Longer term, the deal could well benefit AMD, and it may be crucial in its battle against
. But over the next six to 12 months, promotions and counter-moves by rivals, as well as merger-related distractions at AMD and ATI, will likely lead to near-term market-share gains for Intel and
-- ATI's two top challengers in the graphics business, analysts say.
"In three years, Nvidia may not have a place to stand" if the market evolves in a way that favors ATI's integration with AMD, says one technology analyst who asked not to be named but whose firm has not done investment banking with AMD, Intel, ATI or Nvidia. Until then, though, "Nvidia makes out like bandits," the analyst adds.
Nvidia's brand is in great shape, analysts say. It currently has a leg up on ATI in technology and has been gaining share in recent quarters with its latest line of "discrete" graphics processors, graphics chips that work largely independently of CPUs.
That position isn't going to change with the merger. Indeed, Nvidia may become more attractive to computer makers, because it will be the only major independent producer of discrete chips, analysts say. That should give the company an entrance to a wide range of systems, whether they are based on AMD, Intel or IBM chips, and different manufacturers, say analysts.
Nvidia is "not tied to any specific
chip vendor," says Dean McCarron who covers the graphics chip industry as a principal analyst at Mercury Research. "They've got a more defendable position of neutrality."
Other near-term factors could also help out Nvidia. Later this year, for instance, the company is expected to update its graphics-chip lineup, and that likely would have boosted its share even without the AMD-ATI merger, says Jon Peddie, an analyst with the industry consulting firm Jon Peddie Research. Meanwhile, Intel is coming out with a new chipset that requires a high-end graphics chip to maximize its performance, he notes.
Intel is expected to bump up its marketing next year with the launch of Windows Vista, the latest version of
core operating system, says Peddie. Vista has some enhanced graphics features that essentially require users' computers to have a separate graphics chip.
Whereas before, Intel likely would have been neutral about what graphics-chip manufacturers paired with the new chipset or for use with Vista, it likely will now push Nvidia's chips, says Peddie.
"All those things play to Nvidia's favor," he says.
The other type of graphics chips are integrated ones, which are tied more closely to the CPU and rely on the computer's central memory and processing capabilities. Intel is the market leader in that business. ATI is No. 2 -- largely by providing integrated chipsets for use with Intel processors. With the merger, ATI could see that business decline or die to the benefit of Intel and Nvidia, analysts say.
And that's not to mention the normal confusion, navel-gazing and reorganization that typically happens after a merger. AMD and ATI expect the merger to close in the fourth quarter of this year. For several months before and after that, the companies will likely be absorbed in trying to pull off the transaction, analysts say.
"They will take their eye off the ball," says the nameless analyst. "Nvidia and Intel are happy
with the merger. They don't have to buy each other. They just have to work more closely together."
Still, few analysts expect the AMD-ATI combination to dramatically lose position in the graphics market over the long haul. Even if ATI does lose out on providing integrated chips for Intel systems, its combination with AMD should broaden the market for integrated chips on AMD systems, they say. That's been the fastest-growing area of the graphics-chip market and one that AMD hasn't played in to date.
In terms of discrete graphics, Nvidia may have the advantage now, but as recently as two years ago, ATI had the lead in terms of technology and market appeal, and the two have long been running an up-and-down battle against each other, notes Matthew Wilkins, an analyst with iSuppli.
That's not likely to change with the merger, meaning that even if Nvidia is up now, ATI will likely catch up and surpass it in the not-so-distant future. Indeed, the merger with AMD may help ATI in terms of providing additional resources and engineering know-how, says Wilkins.
"I can't see in the long term that it's going be bad for them, in terms of
graphics chip design ... and getting products out the door," he says.
Indeed, some analysts see even more long-term benefits. The CPU processor market has been evolving recently from single, super-powerful processors on a chipset to two or more more-efficient processing cores on a chipset. Eventually, chipsets may have not just two but 32 or more processor cores, some of which may have specific functions. Indeed, one possible scenario is that these multi-core processors will include graphics processing capabilities, obviating the need for a separate graphics chip.
By combining with ATI, AMD is now poised to lead the market, if that's where it heads, the technology analyst says. Intel, which already has its own graphics capabilities, also appears in good position for that possibility. And that leaves Nvidia as the odd company out, the analyst notes.
"Nvidia will be doing well in the short term," says the analyst. "They will be a legitimate independent option in graphics, but with a sunset clause."
For their part, Nvidia officials believe they're in great shape for both the short and long term. AMD "needs" Nvidia, argues Michael Hara, Nvidia's vice president of investor relations. And through its relationship with Intel, Nvidia has learned how to work with a partner that is also a competitor, he notes.
To date, CPU makers haven't integrated graphics chips with the main processor because the capabilities of the two are so different, Hara says.
"That will always be the case for a long, long time," he says.
At least in the short term, analysts say, he's probably right.