The latest reports for the graphics industry were released this week and paint an interesting picture on the market. Not only was there an annual increase in GPU shipments nearing 10%, but the big winner looks to be AMD, with a noticeable swing in market share away from NVIDIA. Obviously this comes at a controversial time in the discrete graphics market with cryptocurrency mining affecting both availability and pricing of hardware, but the numbers are telling of a market in flux.
As PC gamers and cryptocurrency miners continue to battle for the same pool of graphics hardware, both NVIDIA and AMD benefit from the competition in the market place. Sales are clearly higher than would exist if only PC gamers were the target customer, and because of that all the add-in card partners have no problem selling whatever the GPU vendors can supply them. But how did that play out in terms of market share shift in 2017?
Based on reports from Jon Peddie Research, some major swings have occurred. Looking at quarter-to-quarter movement from Q3 to Q4 2017, AMD sees an increase from 27.2% to 33.7% in add-in card shipments. That’s a jump of 6.5% in a single quarter; an impressive change. As there are only two competitors in the discrete space, that means NVIDIA saw a 6.5% drop in the same span of time, dropping from 72.8% to 66.3% share.
Annually, comparing 2017 to 2016, AMD sees an increase from 29.5% to 33.7% market share, a change of 4.2%. NVIDIA sees the inverse with a jump down -4.2%.
Clearly, NVIDIA is still the leader in graphics card sales globally. Though the green giant dropped from 72% to 66%, it maintains a 33-point advantage over the Radeon brand. NVIDIA’s GeForce products continue to provide better power efficiency and arguably better adjacent technologies (drivers, software tools, display tech, etc.) and I believe that gamers prefer it by default (justified or not).
It is also worth noting that NVIDIA tends to have better margins and higher ASPs on average than AMD in the consumer graphics space. So while unit share might have tilted in favor of AMD by 6.5% this past quarter, it is reasonable to assume that revenue share has moved less than that.
JPR showed a seasonal drop from Q3 to Q4 in total graphics shipments of -4.6%. This is close to the expected result from more than a decade of market tracking, though 2016 was an outlier with a Q4 increase. Returning to seasonality trends may indicate the GPU market is becoming more stable, and the battle between gamers and miners might be waning. However, this could also be a result of gamers backing away from the discrete GPU space and deciding to wait for the rumored launches of updated NVIDIA products this spring.
Another interesting note from the JPR data is that the graphics market saw a 9.7% year-on-year increase in shipments, likely indicative of the impact mining-specific sales have had overall.
Peddie claims that add-in card vendors sold more than 3 million units to cryptocurrency miners directly, worth more than $776M in revenue. That averages out to more than $258 per card, much higher than GPUs over the last decade. Increasing the ASP (average selling prices) is great for both AMD and NVIDIA, as it brings up margins, as evident from recent earnings releases by both companies.
With more than 52 million add-in cards sold in total for 2017, cryptocurrency specific sales represent about 6% of the total market. This is slightly lower than my expectations but still is a significant driver.
It would appear that AMD is indeed the primary beneficiary of the mining market influx based on the market share increases in this most recent quarter. It is unlikely that a significant amount of gamers decided to buy AMD graphics hardware (when it was even available) over NVIDIA in that window, so it seems like a safe assumption that majority of that increase is courtesy of cryptocurrency sales.
This shift in the market also has impacted the distribution of graphics card sales as well, moving unit sales from lower-priced units to higher-priced. JPR defines a “mainstream” graphics card as one sold for less than $150, a “midrange” graphics card as one sold from $150-$249, and a “high-end” graphics card as anything sold over $250. Looking at quarter-to-quarter changes, the high-end market moves from 11.5% to 16.0% and the midrange bumped from 41.5% to 51.7% of total shipments. As a result, the mainstream segment dropped from 39.2% down to 26.1%.
Again, this moves ASPs to areas that benefit both AMD and NVIDIA, improving margins.
The jump that AMD has made based on these reports should not be dismissed and instead paints a very positive picture for the company in the immediate. For short-term profitability, AMD did show much better than expected results for itself in Q4 last year and I expect we will see at least some of that value appear in the Q1 2018 results.
What happens next in the world of graphics is going to be quite an interesting story. There is a ton of uncertainty as we move into the rumored release of another generation of NVIDIA GeForce graphics cards sometime this spring. (AMD doesn’t have anything on the docket for new consumer graphics products for the foreseeable future.) How will NVIDIA modify pricing with this new product family? Keeping in mind that the higher-than-MSRP prices that graphics cards sell at do not directly benefit the GPU provider (instead the add-in card partners or channel sales take that money today), NVIDIA couldn’t be blamed for wanting a part of that additional revenue for itself.
Another theory has been circling that NVIDIA might attempt to find a way to lock-out cryptocurrency mining for a subset of graphics cards in order to alleviate PC gamers’ angst. While this could be technically possible, it’s difficult to thwart a community that is built on profitability. It would represent a tremendous good-will gesture from NVIDIA, but it doesn’t make a lot of fiscal sense for them in the short-term.
Putting that aside, if the next generation of GeForce products improve performance and power efficiency for cryptocurrency mining, and NVIDIA has done a decent job of collecting inventory, there is a reasonable chance that the market share changes we saw take place in Q4 2017 could reverse.
The cryptocurrency space remains volatile and highly unpredictable, and if the market shifts and we return to a world where gaming performance, features, and efficiency are restored as the most important reasons for graphics card purchases, NVIDIA should again have the edge. The gains AMD has seen in the latest JPR information look to be dependent on coin-mining, and without that to lean on, the Radeon products could return to a battle they are not as well equipped for.
Even if blockchain technology is here for good, and it appears that is the case, both companies are hesitant to publicly invest in the field. GPUs have been the dominant computing space for cryptocurrency since its inception, but the encroachment of ASICs and changing algorithms could lessen the value to both NVIDIA and AMD seemingly at any point.