ATI to juice up budget PCs

ATI has scheduled press events next week to discuss "next-generation integrated graphics." Analysts believe the company will unveil the RS300, a new family of integrated chipsets, PC components that combine a graphics processor with a chipset that controls basic PC functions such as memory use.

An ATI representative did not respond to requests for comment, but the company typically does not discuss unannounced products.

Integrated chipsets cost significantly less than standalone graphics processors and have made rapid advances in the marketplace, accounting for about half of all PCs sold in recent years. But the chips have significantly less graphics horsepower than standalone processors, meaning the low-budget PCs that use them usually can't run the latest games.

Intel has been the biggest beneficiary of the shift to integrated chipsets, accounting for about 60 percent of such chips for PCs based on Intel's Pentium 4 processor.

The RS300 will exhibit dramatically improved graphics performance over the current generation of integrated chipsets, said analyst Jon Peddie of Jon Peddie Research. That could give ATI a distinct advantage over Intel--if consumers learn about the performance advantage.

"We think the consumer is going to be confused and feel like they've had a bait-and-switch experience," Peddie said. "They see games being played on powerful desktops in the store...and they don't understand not every PC can run those."

Peddie advocates a new classification for budget PCs, so consumers can easily distinguish between "business" systems built to run office applications and "entertainment" models capable of handling games. Such categories would allow PC makers to charge a little more for a better performing system, adding a little profit to the typically low-margin chipset business.

"The consumer isn't going to know the difference unless someone tells them," Peddie said. "I think it's possible for the (chipset makers) to make a little money if the (PC makers) can get it through their thick heads that consumers will pay a few bucks for a device that can run" contemporary games.

Andrew Root, an analyst for investment bank Goldman Sachs, wrote in a recent report that he expects the RS300 to arrive this month. The new chip is unlikely to have much of an effect on Intel, he said, but it could dent numbers for Via and Silicon Integrated Systems (SiS), which together account for about a third of the chipset market. Those "are the more likely targets for ATI to leverage its superior graphics technology," he wrote.

ATI entered the chipset market last year with integrated products for desktop and notebook PCs running on processors from both Intel and Advanced Micro Devices. Nvidia, the market leader for standalone graphics processors, also competes in the chipset market, but only has a license to produce products for PCs based on AMD's Athlon processors.

ATI's most notable success has been in the laptop market, where its graphics technology can command a slight premium, while Nvidia has made headway in the market for Athlon-based desktops.