Nvidia kicks off confab in tough times

As it kicks off its Nvision conference Monday in San Jose, Calif., chipmaker Nvidia must be hoping that the N stands for "new" and "now"--and not "no thanks."

Nvidia is trying to shake off a tough second quarter and is staring down a slump in earnings tied to chip glitches and stiffer competition from rival Advanced Micro Devices. The home page for the Nvision 08 conference urges interested parties to "join the visual revolution" and promises attendees two days' worth of "jaw-dropping visual wonderment" in the realms of games, movies, and science.

A big chunk of the graphics chip supplier's woes stem from a $196 million second-quarter charge taken for defective graphics processors. Though Nvidia CEO Jen-Hsun Huang has said that the "failures are only seen in a small percentage of all the chips," Hewlett-Packard and Dell have listed a number of models affected by the glitch.

A possibly bigger challenge is AMD's resurgent ATI graphics chip unit. Huang said in the second-quarter earnings conference call that his company had "underestimated" the price and performance of AMD's latest graphics chips, leading Nvidia to "to misposition our fall lineup" of chips.

(See: "AMD reclaims the high-end 3D card belt.")

AMD's recently introduced midrange and high-end graphics boards have been well-received and typically come at a discount to Nvidia boards that are roughly equal in performance. This forced Nvidia to cut prices on its performance graphics chips.

What does Nvidia think about AMD's new products? "Our competition has built a nice product but...the nice things that people write about their product is that it's well-priced," according to Huang, speaking during the earnings call.

Analysts confirm that AMD is making inroads. "(It's) pretty discernible. Certainly desktop standalone graphics, they've seen improvement there," said Dean McCarron, the principal and founder of Mercury Research, a company that tracks chip market movements.

In laptops the gains have been smaller, however--at least up to the second quarter. "Small incremental gains by ATI, more like onesy-twosy...we're not talking about 10-point share shifts," McCarron said.

But McCarron doesn't see anything like a meltdown for Nvidia either. The company is still strong in high-performance graphics, and dire predictions that Nvidia must spin off its chipset operations are wrong, according to McCarron. Certain segments of its chipset business saw "a very large expansion" in the second quarter, he said.

Ironically, one area where Nvidia did not perform well in chipsets was tied to tepid results from AMD. In the second quarter, McCarron said, "the AMD mobile processor business was not as strong as it probably could have been. If AMD mobile CPUs don't sell, neither do the Nvidia mobile chipsets."

And then there's Intel's future Larrabee graphics chip, which is targeted squarely at Nvidia's bread and butter segment: gaming. The specter of Larrabee never fails to hit a raw nerver with Nvidia. PC Pro posted comments from Nvidia executives and scientists pooh-poohing Intel's attempt to enter the high-end graphics market.

Click here for highlights of Nvidia's Nvision 08 conference.