Nvidia Vs. Amd

                                   EXECUTIVE SUMMARY

The following report includes an analysis and evaluation of two giants of the semiconductor industry, AMD and NVIDIA. The report includes a detailed comparison of the functional systems and strategies including Operations, Marketing, Sales and Technology of the two companies. We have identified the various dimensions on which the two firms compete. We have also try to identify which doors have been closed by the companies as part of a well thought out strategy. The barriers to growth for each company have been identified. The report concludes by characterising the two firms in terms of their essence. Methods of analysis include analysis of industry and company reports available on various platforms including annual reports.

The report finds that the prospects of both the companies in their current position are positive. The report finds that both the companies have a strong focus on R&D which leads them to develop cutting edge products. Both the companies are trying to diversify into new business segments such as Automotive, Deep Learning and Cloud Computing. Both the companies also suffer from short product lifecycles which creates immense pressure to create successful companies. It is recommended that both the companies continue to diversify their businesses to reduce their risk.

The report details which doors have been closed for the two companies. NVIDIA chose not the build CPUs and instead focussed their attention on designing GPUs. It chose to be a market leader in one particular segment, while understanding the risks of putting all its eggs in just one basket. On the other hand, AMD chose the path of being a no. 2 in both the CPU and the GPU markets. Rather than being the leader in one market it decided that it would compete in both markets simultaneously.

NVIDIA designs state-of-the-art graphic chips. It pours in a significant chunk of its revenues into R&D to design the best GPUs. Users are prepared to pay a premium for its products. Thus, NVIDIA behaves like an artist. AMD believes in cost leadership. It competes in the vast growing middle market segment of GPUs and delivers maximum bang for buck. Thus, AMD acts like an elephant.

Industry segment and marketplace 

The global semiconductor industry has seen revenues grow to $380bn in 2016. This represents a compound annual growth rate (CAGR) of approx. 4% between 2012 and 2016. The main drivers of growth have been Data processing, Automotive applications and Internet of things. IoT and the connected car are likely to be the next lucrative market in the near future. The semiconductor market is characterised by increased levels of competition owing to the presence of both large and medium sized multinational competitors. Some of the leading companies in this segment are Intel Corp., Samsung Elec., Qualcomm Inc., and Texas Instruments. The recent news of Broadcom for the takeover of Qualcomm for a reported bid of $100bn is an indication of the market forces at play. The semiconductor industry regularly sees strong innovation which allows competitors to differentiate their products. There is significant barrier to entry as the market is capital intensive and requires sophisticated R&D processes. There is also an increasing demand to create more environmentally friendly products with lower power consumption and by harnessing solar energy. There is also increased competition from Chinese companies who are investing heavily in this space. China is well on track to house the next global giant in the semiconductor industry.

There is very little threat of substitutes in the semiconductor industry. In both the Integrated and Discrete segments, there are virtually no alternatives to semiconductor chips. The main customers of semiconductor chips are makers of electronic products such as processors, graphics cards, System-On-Chips (SOCs), and APUs. They range in size from large multinational corporations to smaller OEM manufacturers. Companies such as Nvidia, AMD, Qualcomm etc compete on offering processors with instruction sets with unique features and lesser power consumption. There is a constant demand for faster chips that take up as little real estate as possible. There are relatively fewer number of buyers for high quality differentiated GPUs, APUs and power efficient SOCs. Hence, the power that the major semiconductor companies wield is quite significant. There is an element of brand loyalty. Customers who use Nvidia GPUs are find that switching costs are high if they wish to migrate to a competing product. One example is that of Sony Entertainment Ltd., which used Nvidia for its PS3 gaming console.

The businesses of tomorrow will leverage the power of Deep Learning to deliver breakthroughs in developing new products and services. Accelerators such as GPUs developed by Nvidia, AMD and Intel will be crucial in creating platforms that can support Deep Learning. Thus, behemoths like Amazon, Google, Microsoft are depending on cutting edge GPUs to support their machine learning use cases.

Several companies in this industry do not usually manufacture the semiconductor chips in-house. They rather design the chips and then outsource manufacturing to other players. Thus, the global semiconductor industry has a diverse set of suppliers and buyers.

Choice of the firms

NVidia and AMD are two technology giants located in the hub of the Silicon Valley. Both these firms design graphics processing units for the gaming, cryptocurrency and mobile computing markets. Both Nvidia and AMD offer their products to Original Equipment Manufacturers (OEMs) and motherboard manufacturers. Both the companies have operations across the globe including Asia Pacific, Europe and the Americas.

Thus, both Nvidia and AMD are similarly sized firms who compete across the same market segment of GPUs and across the same geographical market. In the smartphone arena, we have companies like ARM and Imagination Technologies who provide GPU designs to vendors such as Apple and Samsung. By 2020, the global GPU market segment is expected to surpass 67 million units, a majority of which will be accounted for by Nvidia and AMD. The war between these two for capturing the GPU market segment is decades old. While AMD designs both CPUs (where it competes with Intel) and GPU, Nvidia solely concentrates on GPU design. [pic 1]