Investors in chip stocks would probably like to hold more of Nvidia Corp and ATI Technologies Inc.
Buoyed by new products, a lack of competition and supply contracts for hot-selling video-game consoles, shares of graphics-chip maker Nvidia have more than tripled since Jan. 1 -- the best performer in the NASDAQ 100 Index. Rival ATI's stock has almost doubled. Meanwhile the Philadelphia Semiconductor Index, which includes Intel Corp and Texas Instruments Inc, fell 11 percent.
Like Intel, ATI and Nvidia chips are used in personal computers, whose sales will fall this year for the first time in at least 15. While the drop in PC sales slashed demand for Intel's microprocessors and chips overall, Nvidia's sales have risen by at least 8 percent for eight straight quarters.
"It's been a terrible semiconductor market," said James Grossman, a portfolio manager at AAL Capital Management Corp in Appleton, Wisconsin, which holds Nvidia stock in its US$45 million technology fund. "Just think of the possibilities when the computing market starts turning around."
ATI and Nvidia are the survivors of a five-year shakeout among graphics-chips makers, whose US$3.5 billion in 2000 sales account for less than 2 percent of the US$185 billion semiconductor market. Rivals such as Weitek Corp went bust or, in the case of 3Dfx Interactive Inc, got swallowed by Nvidia. Intel is the only other major producer of graphics chips, which enhance images on computer monitors and video-game screens.
Nvidia, an eight-year-old company based in Santa Clara, California, has thrived by delivering new versions of its GeForce chip every six months, as buyers demand more sophisticated computer images to play games and read graphs.
ATI is fighting to keep up with Nvidia after going three years without introducing a new version of its flagship Rage chip.
This year, the company, based in Markham, Ontario, was overtaken by Nvidia as the biggest maker of graphics chips for desktop PCs.
Nvidia's share of the graphics-chip market in the third quarter rose to 31 percent from 18 percent a year earlier, according to Mercury Research Inc of Scottsdale, Arizona. ATI's dropped to 17 percent from 19 percent and Intel's fell to 26 percent to 34 percent.
Earnings at Nvidia reflect the company's market-share grab.
Profit almost doubled to US$44.7 million in the quarter to October 28 as sales jumped 87 percent to US$370.2 million. Nvidia was slated to be be added to the Standard & Poor's 500 Index at the end of trading Thursday, replacing Enron Corp.
ATI's loss in the year that to Aug. 31 narrowed to C$82.8 million from C$102 million on a 21 percent drop in sales to C$1.6 billion.
To turn itself around, ATI has cut research costs for slower-selling chips such as those used in television set-top boxes. Its sales are forecast to rebound to C$1.88 billion in the current fiscal year, according to the average estimate of eight analysts polled by IBES International Inc.
Nvidia and ATI also benefited as Intel lagged in getting its graphics chips into chipsets -- boards that include a full complement of semiconductors and other components so that computer makers don't have to order from multiple suppliers. That prompted computer makers such as Dell Computer Corp and Compaq Computer Corp to turn to Nvidia or ATI for the latest graphics chip.
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