The Business of Tech: Rough Times All Around For The GPU Crewby Ryan Smith on July 10, 2008 10:00 PM EST
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For barely 2 weeks in to July, it has been a surprisingly rough time for the GPU sector. Amid the already weak global and national economies, both companies have been feeling a great deal of pain on the business and financial sides of things. It's been an interesting month to say the least, so we'll waste no time and jump right in to the middle of things.
AMD has had the better month so far, as their sole immediate problem is only that their stock has hit a 5-year low as of today. When you hear concerns about the liquidity of AMD, this has a lot to do with it. The company is struggling to keep its market capitalization above what amounts to a "quaint" 3 billion dollars; which for the sake of comparison is only a bit more than half of the 5.4 billion dollar price tag on ATI when they purchased them in 2006. And while this isn't an immediate problem for the company, it doesn't give them much leverage for raising further capital to combat their ongoing losses or much to work with in terms of employee stock-based compensation.
AMD's Q2 earnings are due out on the 17th, although AMD may wish this was not the case. It will be yet another losing quarter, it's only a question of how much. AMD is expected to lose around 200 million dollars, but with the brisk sales of the latest Radeon 4850 and 4870 parts there's a good chance that it could be better as long as there aren't additional unexpected CPU-side losses. Surprisingly, this would still be AMD's best quarter in the last couple of years. We'll have more on this next week once their earnings are out.
For those of you who have been following AMD's situation this doesn't amount to much in the way of new news, but it does highlight the fact that the company is running out cash and stock price to bleed. Should the company manage to hit rock bottom, not a lot of good can come from it.
Believe it or not, AMD may have the more enviable situation at the moment. NVIDIA's stock price is nowhere near their own record lows, but that hasn't stopped the company's stock from experimenting with the laws of gravity. The price has dropped by over 33% in a single day this month, illustrating just how bad things are for NVIDIA at the moment. Right now NVIDIA is dealing with these specific issues:
1) Q2 revenue is now expected to come in well below earlier estimates, prompting the company to issue an earnings warning that was the result of the steep drop in stock price. What should have been another profitable quarter for the company may now be their first loss in the last few years.
2) The source of #1 has a lot to do with their current product situation: The new GTX 2xx series is not selling as well or for as much as anyone predicted. The reviews and subsequent price drops tell the tale: NVIDIA's most expensive GPU yet simply doesn't perform well enough compared to AMD's latest parts to justify the price NVIDIA was targeting. What will be AMD's boon is NVIDIA's loss, a great deal of GPU profit.
3) Another black hole for revenue this quarter will be defective products. NVIDIA is expecting to lose some 200 million dollars on replacing defective products above and beyond the usual failure rates. They have not specified what exactly is broken and in need of replacement, but the best theory we've heard so far is that there's a substrate problem with some of their mobile GPUs, resulting in the chips breaking their own substrate at temperatures they should be able to handle. 200 million dollars buys a lot of chips, so this doesn't appear to be a small problem. The bigger loss however will be the loss of faith in the company from OEMs who will be repairing laptops using these defective chips.
4) Finally, just to add insult to injury, Rambus is suing NVIDIA. We've talked about the saga of Rambus before, and this is just the continuation of it. The courts have upheld their patents in spite of their underhanded scheming with the JEDEC, so now they're free to go after anyone and everyone involved with memory. NVIDIA is being sued for infringement due to their memory controllers on their GPUs and motherboard chipsets, stretching from their early SDR controllers to their latest GDDR3 controllers. Rambus is playing hard and fast, on top of monetary damages they're looking for an injunction against NVIDIA to keep them from shipping further infringing products, most likely to encourage the company to settle out of court rather than risk a crippling injunction. In either case the situation is an expensive one for NVIDIA, they'll have to spend a great deal of cash on defending themselves, and should they settle Rambus will undoubtedly ask for a great deal of cash too (along with a percentage of all GPU and chipset sales).
In the long term NVIDIA is still in a better position than AMD since they're not continually losing money hand over fist, but it doesn't mean that these problems won't have ramifications in the future. NVIDIA wouldn't be the first company to shift around its product lines or slow down their R&D efforts in order to make a quarter or two look better, although for obvious reasons we hope it does not come to that. This much bad news at once is certainly unprecedented for NVIDIA.