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Could the Xbox Make Nvidia the Next Intel?

Graphics Chip Gaining Importance

Anybody who has played or seen a recently released game on a PC probably has marveled at the improving graphics of today's latest games. Behind these vastly improving graphics in today's computer and video games is something called a graphics chip. A graphics chip accelerates the displaying of images on a monitor to achieve spectacular graphical effects. Nvidia {NVDA} is the world's leading graphics chip maker - its graphics chips are found in 48 percent of all desktop PCs (according to Mercury Research). In fact, Nvidia's desktop market share has more than doubled over the last year, surpassing that of former market share leader ATI Technologies {ATYT}.

Surpassing the Competition

Nvidia has witnessed such a swift ascent and has won former ATI customers like Gateway {GTW} and Compaq {CPQ} because it has proven itself adept at improving its chips every six months. The other big name in graphics chips, 3Dfx Interactive {TDFX}, made the fatal mistake of trying to go vertical by purchasing a graphics board (an add-on to PCs) maker a few years ago and has self-destructed since that time. With that acquisition, 3Dfx entered a lower margin business and alienated other graphics board makers, which were 3Dfx's biggest customers. On the other hand, Nvidia stayed nimble and picked up many of the customers that 3Dfx lost. Furthermore, Nvidia has bought now swallowed up all of the assets of the soon-to-be extinct 3Dfx. Now, Nvidia has conquered the desktop market and is casting its eye on the lucrative laptop market.

That said, look for Nvidia to make a big splash in both the laptop and console markets, which should fuel the company's growth for the next several years as the desktop PC market continues to decline. For the laptop market, the company is introducing the mobile industry's first-ever graphic processing unit (GPU), called the GeForce2. Nvidia says that its GeForce2 enables performance capabilities similar to those of a desktop PC by providing much faster and higher quality graphics than are currently available on laptop computers. The company also claims that GeForce2 is ten times faster than the mainstream chips that perform the graphics acceleration function in laptop computers today.

Will the Xbox be a Hit?

As far as consoles are concerned, Nvidia is working on graphics chips for Microsoft's {MSFT} highly anticipated console, called the XBox, that is expected to hit market in fall of 2001. Nvidia is one of the reasons the Xbox will enjoy a sizable lead in terms of performance over the other next generation consoles. If the Xbox is a huge success, Nvidia could turn out to be the Intel of consoles with a stock price that could soar into the stratosphere.