For the past four years, NVIDIA (NASDAQ:NVDA) has maintained a roughly 60% unit market share in the discrete graphics card market, with the rest going to rival Advanced Micro Devices (NASDAQ:AMD). New product launches and seasonality over that time drove some small fluctuations, but NVIDIA has been able to hang onto its lead.
The third quarter of 2014 marked a distinct change in this dynamic. NVIDIA saw a large increase in its market share, up to around 70%, and it appeared as though NVIDIA was starting to pull away from AMD. This could have just been a fluke, of course, but in the fourth quarter of 2014, NVIDIA's market share rose again, this time to 76%. That's about 11 percentage points higher compared to the fourth quarter of 2013.
The graphics card market is starting to look an awful lot like the PC CPU market, where Intel dominates and AMD struggles to turn a profit. AMD needs a huge win with its upcoming launch of new graphics cards, expected sometime in the first half of this year. If it fails to claw back the market share that it's lost, the company risks becoming a bit player in the GPU market, leaving NVIDIA as the undisputed leader.
How did this happen?
NVIDIA has benefited from launching an extremely popular pair of graphics cards last September, the GTX 970 and GTX 980. This forced AMD to slash prices across the board, as NVIDIA undercut existing AMD GPUs on price dramatically. The GTX 970 in particular, priced around $350, has proven extremely successful.
According to the Steam Hardware and Software Survey, the GTX 970 is used by more Steam users than any AMD family of GPUs, gaining this lead in the five months since its release. There has been some controversy surrounding the card; whether it ultimately affects sales or benefits AMD is an open question.
An AMD GPU doesn't show up on the survey until the 14th spot, behind eight NVIDIA GPUs and five Intel CPUs with integrated graphics. The AMD R9 200 series, which is AMD's latest high-end family of GPUs, is the 48th most popular graphics card. While this survey isn't a perfect representation of market share, it's likely a very good one, given that Steam users are by definition PC gamers.
The launch of the GTX 970 and 980 certainly contributed to the massive market share gains NVIDIA has enjoyed in the past two quarters. But this kind of thing didn't happen following other major product launches in the past. Instead, NVIDIA's market share stayed roughly the same at around 60%.
Part of this can be explained by the temporary demand created by cryptocurrency miners at the end of 2013 and the beginning of 2014. AMD's GPUs are more efficient for mining cryptocurrency, and this helped drive GPU sales for AMD at the time. This demand is now gone, though, and that means a big market has dried up for AMD. This sudden loss of market share may have been more spread out over time had it not been for this temporary surge in demand.
Another component is that AMD has likely fallen behind technologically. The company has been slashing its research and development spending for years, and NVIDIA now outspends AMD despite the latter's far broader portfolio of products. NVIDIA's Maxwell graphics architecture is extremely efficient, and AMD still doesn't have an answer.
AMD needs a big win
AMD has a lot riding on its upcoming GPUs. There have been plenty of rumors regarding the cards, but they still haven't been officially announced by the company. The high-end versions will reportedly use a new kind of high-bandwidth memory, giving them an advantage at high resolutions. Whether this leads to higher sales, given the tiny fraction of gamers currently using 4K displays, remains to be seen.
Originally, it was expected that AMD's new cards would be built on a 20nm process, but it's now rumored that both NVIDIA and AMD are skipping 20nm completely. This means any efficiency gains will need to come from AMD's new graphics architecture. This could prove to be a problem, as a new rumor suggests that only the highest-end variants from AMD will be built on a new architecture, with the rest using the current one. What this means if true is unclear, but it does seem strange, and it will make it much more difficult to compete with NVIDIA's midrange Maxwell offerings.
AMD doesn't just need to produce good products, it needs to blow away NVIDIA, both on performance and price. This is starting to seem unlikely, although these rumors could certainly prove incorrect.
If AMD doesn't end up winning back a considerable chunk of market share from NVIDIA when it launches these new cards, it may be time to conclude that NVIDIA's lead has become insurmountable, much like Intel's lead in the PC CPU market.
NVIDIA doesn't have the same advantages that Intel has; both NVIDIA and AMD rely on third-party foundries for manufacturing, unlike Intel. But slashing R&D spending typically doesn't lead to market dominance, and that's exactly what AMD has been doing. The company's PC segment is losing money as it continues to bleed market share to both Intel in CPUs and NVIDIA in GPUs, and the game consoles are the only thing keeping the company afloat.
If AMD doesn't have a smash hit with these new cards, and if NVIDIA doesn't make a huge mistake, NVIDIA could end up becoming the Intel of the graphics card market.