Advanced Micro Devices (AMD +2.59%) scored a major win when Apple (AAPL +0.12%) tapped it for the graphics processors in its new line of Mac Pros. DigiTimes estimates the move could increase AMD's share of the professional GPU market to 30%, taking away share from NVIDIA (NVDA +1.43%).
With the low-end PC market marginalized by tablets, AMD is facing headwinds to its computing solutions segment, which produces CPUs and APUs and thrives on the low-end. Management has iterated its intentions of diversifying the company away from the segment, with a focus on its semi-custom business and graphics solutions. Although AMD has lagged NVIDIA for a long time, a leap forward in technology and the support of Apple may be enough to make up for lost revenue from the low-end market.
The high-end is where it's at
In a market of declining PC sales, NVIDIA has been able to maintain its GPU segment revenue while improving gross margin. In the company's most recent 10-Q, it points to increased sales of high-end products and decreased sales of mainstream products for each of its GPU lines.AMD, meanwhile, has experienced a decrease in both unit shipments and average selling price of its GPUs.
The market is shrinking, so gaining market share isn't necessarily enough for AMD. It needs big wins in the high-end market. The deal with Apple puts AMD's high-end FirePro cards to work. The Mac Pro could increase AMD's share of the professional graphics card market by ten percentage points. These are the high-price, high-margin products that have helped NVIDIA's business maintain revenue and profits in 2013.
Demand for the new Mac Pro is outpacing supply by a wide margin. A spokesperson has stated, "Demand for the all new Mac Pro is great and it will take time before supply catches up with demand." Whether the higher-than-expected demand is a good problem or a bad problem, trouble ramping up production is unclear.
On the gaming side of the coin, AMDs newest line of GPUs -- the Radeon R7 and R9 -- compare well with NVIDIA's high-end gaming graphics cards. Moreover, AMD was able to price its line lower than NVIDIA's, causing the latter to drastically cut prices on its products. This move will undoubtedly cut into NVIDIA's gross margin, which reached a record high last year.
Mantle
Mantle is an application programming interface designed by AMD to take advantage of its position in each of the newest game consoles from Sony, Microsoft, and Nintendo. Mantle gives developers better access to AMD's GPU hardware so they can get the most out of the hardware, optimizing performance specifically for AMDs graphics cards.
The kicker is that the API carries over to AMD's Radeon GPUs for PCs. In other words, games designed for both consoles and the PC will likely run better on AMD GPUs. At the same time, there's nothing preventing NVIDIA from developing a similar API for its graphics cards. It's unlikely, however, that it would gain nearly as much traction with developers as Mantle, considering AMD's position in the game console market.
NVIDIA passed on the opportunity to develop SoCs for the newest generation of consoles, and instead chose to focus on mobile chipsets. Unfortunately, the company's Tegra processor business has seen steep declines in the past year, and now NVIDIA's GPU business is in a worse position.
AMD's 2014 to look like NVIDIA's 2013?
AMD's plan to diversify its business away from CPUs is firing on all cylinders -- including the cylindrical Mac Pro. Its deals with Apple, Sony, Microsoft, and Nintendo should help its GPU business. Its position with game developers, leveraging its Mantle API, should help AMD do what NVIDIA did last year -- sell more high-end GPUs to offset losses on the low-end.
