Huang Jen-hsun (黃仁勳) has rallied his engineers and developers before around his grand plans for Nvidia, the computer chipmaker he helped found nearly 20 years ago.
Huang — a Taiwanese immigrant, onetime table tennis champ and Stanford-educated electrical engineer — took a gamble in 2006 on a graphics chip that would give his company the lead in the most sophisticated computing power used in moviemaking and science. And in 2003, he energized Nvidia after it lost a lucrative deal for supplying a graphics chip to the Microsoft Xbox game machine.
Now he wants the company to make another shift, stretching beyond graphics to build the chips that power smartphones and tablets.
“We used to be a PC graphics company — only PCs, only graphics,” Huang said in an interview last week. “We have reinvented Nvidia.”
It is an opportune time for the shift. Tablets are poised to surge, as PC sales are slowing. Meanwhile, the technology in PCs is changing, threatening the company’s old market. Intel and Advanced Micro Devices both sell main processors that include graphics abilities, cutting out the need for add-on graphics processors, and already eating into some Nvidia sales.
“We are well positioned to go after a market opportunity that is sixfold the market opportunity of the Nvidia you knew from the past,” Huang recently told analysts.
Behind Huang’s showmanship and bold plans is the Tegra 2, the company’s latest mobile chip. This chip, based on the power-efficient chip architecture from ARM Holdings, has started to appear in a number of smartphones, like the Droid X2, and in tablets like the Samsung Galaxy Tab 10.1 that run on Google’s Android operating system. Huang envisions Nvidia becoming as essential to Android as Intel has long been to Windows PCs.
Although few people in the chip industry dismiss Huang’s ideas, the path will be difficult.
“There’s a lot of uncertainty about how they are going to outgrow their core graphics business,” said Rajvindra Gill, an analyst with Needham & Co, which recently downgraded Nvidia’s stock to hold from buy.
Still, the shift appears to be a necessary step. A recent report from Jon Peddie Research shows that Nvidia’s share of the market for graphics processing — including integrated and stand-alone chips — dropped 8 percentage points year over year in the first quarter to 20 percent, while AMD’s share of the graphics chip market rose 3 percentage points and Intel’s rose almost 5 percentage points.
The PC market, overall, is slowing as well. Gartner, a research firm, expects worldwide PC sales to increase only 10.5 percent, to 388 million units, this year, far below the forecast of 15.9 percent it made six months ago. And that number might even be optimistic.
During the first three months of the year, Gartner says, the PC industry shrank by about 1 percent, with some industry analysts saying it contracted more than that.
The problem is a maturing market in the US, a decline in demand from recession-weary corporations and, increasingly, a growing consumer appetite for tablet computers.
So far, Nvidia’s strategy is working. The company posted US$100 million in sales of Tegra 2 during the first quarter, only months after releasing the chip.
Meanwhile, a settlement in January of a patent dispute with Intel is also helping the company’s bottom line. Intel has agreed to pay Nvidia US$1.5 billion over five years. Nvidia can expect a payment of about US$66 million a quarter from Intel in exchange for Intel’s use of Nvidia’s patents.