CEO sees less Intel and more Nvidia in PCs

The graphics processing unit (GPU) is in, the central processing unit (CPU) is out. That was one of the main themes running through the Nvidia fourth-quarter conference call earlier this week. Nvidia is the largest graphics chip supplier.

During the call on Wednesday, Jen-Hsun Huang, President and CEO of Nvidia, repeated one thing often: GPUs are playing more of a central role in PCs, CPUs less so. "The CPU has become fast enough for the vast majority of (PC) users," he said. "PC enthusiasts, gamers, and design professionals have know this for some time." The GPU offers more horsepower for parallel processing, essential for today's visually rich environments, he said.

Huang cited the Gateway P series notebooks as an example. One model has an Intel 1.6 GHz processor and a GeForce 8800 GPU. He said systems like this with a "higher-end GPU" and "lower-end CPU" are better optimized for today's users. "Relative to a notebook with a higher-end CPU and lower-end GPU, the Gateway FX is twice the performance and yet $200 lower cost." In short, Huang was saying that users can save $200 by buying a system with a low-performance CPU and high-performance GPU--and get better performance to boot than the other way around.

Intel, of course, has other ideas. "We feel that the CPU is absolutely vital and you need a fast CPU and a fast GPU for the best experience. Take game AI (artificial intelligence) and physics for example, something that is consuming more and more CPU cycles," an Intel spokesperson said. "Also, the CPU is essential for intensive stuff like hi def video encode, 3D rendering," the spokesperson said.

Huang had a lot to say about physics too in the wake of Nvidia's purchase of Ageia Technologies this week (first announced on February 4th). Ageia's PhysX software is used with more than 140 PhysX-based games on the Sony Playstation 3, Microsoft XBOX 360, Nintendo Wii, and gaming PCs. (Game physics simulate the laws of physics in games.) "We're going to port the Ageia PhysX engine onto CUDA."

CUDA, a programming interface, has now shipped into 50 million GeForce 8 series processors and over the next several years will ship into a few hundred million more, Huang said. "Our expectation is that this will encourage users to buy a second GPU...and for the highest-end gamers, will encourage them to buy three GPUs." One GPU would be used for physics, while two for graphics (or vice-versa), Huang said. "Every single GPU that is CUDA enabled will be able to run the PhysX engine when it comes. In the end, it's just going to be a software download," Huang added.

But Nvidia's CEO returned to his overarching theme again and again. More Nvidia and less Intel. "Rebalance the system so that more GPU horsepower can be dedicated to the (user) experience." Nvidia even has a name for this strategy. The "optimized PC design approach." And Nvidia believes that more and more consumers are coming to know this, resulting in high growth. "The consumption of GPUs is increasing," Huang said, citing 80 percent year-to-year growth in Nvidia's discrete GPU business in the fourth quarter.

"I think I would say that [Huang's argument] has qualified merit. It's completely true that in some applications graphics, rather than CPU, is the limiting factor, and naturally Nvidia would be concerned with those applications most often," said Dean McCarron, founder and Principal of Mercury Research. But Intel and AMD are not standing still. "As far as rebalancing, it's pretty clear the CPU suppliers are actively re-partitioning their products, and graphics capabilities are perhaps the highest priority here. If you look at AMD and Fusion, or Intel and its Nehalem CPUs, both suppliers clearly see advantages to repartioning the PC around graphics -- in this case, moving graphics onto the CPU."

Nvidia's execution is not flawless. It is not competitive in the business segment and at the lower end of desktop and notebook lineups. Large computer segments unto themselves. Here both AMD-ATI graphics and Intel integrated graphics dominate. AMD-ATI is also competitive in the mid-range to high-end.

In related news, Nvidia's shares fell Thursday due to lower gross margins. On Wednesday, the company said that for the first time in 13 quarters non-GAAP gross margins did not increase quarter to quarter. Gross margin shrank to 45.9 percent in the fourth quarter from 46.4 percent in the previous period. In the fourth quarter, the company posted a 58 percent jump in fiscal fourth-quarter net income.

On another front, Nvidia CFO, Marvin D. Burkett, said no new process technology will be needed for the 8800 processors and they will continue to be made on a 90-nanometer process.