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Nvidia up, 3dfx down in graphics fight

The tumultuous and competitive nature of the computer graphics market was highlighted today in the contrasting earnings reports of Nvidia and 3dfx.

The tumultuous nature of the computer graphics market was highlighted today in the contrasting earnings reports of rivals Nvidia and 3dfx.

Nvidia today reported a fivefold increase in revenues for its second fiscal quarter and a reversal in earnings from the same period a year before, largely through sales of its TNT family of graphics chips to major computer manufacturers.

Revenue came to $78 million, a 543 percent increase over $12.1 million for the same period the year before, while earnings came to $6.7 million, contrasting with a net loss of $9.7 million.

More important, the company is now seen as the graphics leader in terms of technology, analysts say. "They're the heir apparent," according to Dean McCarron, principal analyst at Mercury Research. "They're the new hot technology in graphics."

That's a significant accomplishment in such a hypercompetitive field. Last week, even Intel acknowledged that it could not keep pace in this arena and was dropping discrete graphics chips.

After the main microprocessor, graphics chips are the most critical piece of silicon in personal computers today. These chips handle the manipulation of images users see on their computer screens and are increasingly important as computer interfaces and 3D games become more sophisticated and demanding.

A little over a year ago the 3D computer title belonged to 3dfx, which could boast a legion of ultra-loyal gaming customers. However, at the time, the company was in the process of shifting to a strategy to play in all segments of the graphics market, not just the high-performance PC segment. Part of shift involved buying board maker STB.

The transition has not been perfectly smooth. The company's Banshee chip for mid-range computers was delayed until late last year, which took the company out of the running for some major computer contracts. More recently, the STB acquisition took longer than expected and affected the bottom line this quarter, the company said. In the meantime, other companies caught up in terms of 3D performance.

As a result of the transition, 3dfx has seen revenues nearly double from $58.9 million to $104.8 million but income decline from $9 million to losses of $11.6 million. Even if one-time charges for STB are excluded, the losses come to $4.3 million for the fiscal quarter that ended July 31.

"Graphics is a tough business in general," McCarron said.

Nvidia too is in the midst of diversifying its product lines. This year, it released graphics chips for standard corporate desktops, a departure from its history of making high-performance chips for gamers.

The company also announced a deal to start making "integrated" products that combine 3D functions in a standard PC chipset. These products are expected to get more prevalent as they can reduce manufacturing costs.