It is well known that in the world of high-performance, stand-alone graphics processors there are only two vendors left: NVIDIA (NVDA +1.67%) and Advanced Micro Devices (AMD 0.03%). NVIDIA has a substantial market segment share lead over AMD, with Jon Peddie Research reporting NVIDIA grabbed a whopping 81.1% market segment share in the most recent quarter.
I believe unless AMD slashes prices of its flagship Radeon Fury X graphics chip, which many had believed would be the struggling chipmaker's ticket to regain share against NVIDIA, AMD may actually lose share at the high end of the graphics chip market in the coming quarters. Here's why.
NVIDIA and its partners are getting very aggressive with the 980 Ti
According to a number of third-party reviews, the NVIDIA GeForce GTX 980 Ti delivers roughly the same performance as AMD's flagship Radeon R9 Fury X. One of the problems for the Fury X, though, has been that GeForce GTX 980 Ti chips can typically be run at much faster speeds than what NVIDIA rates them at, which means many add-in board vendors offer GeForce 980 Ti-based graphics cards with a fairly substantial performance lead over the Fury X.
In contrast, it is widely accepted that the Fury X doesn't have much headroom beyond its rated specifications.
Early on, potential buyers would need to pay a premium -- in some cases, a substantial one -- for these "factory overclocked" 980 Ti cards. However, things have changed dramatically in the months since the 980 Ti and the Fury X launched.
Today, a Radeon R9 Fury X can be had for as low as $629, with most models sitting at around $650. That may seem fine, but it's important to note that on Newegg.com a factory-overclocked 980 Ti can be had for as low as $599 before a $30 mail-in rebate. NVIDIA also throws in a free game, to boot.
It's very hard to make the case for the AMD Fury X at this point in light of the very aggressive pricing on NVIDIA's part with respect to the 980 Ti. If AMD wants to have a chance of maintaining, let alone growing, its share at the very high end of the stand-alone graphics processor market, I believe it will need to cut prices.
Can AMD actually afford to cut prices, though?
The problem for AMD is it may not have much in the way of room to cut prices while keeping its margins robust. Remember that the 980 Ti is based on a cut-down version of NVIDIA's GM200 GPU used in the $999 Titan X, while the Fury X is a full "Fiji" die. Given that these chips are roughly the same die size built on the same TSMC (TSM +1.97%) 28-nanometer process, NVIDIA's effective yields are probably better, giving it an inherently better cost structure.
At the same time, it's worth noting that the Fury X uses a newer memory technology known as High Bandwidth Memory (or HBM), while the 980 Ti uses a more mature technology known as GDDR5. I suspect at this stage of the game, GDDR5 memory is quite a bit cheaper than HBM.
All told, I believe it's cheaper to build a graphics card based on the 980 Ti than it is to build one based on the Fury X. This may make AMD reluctant to cut prices because it knows NVIDIA is much better able to handle a "price war" than AMD.
AMD's reasoning for not being more aggressive on pricing is it may as well extract as much revenue as possible from customers who prefer to buy AMD products anyway.
AMD is in a tough spot
As far as high-end graphics go, I believe AMD is in a bit of a bind. NVIDIA is typically viewed as the "premium" brand while AMD is viewed by many as the "value brand." In this case, though, it looks like the "premium" vendor is offering products with equal-or-better performance at competitive price points at the high end.
It seems as though NVIDIA has really "won" this round of the battle. Although some AMD bulls remain hopeful the tides may turn as the two companies introduce their next-generation architectures, the fact of the matter is that NVIDIA likely dramatically outspends AMD on the development of graphics technology.
I believe things will remain tough for AMD's graphics business for the foreseeable future in the face of NVIDIA's strong execution and sharper focus on the graphics chip market. In fact, AMD executives seem to be more interested in talking up the company's upcoming CPU core known as "Zen" rather than its next-generation graphics technologies. It doesn't seem prudent for investors to factor in material share gains in graphics as part of an investment thesis for AMD.
