of price and performance. iBuyPower has sent a strong signal that, not only can it compete at the same price point, but it can outperform in terms of teraflops. With the competition being closer than expected, pay close attention to the market that will supply OEMs with components, especially GPUs.
My eyes right now are set on early January, where Valve and its various partners will have their Steam Machines on display at CES 2014.
Fool contributor Rodmon Dehghi has no position in any stocks mentioned. The Motley Fool recommends Nvidia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.