While graphics chip company NVIDIA (NASDAQ:NVDA) is mainly a consumer-facing company, known best for its gaming GPUs, it also has a fast-growing, albeit small, enterprise business. In addition to selling its Tesla GPUs into the high-performance-computing and supercomputing markets, NVIDIA has developed a GPU virtualization technology known as NVIDIA GRID, allowing remote users to access graphics-intensive applications running on a server.
Confusingly, NVIDIA also operates a cloud gaming service called GRID, and while that business is also a growth opportunity for the company, I believe the enterprise GRID has far greater potential.
How GRID works
Using a graphics-intensive program, such as Autodesk products or certain industry-specific software, requires a PC with a powerful graphics card built in. NVIDIA sells its Quadro line of professional graphics cards for exactly that purpose.
But there are many cases where this solution doesn't work that well. Workers in some industries, such as oil and gas exploration, may need access to graphics-intensive applications in the field. Lugging around bulky, expensive workstation-style laptops is one option, but not a very desirable one. In other cases, the cost of a large number of powerful workstations may be prohibitive.
This is where NVIDIA GRID comes in. A server with a powerful NVIDIA graphics card, running software from one of NVIDIA's partners, allows dozens of users to remotely access graphics-intensive applications running on the server at the same time. The output is streamed back to the users, giving inexpensive devices such as tablets and all-in-one PCs full access to graphics-intensive applications.
GRID could be a big deal
NVIDIA estimates that the total addressable market available to GRID is in excess of $5 billion per year, representing a potentially enormous opportunity for NVIDIA. To some degree, GRID could cannibalize existing sales of professional graphics cards, but it also lowers the cost of entry per user, potentially broadening the company's customer base.
A good example of how GRID is being used is the city of Waukesha, Wis. About 30 city employees use Autodesk's AutoCAD, an application that requires a reasonably powerful graphics card to run. The cost to replace the aging workstations being used by these employees would have totaled more than $80,000, well outside the city's budget, according to NVIDIA.
The city turned to NVIDIA GRID, replacing those workstations with inexpensive all-in-one PCs that accessed software running on a Dell PowerEdge server equipped with two NVIDIA GRID GPUs. These servers certainly aren't cheap, but given that the all-in-one PCs were just one-quarter the price of new workstations, GRID allowed the city to stay within budget while still giving employees access to the applications that they needed to do their jobs.
Of course, GRID isn't going to completely replace dedicated hardware. There will always be some lag for remote users, especially if they're connecting to the GRID server over the Internet. Where this lag is unacceptable, or where the server going down would be disastrous, workstations with powerful graphics make more sense than GRID.
One case that's perfect for GRID would be a large number employees needing to use a graphics-intensive program infrequently. Buying a huge number of expensive workstations wouldn't be feasible, but GRID provides a compelling and cost-effective alternative. GRID servers can even be run in the cloud, eliminating the upfront cost entirely. Amazon.com's Web Services already offers NVIDIA GRID instances.
How much of this $5 billion potential market NVIDIA could eventually tap is an open question, as well as how long it will take to grow the business to a meaningful size relative to the rest of the company. Enterprise customers can sometimes take a long time before committing to new technology. NVIDIA CEO Jen-Hsun Huang stated in one of the company's recent conference calls that six to nine months is a typical time frame for converting a GRID trial into an actual customer.
The number of these trials has been growing rapidly. In February 2013, just 45 organizations were testing out GRID. That number grew to 466 by the following February, and to over 1,000 as of the most recent quarter. All of the major server vendors, including Dell, Hewlett-Packard, Lenovo, and Cisco Systems, as well as many others, sell GRID servers, and software partners include VMware and Citrix.
Momentum is building for NVIDIA GRID. Competitor AMD has a similar product, allowing some of its Firepro professional graphics cards to be virtualized. But NVIDIA has done a far better job marketing the technology, and given the current state of AMD's business, AMD may not have the resources to keep up with NVIDIA. GRID is a potential billion-dollar business for NVIDIA, and while it will take a while to get there, the company is well on its way.
Timothy Green owns shares of Cisco Systems and Nvidia. The Motley Fool recommends Amazon.com, Cisco Systems, Nvidia, and VMware. The Motley Fool owns shares of Amazon.com. 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.