Please ensure Javascript is enabled for purposes of website accessibility

Why Intel Won’t Enter the Discrete Graphics Chip Market

By Ashraf Eassa - Sep 9, 2015 at 8:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's an interesting thought, but it likely doesn't make business sense for Intel.

Over on Twitter (TWTR -5.55%), Rys Sommefeldt, Editor-in-Chief of popular 3D graphics-oriented website Beyond3D and Business Development Manager at graphics IP vendor Imagination Technologies (NASDAQOTH: IGNMF), made the following very interesting "tweet": 

In other words, he thinks that Intel (INTC -0.79%) -- which currently only offers its graphics technology integrated onto its CPUs -- could use its next generation graphics processor design to enter the market for stand-alone graphics chips. Such a move would put Intel into direct competition with NVIDIA (NVDA -4.40%) and Advanced Micro Devices (AMD -4.11%)

Although Sommefeldt makes the interesting point that there could be money to be made for Intel in this market, I don't think Intel will actually go ahead and do that. Here's why. 

How much of the market would really be open to Intel?
If Intel were to enter the market for discrete graphics cards, it would -- as Sommefeldt suggests in a subsequent "tweet" -- probably make a play for the mid-range of the market. 

I'd argue that the business case for trying to compete broadly in the market for stand-alone graphics is a bit iffy. I'd estimate that the market for such chips is probably in the ballpark of $4 billion, with NVIDIA capturing the majority of it and AMD as a distant second.

If Intel were to enter the market, it would have to expend not-so-insignificant resources into trying to get its piece of a, perhaps, $4 billion pie. For a company that's on track to generate over $55 billion in sales this year, I'm not sure that this is all that attractive. 

The already-iffy business case for Intel to enter this market becomes even less attractive if Intel doesn't try to go for the high-end of the market, where a significant portion of the money to be made from the discrete graphics processor market lies. 

Although one could argue that Intel might be willing to make the incremental investments required to go after this market, the risk-to-reward ratio of trying to go up against NVIDIA and AMD in this segment -- which have established gamer-focused brands (GeForce and Radeon, respectively) and long histories of developing high-performance graphics chips -- seems rather poor. 

Intel's strategy seems a better way to create shareholder value
Intel's current strategy with integrated graphics is an interesting one. For a given class of product, Intel tends to offer two levels of graphics performance.

There's the baseline level of graphics present in most of its chips which come with reasonable levels of 3D performance as well as the company's latest multimedia features. In a modern PC, integrated graphics is a must, so Intel seems to try to make even this "baseline" level of graphics fairly competitive. 

Where things get really interesting, though, is what it's doing with its higher-end variants. Intel seems to be trying to -- in some cases significantly -- increase the performance of its higher-end Iris/Iris Pro integrated graphics engines with each generation.

Intel's apparent goal is to try to displace low-end/mid-range discrete graphics chips, particularly in mobile form factors, by trying to offer similar performance as those parts and capturing the value that would have otherwise gone to the discrete graphics chip vendor. 

Ultimately, Intel's goal here is to try to improve the average selling prices of its chips, which is probably the most sensible way for Intel to try to capitalize on more powerful graphics solutions. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Intel Corporation Stock Quote
Intel Corporation
INTC
$41.67 (-0.79%) $0.33
Advanced Micro Devices, Inc. Stock Quote
Advanced Micro Devices, Inc.
AMD
$91.16 (-4.11%) $-3.91
NVIDIA Corporation Stock Quote
NVIDIA Corporation
NVDA
$161.54 (-4.40%) $-7.44
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$35.76 (-5.55%) $-2.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
322%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.