Nvidia Tightens The Noose On AMD

Includes: AMD, NVDA
by: Kumquat Research

Nvidia's GeForce Partner Program is facing backlash over its alleged anti-competitive implications.

The three largest AIBs, including MSI, Gigabyte, and Asus, have reportedly signed on.

While some OEMs have reportedly refused to join GPP, the situation remains controversial.

Nvidia (NVDA) has come under fire in recent weeks for its GeForce Partner Program ("GPP") due to its alleged anti-competitive implications for the graphics industry, specifically for Nvidia's main competitor Advanced Micro Devices (AMD). Reports indicate that MSI, Gigabyte, and Asus, the big three AIBs, have signed on to be a part of GPP while OEMs HP (HPQ) and Dell have refused. We'll get further into the details of this reporting in the article, but suffice it to say that, if the reporting is accurate, Nvidia appears to be tightening the noose on AMD.

Let's start off this piece with a quick overview. Kyle Bennett at HardOCP first broke the story on GPP with an article on March 8th titled "GeForce Partner Program Impacts Consumer Choice," in which he claims that GPP has anti-competitive implications for the graphics industry. Specifically, Bennett states that Nvidia is offering exclusive benefits to those that join the program and in exchange, the partners will agree to align their gaming brands exclusively with Nvidia products.

To use the same hypothetical that Bennett uses in his article, Asus sells some of its graphics cards under the Republic of Gamers ("ROG") brand, both Nvidia and AMD cards. Bennett claims that, should Asus join GPP, the terms of the program are such that Asus could no longer sell AMD cards under the ROG brand, which would be reserved exclusively for Nvidia cards.

Branding factors into how consumers choose products, and if AMD cards were to be kicked off the established gaming brands of AIBs, it could hurt the company's mindshare and sales. It's not hard to see how Nvidia might benefit from reinforcing the viewpoint that AMD's products are knock-offs of the good stuff. Whether this is what GPP actually does is still up for debate.

This a very basic overview of the issue and for a more in-depth look at GPP and its possible implications, I wrote an article on the topic a few weeks ago, which can be read here. In this piece, I want to discuss some of the more recent developments we've seen in regards to GPP.

AIBs Bend The Knee?

In my previous article, I discussed which AIBs might have joined GPP and concluded that, although there were possible hints that MSI and Gigabyte had joined the program, there was no definitive evidence yet. For more on that, you can read my previous article or this Forbes article.

However, on Tuesday, Asus officially announced a new line of Radeon-exclusive graphics cards, dubbed AREZ, which have no Republic of Gamers branding in sight on any models, while Nvidia cards still have ROG branding. Of course, Asus did not make any mentions of GPP, but, in my opinion, it would be awfully farfetched to claim that the reporting over GPP's implications and this move by Asus coming out in lockstep are a coincidence. To further back this up, while GPUs will be sold under the AREZ brand, AMD motherboards are still being sold under the ROG brand.

Considering Asus has spent years and marketing dollars building up its ROG brand among consumers, AREZ (and by extension AMD) appears to be at a significant disadvantage right out of the gate.

Again, there has still been no official confirmation from Asus or Nvidia that the former has joined GPP or that joining the program is what brought AREZ into existence, but those dots don't seem difficult to connect in my opinion. When you add in that Bennett has reported that both MSI and Gigabyte have joined GPP, which there are some hints to as I mentioned before, it's possible that the three biggest AIBs have joined a program that allegedly hurts competition and consumer choice.

AMD And OEMs Fight Back

Despite AIBs reportedly bending the knee to GPP, AMD and OEMs appear to have taken a different route. Radeon Vice President Scott Herkelman made a post on the Radeon website Tuesday that was a not-so-veiled shot at Nvidia over what AMD sees as an attempt at anti-competitive practices. Here's a snippet:

Over the coming weeks, you can expect to see our add-in board partners launch new brands that carry an AMD Radeon product. AMD is pledging to reignite this freedom of choice when gamers choose an AMD Radeon RX graphics card.

This is an interesting announcement as it implies we will see more AIBs launch Radeon-exclusive brands like Asus's AREZ. The proactive approach from AMD appears to show that the company's strategy is to say, "bring it on" and to beat GPP at its own game rather than to lobby against the program.

Herkelman states this pretty clearly in the last few lines of the post:

We pledge to put premium, high-performance graphics cards in the hands of as many gamers as possible and give our partners the support they need without anti-competitive conditions. Through the support of our add-in-board partners that carry forward the AMD Radeon RX brand, we’re continuing to push the industry openly, transparently and without restrictions so that gamers have access to the best immersive technologies, APIs and experiences.

