Computer chip giant Intel (NASDAQ: INTC) has been in the business of building graphics processing units (GPUs) for a long time. These efforts, however, have been focused on GPUs that were integrated as part of other chips rather than as more powerful stand-alone products.
In recent years, though, the market for stand-alone, or discrete, GPUs has seen incredible growth. Here’s how graphics giant NVIDIA‘s (NASDAQ: NVDA) discrete GPU revenue has trended over the last several years:
Data source: SEC filings. Chart by author.
NVIDIA’s GPU growth has been driven by rapid growth in sales of discrete GPUs to gamers as well as downright explosive growth in sales of GPUs into the data center market. Even NVIDIA’s professional visualization business, which declined during the company’s fiscal year 2016, grew in both fiscal year 2017 and in fiscal year 2018.
Intel announced in November of last year that it’s going to take another crack at the discrete GPU market (the last time Intel sold a stand-alone graphics processor was in 1998). Let’s take a look at what Intel has disclosed about those efforts so far.
1. Target markets
Intel executive Navin Shenoy reportedly told analyst Ryan Shrout that “the company’s strategy [with respect to discrete graphics] will include solutions for data center segments (think AI, machine learning) along with client (think gaming, professional development).”
To get a sense of the relative sizes of these opportunities today as well as their growth rates, it’s helpful to look at the revenue and growth rates NVIDIA reported in its most recent fiscal year for gaming GPUs, data center GPUs, and professional visualization GPUs.
Image source: Intel.
In fiscal year 2018, NVIDIA’s gaming GPU revenue came in north of $4.5 billion, growing 21% from the prior year. According to the company, it has seen a five-year compounded annual revenue growth rate of 29% in its gaming GPU business, with average selling prices growing at an 11% compounded annual rate and unit shipments enjoying a 15% compounded annual growth rate over that time .
NVIDIA’s professional visualization revenue was $934 million in fiscal year 2018, growing 12% year over year, and data center revenue ballooned to more than $1.93 billion, a 133% year-over-year surge.
So, based on how NVIDIA’s GPU sales per subsegment are going, here’s a table that shows how to think about each of the subsegments of the discrete graphics market:
2. Who’s in charge?
In tandem with its original discrete graphics announcement, Intel said that it had hired Raja Koduri to run the company’s Core and Visual Computing group. The announcement also said that Koduri would “expand Intel’s leading position in integrated graphics for the PC market with high-end discrete graphics solutions for a broad range of computing segments.”
Before taking the gig at Intel, Koduri was the head of the Radeon Technologies Group (RTG) at Advanced Micro Devices (NASDAQ: AMD), NVIDIA’s chief rival in the stand-alone graphics processor market. Before his stint at AMD, Koduri, Intel says, “served as director of graphics architecture at Apple Inc. (NASDAQ: AAPL), where he helped establish a leadership graphics sub-system for the Mac product family and led the transition to Retina computer displays.”
In a May 15 question-and-answer session with an analyst, Intel chief engineering officer Murthy Renduchintala said that Koduri “is really focused on driving product architecture, product construction and driving the definition of our product roadmaps within our business units.”
3. When’s it due?
Back in June, Intel revealed, via tweet, that its first discrete GPU would arrive in 2020:
So, from a revenue and gross margin dollar perspective, investors are going to have to wait a while before these efforts can begin to have an impact.
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Ashraf Eassa owns shares of Advanced Micro Devices. The Motley Fool owns shares of and recommends Apple and Nvidia. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.
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