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As an investor as well as a gamer, I tend to stay plugged into the gaming hardware community. While I have an "intuitive sense" of what people are buying based on forum discussions, my due diligence needs to be founded in fact. In recent articles, I have stressed profusely that despite the relative weakness in new PC sales in the most recent quarter, the discrete graphics card industry - especially in light of several brand new games coming this year - still has room to grow. The thesis hinges on a few fundamental assumptions:

  • Gamers Upgrade Individual Components - a good chunk of gamers prefer to use desktop PCs to notebook PCs. In addition to the much better performance-per-dollar that gaming desktops yield, desktops are also more upgradable. There's no need to buy a new computer to play the latest "Battlefield 3" game when a brand new graphics card and maybe some more RAM will do the trick.
  • Gamers Will Not Migrate To Tablets - another big "problem" that analysts and the media forsee is that the casual PC user may find a new computing home on a cheap, good-enough tablet such as the $199 Google (NASDAQ:GOOG) Nexus 7 and the $329 Apple (NASDAQ:AAPL) iPad Mini. Gamers who need 150W+ graphics cards to play the latest hardcore games at 1920x1080 will not move to tablets, since there is an order of magnitude difference between the experiences. Tablet cannibalization, if it happens, will affect the low-end, causal PCs, not the hardcore gaming population that the discrete GPU vendors target.

To that end, I introduce a tool that game developers have been putting to use in order to determine what hardware their games should target. The Steam Hardware Survey.

What Is Steam?

Despite all of the doom-and-gloom numbers that retail game sales have shown, the real star of the PC show is Steam, an online digital distribution client. It is by far the most widely used platform for PC gaming, with over 20 million active users.

The Steam Hardware Survey grabs information about the user's computer hardware (with his/her consent, though, so some may not report) and tallies it up each month for users to see. It includes a wealth of information including:

  • Market share statistics for each type of graphics card
  • Statistics on CPU speed, CPU vendor market share
  • Storage space
  • Monitor resolutions
  • Operating system market share
  • Amount of system RAM

In this article, I focus on analyzing the graphics hardware trends to add a little more color on just how the graphics market is playing out.

Overall Market Share

In the graphics space, Nvidia (NASDAQ:NVDA) emerges the clear winner with 46.52% of market share. Advanced Micro Devices (NYSE:AMD) comes in second with 35.65%, Intel (NASDAQ:INTC) takes third with 10.7%, and "other" takes the scraps (this consists of Via's integrated solutions) at 7.13%.

Data Courtesy Of Valve Software

A couple of things to keep in mind here:

  • Intel does not make discrete graphics chips - all market share here is from integrated graphics that is supplied with the CPU
  • AMD's market share includes both discrete graphics sales as well as its integrated graphics sales
  • Nvidia does not offer integrated graphics solutions, so all sales here are of discrete cards

Now, note that Intel has actually been gaining quite a bit of share with its integrated solutions. Most notebooks and Ultrabooks only come equipped with integrated graphics, and as these integrated graphics become more competent, they enable a new wave of causal gamers. I do not expect that this is causing AMD and Nvidia to lose discrete sales, but the general gaming-capable population does increase as the integrated solutions become more powerful.

Another thing to keep in mind is that many notebooks come equipped with Nvidia and AMD discrete graphics that only switch on when running a game. As the hardware survey happens when a game is not running, it is likely that in Nvidia- and AMD-powered machines, the standard integrated Intel HD graphics is being registered rather than - or in addition to - any bolted on discrete chip.

Another explanation for Intel's increasing share can be found when we look at the operating system share distribution:

(click to enlarge)

While Microsoft's (NASDAQ:MSFT) Windows has the dominant share in the gaming community, a low single-digit percentage of users is using Apple's MacOS (and Mac share is increasing). Most MacBook products use Intel's integrated graphics, although the higher end 15" MacBook Pro models use either AMD's products (the older editions) or Nvidia's products (the latest ones). Steam-on-Mac is very likely the main reason for Intel's share increases in the graphics arena.

Digging Deeper - What Vendors Are Gaining And Losing Share?

A useful way to get a sense of market share gains in the graphics space is to look at the % change in market share for graphics cards each month. When it comes to DirectX 11 GPUs (the only stuff being sold today), the following data for month-to-month market share gains comes in handy:

(click to enlarge)

Of the DirectX 11-capable desktop GPUs that gained market share in October, the newly released Nvidia GTX 660 Ti, GTX 670, and GTX 680 - Nvidia's top tier, highest margin Kepler desktop products - took 0.76%, 1.79%, and 1.37% of desktop graphics market share, respectively.

