Until I talked to Henry Quan at ATI, I wouldn't have believed it, but maybe ATI can break through the graphics ceiling.
I had a conversation with a Canadian analyst prior to Comdex. He was concerned about the growth opportunities for ATI, and I had to admit that I didn't really see where the big growth for graphics chip companies was going to come from in the next five years. I didn't see anyone having a strategy that hadn't already been exploited in some shape or form. At Comdex I sat down with ATI Vice President, Henry Quan, and got to thinking that maybe ATI can break through the graphics ceiling, and go on to even greater things.
I've known Henry for some time, and enjoy any time spent talking about the graphics industry with him. He can talk about the industry as well as anybody I have met, and his affability just makes it a pleasure to shoot the breeze on the occasions that we are allowed to meander our thoughts through the marketplace.
$1 Billion Barrier
I was very impressed by ATI having broken through the $1 billion in sales barrier in its last fiscal year. The question in recent weeks has been, can ATI keep growing? I think they can. ATI has almost no presence in the performance graphics segment dominated by the likes of Nvidia and 3dfx. Although I am skeptical that ATI will become a performance leader to challenge Nvidia at the top end of the consumer scale, I do believe that the company will force its retail presence in the next eighteen months, and that by the end of next year, if ATI executes well, it could even be facing off against Nvidia.
The reason I say that is that presently only Nvidia and ATI seem to have the expertise to defy physics and move into the next generation of graphics chips. I am talking about those amorphous products known as Rage 6 and NV20. Both companies will move beyond mere transform and lighting into programmable geometry engines. Both will be producing in 0.18 micron and less processes. Both will be doubling their existing transistor counts. Both will have to find ways to defy physics. Both also have an array of products and chipsets that address almost every segment of the PC market. ATI doesn't necessarily have to be at the fastest in this new market because, frankly, there isn't going to be that much competition. Nvidia and S3. Which means, in my opinion, that the PC graphics market pie will grow for ATI, although I think that it will remain a little flatter in revenue terms.
So, that's fine for ATI in the PC graphics market. Where's that growth that is going to take them into the $5 billion range. It's digital television, and until I talked to Henry, I wouldn't have seriously considered any of ATI's strategies as being that significant. Suffice to say, I believe that ATI is going to be the first graphics chip company, maybe the only one, to successfully transition from a PC centric market to a one in which digital audio and video will be more dominant, mixed in with the odd byte of communications. The reason for my assertion is quite simple, ATI continues to execute better than any of its competitors in supplying the PC OEM market. If the company can apply the same principles to serving the consumer electronics market, in combination with a tremendous amount of technology strength in the 2D and video area, ATI is much better positioned than an NEC, or a Philips, for example. Henry provided me with enough background information for me to believe that ATI gets the consumer electronics market, and can carve a place for itself in the market with its products. This is something I have to delve into in more detail in the near future.