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NVIDIA: Xbox Contribution
The only Xbox supplier (including Microsoft) who is likely to make a 'material' profit from this console is NVIDIA. By assuring Microsoft it could build the brains of this box in the defined time frame, and negotiating a US$200 million advance, NVIDIA pulled off a hell of a coup. We would estimate that the interest income generated from this advance funded much of the chipset's development. In addition, the lack of associated overhead with regard to this chipset ensured that absolute profitability (despite below-corporate-gross margins) would be strong. In fact, we believe NVIDIA generates operating margins north of 20% on the Xbox chipset. On an absolute basis, we believe NVIDIA earns operating income in the range of $10-13 per chipset.
ATI Technology: GameCube Contribution
ATI's deal to provide the graphics engine for GameCube is starkly different from the NVIDIA scenario. Similar to the relationship Nintendo had with MIPS (MIPS-Q) for the N64, ATI enjoys a royalty model. (The manufacturing of the graphics engine, called Flipper, is by Japan's NEC.) We estimate ATI will receive $2.20 per console and an additional $0.50 per software title. We believe the GameCube will generate approximately $0.09 in EPS for ATI in fiscal 2002. Moreover, ATI has the ability to leverage the technology developed for GameCube into ancillary markets. We are excited about the future with regard to this initiative.
Nintendo claims to have sold 500,000 GameCubes in the first week. That translates into $7.5 million in royalty revenues for ATI in the first quarter of next year, and $34.5 million for the whole year.
Summary
While it appears that NVIDIA is likely to generate a higher level of absolute profitability from its Xbox supply agreement with Microsoft, the console market gives a beneficial boost to ATI as well, which has been struggling with its margins for the past 18 months. In addition, it pushed both firms to develop technology that can be leveraged back into other markets. Both solutions emphasize integration, a necessary skill for a world increasingly focused on minimizing form factors. As semiconductor process advances, it isn't unreasonable to expect these types of solutions to end up in consumer electronics and PC-like devices.
I expect video gaming to continue its breakneck growth pace, due to rapidly improving content and the ability of developers to take advantage of the new technology. GPUs are the single most complex semiconductor devices out there (in terms of transistor count), and the pace of development shows no signs of abating. A combination of decreasing die size, increasing bus bandwidths through innovative new bus architectures, lower costs of memory, and ever creative programmers eager to wrest that last little bit of performance, will make it an exciting future......(there is more to come!)
The only Xbox supplier (including Microsoft) who is likely to make a 'material' profit from this console is NVIDIA. By assuring Microsoft it could build the brains of this box in the defined time frame, and negotiating a US$200 million advance, NVIDIA pulled off a hell of a coup. We would estimate that the interest income generated from this advance funded much of the chipset's development. In addition, the lack of associated overhead with regard to this chipset ensured that absolute profitability (despite below-corporate-gross margins) would be strong. In fact, we believe NVIDIA generates operating margins north of 20% on the Xbox chipset. On an absolute basis, we believe NVIDIA earns operating income in the range of $10-13 per chipset.
ATI Technology: GameCube Contribution
ATI's deal to provide the graphics engine for GameCube is starkly different from the NVIDIA scenario. Similar to the relationship Nintendo had with MIPS (MIPS-Q) for the N64, ATI enjoys a royalty model. (The manufacturing of the graphics engine, called Flipper, is by Japan's NEC.) We estimate ATI will receive $2.20 per console and an additional $0.50 per software title. We believe the GameCube will generate approximately $0.09 in EPS for ATI in fiscal 2002. Moreover, ATI has the ability to leverage the technology developed for GameCube into ancillary markets. We are excited about the future with regard to this initiative.
Nintendo claims to have sold 500,000 GameCubes in the first week. That translates into $7.5 million in royalty revenues for ATI in the first quarter of next year, and $34.5 million for the whole year.
Summary
While it appears that NVIDIA is likely to generate a higher level of absolute profitability from its Xbox supply agreement with Microsoft, the console market gives a beneficial boost to ATI as well, which has been struggling with its margins for the past 18 months. In addition, it pushed both firms to develop technology that can be leveraged back into other markets. Both solutions emphasize integration, a necessary skill for a world increasingly focused on minimizing form factors. As semiconductor process advances, it isn't unreasonable to expect these types of solutions to end up in consumer electronics and PC-like devices.
I expect video gaming to continue its breakneck growth pace, due to rapidly improving content and the ability of developers to take advantage of the new technology. GPUs are the single most complex semiconductor devices out there (in terms of transistor count), and the pace of development shows no signs of abating. A combination of decreasing die size, increasing bus bandwidths through innovative new bus architectures, lower costs of memory, and ever creative programmers eager to wrest that last little bit of performance, will make it an exciting future......(there is more to come!)
