- NVDA's Gameworks program is restrictive to developers and AMD.
- AMD's install base is growing rapidly with consoles.
- Kaveri APUs are powerful enough for gaming.
- Console sales are much higher than expected.
Nvidia (NASDAQ:NVDA) Gameworks program is a restricted licensed agreement between developers and NVDA that offer development tools and resources. One of those tools is a set of optimized libraries to implement certain effects in game. NVDA also provides help. Basically, Gameworks helps developers make their games run smoother, faster and less buggy. All these benefits are only for NVDA's hardware. You can read more about it in details here, here and here.
Fundamentally Different Approaches
There are fundamentally different approaches to driver optimizations and support for AMD and NVDA.
- Open Source
- Developers view source code and optimize for it
- AMD and developers can suggest/make changes to source codes for optimizations
- Limited access to source codes under strict licensing agreement and circumstances
- Does not touch source codes
- Cannot share with AMD
The most important effect of Gameworks on gamers is that it won't play nice with AMD hardware. This is exactly why NVDA's future market share for GPU will decline. To know why, we have to look back into the past. NVDA's old program The Way It Was Meant To Be Played (TWIWMTBP), is essentially the same. They aimed to help developers in game development/optimization before it is launched. This strategy gave the impression to gamers that NVDA's hardware was superior. This is one of the reasons why AMD had a reputation of buggy drivers. It's not true that they had significantly buggier drivers. It was because the game was made more favorable for NVDA's GPUs. If you notice after every major game is launched, there's a flurry of driver updates from AMD or NVDA depending on what hardware the title favored.
Could This Backfire on NVDA?
Since NVDA controlled about 2/3 of the discrete graphics market, developers are more inclined to work with NVDA rather than AMD. Why optimize for 1/3 of the market when you can do it for 2/3 of the market. AMD is forced to update their drivers to optimize for the game after it's launched and AMD gamers are forced to wait for that update. All that is about to change if AMD's install base is larger.
This strategy may work for NVDA in the past and present but it will hurt them in the future. Here's NVDA's main problems:
- All 3 current consoles are using AMD hardware
- AMD's APUs are powerful enough for gaming
- Major games are more likely to be developed for consoles and port to PC
- Based on current console sales, the install base will be huge for XB1 and PS4
- AMD's console APUs, PC APUs and GPUs all share the same Graphics Core Next Architecture (GCN)
NVDA's ~64% market share for Add In Board (AIB) discrete graphics was their main advantage. AMD has substantially increased their install base with the new round of Kaveri APUs and next-gen consoles. Consoles are bought and used specifically for gaming while GPUs are bought for a variety of reasons.
What incentives do developers have develop for consoles first? There are several compelling reasons:
- Console software are much less likely to be pirated
- Fixed specs on consoles makes it easier to optimize and debug saving time/money.
- Huge install base
- Higher software price
- Longer shelf life
- Easier to port from console to PC than vice versa.
Clearly, developers have much more incentives in the future to develop and optimize for AMD's hardware since it will have a much larger install base. The console advantage is the key determining factor. That console advantage will spread to their PC GPUs and eventually increase AMD's market share at direct expense of NVDA.
It's no surprise that console sales are higher than expected. There are articles about PS4 vs XB1 sales every week. Electronic Arts (NASDAQ:EA) even made it clear publicly that consoles sales surprised them and earnings will be much better than expected. China, one of the largest gaming market in the world, is lifting their ban on consoles. Consoles will most likely beat the 21M estimate.
The bottom line is that AMD hardware is in all current next gen consoles. Developers will most likely develop games for consoles first as the install base grows. That means they are forced to code for AMD hardware and optimize for it. With both PS4 and XB1 essentially running stripped versions of Windows and Unix, there's not a lot of problems porting games to PC. Developers no longer had to pick and choose like the previous generation of consoles.
NVDA's closed source and restrictive agreements will eventually hurt them. What software developers care about is sales and profits first. Ease of development and maintenance is second. There's only one company that can offer all of that. Developers start their development with AMD's hardware in consoles. Then do an easy port to PC where AMD is also running the same GCN architecture. Developers can enjoy shorter, less costly development cycles. On top of that, AMD's open source policy makes it easier for development and they don't have to sign an exclusive agreement. Eventually, Gameworks will work against NVDA instead of defending their market share.
Disclosure: I am long AMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.