We believe that freedom of choice in PC gaming isn’t a privilege. It’s a right.

Again, there is no mention of GPP explicitly, but the subtext is far from subtle. Whether this "fight fire with fire" approach will be successful is anyone's guess, but it appears that AMD and Nvidia are gearing up for a marketing war with the AIBs trapped squarely in the middle of the battlefield. And AMD isn't the only one fighting back against GPP.

Kyle Bennett reported on April 12th that OEMs HP and Dell have refused to join GPP, specifically stating:

Off the record conversations suggest that both of these companies think that NVIDIA GPP is unethical, and likely illegal as it pertains to anti-competition laws here in the United States. The bottom line is that Dell and HP are very much upset with NVIDIA over GPP, and Dell and HP look to be digging in for a fight.

These are some serious allegations that I should emphasize haven't been confirmed by the companies involved or by other tech outlets. However, I think considering Bennett's role in breaking this story and the insight he has provided with his previous commentary on the topic, this reporting cannot be dismissed out of hand.

To support his reporting, Bennett goes on to state:

Dell and HP not coming on board with GPP is actually a very big deal. Out of all the companies that we think NVIDIA is strong arming into GPP, Dell and HP have the most leverage to push back due to the massive volumes of mid and low-end GPUs that both purchase from NVIDIA. While AMD is not able to compete on the extremely high end, it certainly is making mid-level and low-end GPUs that both Dell and HP have access to.

Theoretically, AIBs would be at the mercy of Nvidia because of the nature of their relationship (they essentially build their graphics cards based on Nvidia's designs), while Dell and HP, as Bennett says, have significantly more leverage in terms of who gets more out of the relationship. This on its own doesn't prove anything, but it does add a level of believability to Bennett's claims.

If you're wondering where Lenovo is in this discussion, Bennett doesn't have much to offer. His reporting on this indicates as much:

Lenovo is the outlier in the big three OEMs, and we are getting little-to-no information about that company. We are unsure if Lenovo has gone with NVIDIA's GPP at this time. From what we are hearing, which is rumor and speculation, we think Lenovo has not signed on with GPP, but we could be wrong on that. However, Lenovo at this time still has its Legion brand gaming systems with Radeon GPUs listed on its site.

The good thing about this whole situation with GPP is that, because it's in many ways a marketing move, whatever changes partners make will be public and easily identifiable. If any of these companies drop AMD from certain gaming brands while keeping Nvidia on those brands, we'll know. From this, we can perhaps assume that Lenovo has not yet joined GPP, but it's likely too early to tell.

Investor Takeaway

The difficult part about covering this story is that there isn't a lot of information out there and the information that is out there isn't being confirmed by any of the involved parties. Therefore, we are forced to draw up hypothetical scenarios and to speculate.

I think the main takeaway from GPP and its alleged anti-competitive implications is that, if those allegations are true, Nvidia is setting itself up for a public relations nightmare and is pitting itself against some very big players. While it's been reported that AIBs are joining GPP and available information points in that direction, Nvidia is potentially alienating OEMs like HP and Dell and, more importantly, alienating consumers. Not to mention taking on Intel (INTC) as well considering the company collaborated with AMD on a joint processor (Kaby Lake-G) that could be impacted by GPP.

From an investor perspective, GPP seems like a bad move and a looming PR disaster. If I were an NVDA shareholder, I don't think I would necessarily sell because of this, but I would certainly keep an eye on how consumers and other companies react to the program.

On the AMD side of things, I think the company's strategy to essentially start its own party is promising. With the public backlash against Nvidia due to GPP, AMD can potentially capitalize and bring consumers into its airspace. It remains to be seen how severe the backlash is or how long it will last, so there's no way to estimate exactly how successful AMD's current "freedom of choice" campaign will be. However, the company's proactive approach is, in my opinion, the optimal strategy.

Ultimately, I think the only thing we know for certain is that this is shaping up to be a bitter fight. If AMD's proclamation that we'll see more Radeon-exclusive cards from AIBs in the coming weeks is true, then we will likely see a battle for the favor of different AIBs and a competition for which gaming brand under those AIBs will become the premier one. If the reporting around GPP is accurate, Nvidia appears to have a lead because it would simply be commandeering already-popular brands while AMD is starting from scratch. It's too early to guess an outcome, but I think investors would do well to keep on top of this.

Best of luck!

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Thanks for reading!

Disclosure: I am/we are long AMD CALLS. 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.