From the AMD camp, its HD 7750, HD 7770, HD 7870, HD 7850, and HD 7970 took 0.36%, 0.85%, 0.61%, 1.03%, and 0.71% of share, respectively.

To put this data into context, note that the Nvidia GTX 660 Ti competes with the AMD Radeon 7950 ($300 price point), the Nvidia GTX 670 competes with the vanialla Radeon 7970 at the $400 price point, and the GTX 680 competes with the Radeon 7970 GHz Edition (which likely registers as a 7970 in the hardware survey as they are identical except for clock speeds) at the $450 price point.

The following table illustrates the market share at each relevant price-point for the latest cards from both Nvidia and AMD (GT/GTX 6xx and HD 7xxx, respectively)

Price Point (+/- $20)AMD Share/GainNvidia Share/Gain
$120 - AMD HD 7770, Nvidia GTX 6500.85%/0.13%N/A
$150 - AMD HD 7850, Nvidia GTX 650 Ti1.03%/0.12%N/A
$220 - AMD HD 7870/Nvidia GTX 6600.55%/0.55%N/A
$300 - AMD HD 7950/Nvidia GTX 660 Ti0.54%/0.08%0.76%/0.26%
$400+ - AMD HD 7970 & GHZ Edition/Nvidia GTX 670 & GTX 6800.71%/0.11%3.16%/0.32%

It is clear on the desktop side, AMD has non-trivial share in the $120 - $220 part of the market in the latest generation of cards. However, a thing to keep in mind is that the 7770, 7850, 7870, and 7950 have been available for quite some time while the latest Nvidia 6xx cards have just been released over the last month or so. For investment purposes, we are more interested in growth rates rather than absolute market share, so the conclusions we can make on mid/high end desktop are as follows:

  • In the very high end ($300+), Nvidia is seeing stronger growth and has more overall market share.
  • In the midrange and low end, AMD's faster time-to-market with latest generation 28nm DirectX 11 parts has helped it gain positive momentum, although next month's numbers will start to reflect the impact of the mid-range GTX 6xx series.

In the mobile space, the DirectX 11 share gainers for discrete GPUs were all Nvidia products - the GT 630M, GTX 660M, GT 650M, GTX 560M, and GTX 670M - all managed to register share gains during October. No AMD discrete graphics part in the mobile space managed to gain share in the survey.

(click to enlarge)

Potential Flaws

Of course, with all statistical samples, there is always room for error. In this case, there are a number of potential problems that could make the data less than accurate:

  • Selection Bias - the sample here is not random; people need to opt to participate in the survey (although the survey itself is done painlessly and automatically), so the sample may not necessarily be representative
  • Unknown Sample Size - the sample size is unknown, so it is hard to know how many people have participated and whether the sample is large enough to give any sort of confidence to the results.

Luckily, we know a few things:

  • Care About Trends - trends are what matter here, and it is unlikely that people who have participated in the past will choose to opt out (especially as it is asked once and then performed automatically). The change from month to month in this case is quite a useful indicator
  • Most Games Require Steam - most PC games these days require Steam, so it is likely that the majority of the PC gaming community has a Steam account, making Steam the single most likely platform for a PC gamer to use.

Conclusion

It seems that Nvidia's products are in a much better competitive position than they were in the last fiscal year. This likely explains the year-over-year decline in AMD's graphics division as well as the 7% sequential decline in the graphics segment. Nvidia is aggressively taking share in the notebook and desktop spaces with its "Kepler" products.

Further, it seems that more gamers are content to use the Intel integrated graphics (although, as I noted, the data may not be 100% accurate due to the reason I gave above), which reflects the improvements in these integrated solutions coupled with the stagnation in hardware engendered by the relatively long console refresh cycle.

AMD's strength is in its strong APU products, although the numbers in the gaming community do not seem to support any real widespread adoption of these products. Keep in mind, though, that as integrated graphics improves, more notebook products will become "gaming capable," which will likely start to make Intel's (and AMD's, should it improve APU adoption) market share even larger.

Source: Graphics Wars: Analyzing The Steam Hardware Survey Numbers