At the Intel Developer Forum, Intel Corporation (NASDAQ:INTC) demonstrated its 4th generation Core processors known by the code name "Haswell". In addition to bringing a host of performance and power efficiency improvements on the CPU side, the next generation chip also brings twice the 3D graphics performance of the "Ivy Bridge" generation of chips. To illustrate the vast improvement in the new chip, take a look at this video.
The gains here aren't due simply to process technology either: "Ivy Bridge" and "Haswell" are both built on the same 22nm process. So, now the question is, how will Intel's vigorous focus on graphics in its chips affect dedicated PC graphics vendors such as Nvidia Corporation (NASDAQ:NVDA) and Advanced Micro Devices, Inc. (NYSE:AMD)?
The Effect On Advanced Micro Devices: Negligible
AMD is unique in that in addition to being a CPU design company, it has also purchased ATI Technologies, one of the two leading PC graphics chip developers. AMD, like Intel, integrates high performance graphics technology onto its CPU cores. AMD, unlike Intel, also sells high performance discrete graphics chips into the desktop and mobile markets for more power-hungry gamers. Essentially, AMD is also participating the "cannibalization" of the low-end discrete business, so improvements from Intel do not fundamentally change anything here.
AMD's integrated graphics in its latest "Trinity" APU solidly outperform those in Intel's latest "Ivy Bridge" systems. Further, AMD brings higher performance graphics at lower price points than Intel does. In order to get the high performance graphics demonstrated in the video above, one needs to buy the high end CPUs. Lower-end chips will end up with about half of the graphics performance, or roughly equivalent to Ivy Bridge speeds. AMD's chips, typically targeting the low to mid range of the spectrum, will likely offer a tangible performance and image quality advantage at these lower price points.
Finally, the work that AMD does on its high-end graphics chips is leveraged across the compute continuum. The same fundamental graphics cores that end up integrated in the "APU" designs are also used in high end discrete graphics cards for gaming use, as well as in dedicated HPC/professional cards.
Nvidia: The Situation Is A Little Stickier
Nvidia has made it clear that it is working to lessen its dependence on the PC space and to focus more on its "Tegra" lineup of chips for smartphones and tablets as well as the professional/HPC space with its "Tesla" and "Quadro" lineup of graphics cards. A strong Haswell integrated GPU could very well limit penetration of discrete chips from Nvidia (and AMD) into "ultrabooks" and similar form factors.
However, most gamers who require higher end gaming performance will still opt for discrete graphics chips, and Nvidia does quite well in this area. In its most recent earnings call, Nvidia reported a 15.3% sequential increase and a 4.6% increase year-over-year in its consumer GPU business, so gamers are clearly clamoring for more performance.
Further, the work that Nvidia does on its GPU technology can be leveraged very nicely in its Tegra lineup as a differentiating factor from the other ARM (NASDAQ:ARMH) based system-on-chip designs in tablets and smartphones. Further, as Nvidia has made its ambitions to enter the PC CPU space (courtesy of Windows RT and the ARM instruction set), if Windows RT is popular on laptops and/or desktops, Nvidia's high performance "Project Denver" chips will be a similar to AMD's and Intel's CPU/GPU hybrids available today.
How Do Next Generation Consoles Fit In?
The advent of next generation game consoles should further spur the need for more advanced discrete graphics chips. While today's integrated graphics solutions from AMD and Intel are faster than the graphics chips found in the Microsoft (NASDAQ:MSFT) Xbox 360 and the Sony (NYSE:SNE) Playstation 3, the next generation of consoles should come equipped with significantly stronger graphics, more RAM, and more CPU power. This should, in addition to driving new console and game sales, drive a significant upgrade cycle in the PC space. When the bar is raised on game consoles, the PC gaming graphics bar is also raised significantly, further increasing demand for higher performing discrete solutions.
Integrated graphics solutions are getting better, and in a world where technology companies are aiming to bring more performance in more tightly integrated form factors, Intel's and AMD's integrated solutions will be highly appreciated. Nvidia will leverage its graphics development expertise in mobile by deploying low power versions of its graphics designs into its "Tegra" chips for smartphones and tablets. However, the need for discrete graphics chips won't go away anytime soon (if ever) as games become more photorealistic and demand more power.
Disclosure: I am long INTC, 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.