Alternatively you could just post the link like this:
http://www4.tomshardware.com/consumer/01q4/011204/console-05.html
http://www4.tomshardware.com/consumer/01q4/011204/console-05.html
NVIDIA: Xbox Contribution
The only Xbox supplier (including Microsoft) who is likely to make a 'material' profit from this console is NVIDIA. By assuring Microsoft it could build the brains of this box in the defined time frame, and negotiating a US$200 million advance, NVIDIA pulled off a hell of a coup. We would estimate that the interest income generated from this advance funded much of the chipset's development. In addition, the lack of associated overhead with regard to this chipset ensured that absolute profitability (despite below-corporate-gross margins) would be strong. In fact, we believe NVIDIA generates operating margins north of 20% on the Xbox chipset. On an absolute basis, we believe NVIDIA earns operating income in the range of $10-13 per chipset.
ATI Technology: GameCube Contribution
ATI's deal to provide the graphics engine for GameCube is starkly different from the NVIDIA scenario. Similar to the relationship Nintendo had with MIPS (MIPS-Q) for the N64, ATI enjoys a royalty model. (The manufacturing of the graphics engine, called Flipper, is by Japan's NEC.) We estimate ATI will receive $2.20 per console and an additional $0.50 per software title. We believe the GameCube will generate approximately $0.09 in EPS for ATI in fiscal 2002. Moreover, ATI has the ability to leverage the technology developed for GameCube into ancillary markets. We are excited about the future with regard to this initiative.
Nintendo claims to have sold 500,000 GameCubes in the first week. That translates into $7.5 million in royalty revenues for ATI in the first quarter of next year, and $34.5 million for the whole year.
Summary
While it appears that NVIDIA is likely to generate a higher level of absolute profitability from its Xbox supply agreement with Microsoft, the console market gives a beneficial boost to ATI as well, which has been struggling with its margins for the past 18 months. In addition, it pushed both firms to develop technology that can be leveraged back into other markets. Both solutions emphasize integration, a necessary skill for a world increasingly focused on minimizing form factors. As semiconductor process advances, it isn't unreasonable to expect these types of solutions to end up in consumer electronics and PC-like devices.
I expect video gaming to continue its breakneck growth pace, due to rapidly improving content and the ability of developers to take advantage of the new technology. GPUs are the single most complex semiconductor devices out there (in terms of transistor count), and the pace of development shows no signs of abating. A combination of decreasing die size, increasing bus bandwidths through innovative new bus architectures, lower costs of memory, and ever creative programmers eager to wrest that last little bit of performance, will make it an exciting future......(there is more to come!)
The only Xbox supplier (including Microsoft) who is likely to make a 'material' profit from this console is NVIDIA. By assuring Microsoft it could build the brains of this box in the defined time frame, and negotiating a US$200 million advance, NVIDIA pulled off a hell of a coup. We would estimate that the interest income generated from this advance funded much of the chipset's development. In addition, the lack of associated overhead with regard to this chipset ensured that absolute profitability (despite below-corporate-gross margins) would be strong. In fact, we believe NVIDIA generates operating margins north of 20% on the Xbox chipset. On an absolute basis, we believe NVIDIA earns operating income in the range of $10-13 per chipset.
ATI Technology: GameCube Contribution
ATI's deal to provide the graphics engine for GameCube is starkly different from the NVIDIA scenario. Similar to the relationship Nintendo had with MIPS (MIPS-Q) for the N64, ATI enjoys a royalty model. (The manufacturing of the graphics engine, called Flipper, is by Japan's NEC.) We estimate ATI will receive $2.20 per console and an additional $0.50 per software title. We believe the GameCube will generate approximately $0.09 in EPS for ATI in fiscal 2002. Moreover, ATI has the ability to leverage the technology developed for GameCube into ancillary markets. We are excited about the future with regard to this initiative.
Nintendo claims to have sold 500,000 GameCubes in the first week. That translates into $7.5 million in royalty revenues for ATI in the first quarter of next year, and $34.5 million for the whole year.
Summary
While it appears that NVIDIA is likely to generate a higher level of absolute profitability from its Xbox supply agreement with Microsoft, the console market gives a beneficial boost to ATI as well, which has been struggling with its margins for the past 18 months. In addition, it pushed both firms to develop technology that can be leveraged back into other markets. Both solutions emphasize integration, a necessary skill for a world increasingly focused on minimizing form factors. As semiconductor process advances, it isn't unreasonable to expect these types of solutions to end up in consumer electronics and PC-like devices.
I expect video gaming to continue its breakneck growth pace, due to rapidly improving content and the ability of developers to take advantage of the new technology. GPUs are the single most complex semiconductor devices out there (in terms of transistor count), and the pace of development shows no signs of abating. A combination of decreasing die size, increasing bus bandwidths through innovative new bus architectures, lower costs of memory, and ever creative programmers eager to wrest that last little bit of performance, will make it an exciting future......(there is more to come!)