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CES 2011. Alliance of Nvidia and Microsoft. Computer processors under Nvidia brand

CEO of Nvidia Jen-Hsun Huang is calmly pacing the stage. He is also the president and one of founders of the company. He is nice and says things to trigger lively feedback, but nothing happens as everybody is busy with their computers. My neighbor on the left is checking mail, a lady to the right is preparing for an evening presentation from Microsoft to predict what we are going to hear. Calm reaction is a vaccine from proud statements popular among numerous companies irrespective of their size and position. Examples are in abundance. Take Intel who have been championing WiMax as a major breakthrough for many years, but failed to emulate the success of WiFi and the market stayed indifferent to the former. Then come ambitions of Microsoft in the area of tablet PCs, which were upset by Apple and its record breaking device, which happened to be head and shoulders above everybody else. All these moves were traditionally accompanied by thunderous speeches and some believed they we will see a real breakthrough soon. How can we ignore the words of top managers as they must be doing a good job for the money they are paid. In real life we see that such soundbite should be taken with a grain of salt. Today this skepticism played against Nvidia and its president. His words that CES 2011 is a turning point for the market of computers and mobile devices were ignored as another lightweight PR activity. In fact it was everything, but lightweight. There are many reasons for that.

First answer the question. What is the brand name of the processor in your PC? You are left with only two choices - Intel or AMD. You may forget detailed features of the processor and its clocking rate, but not the name of its manufacturer. Let's make it more difficult. What type of processor is installed in your phone? Readers of Mobile-Review.com may find this question easy and start remembering not only the manufacturer, but even the clocking rate of a processor. Look at the broader picture then. Mobile phones are now represented by two groups – phones for calls and super phones (smartphones). The name is not that important. The market share of smartphones reached 80 million handsets in the 3rd quarter of 2010 and continues to experience staggering growth. If you make a forecast for 2011 you can easily expect annual sales of 400-450 million items and it is not the limit by any means. Surprisingly, all phones are becoming smarter with every coming day.

I have one more question for you. Is a tablet from Apple a computer or phone? I hope you will excuse my silly questions. Everybody will surely answer that the device is closer to the computer. At the same time not everybody remembers that tablets traditionally use hardware similar to that of smartphones. For example, Samsung Galaxy Tab is Galaxy S in disguise with minimal changes. This leads us to one more serious question. On the market we may find many phones, tablets and similar mobile devices built on platforms produced by rivals of Intel. Do you remember the name for a bundle between hardware and software dominant throughout the latest decade? Wintel is the correct answer, which meant that the alliance between Microsoft and Intel was beneficial for everybody. Rival companies could not enter the market. Users depend on particular applications and the OS. AMD is tied with x86 architecture not because they cannot create anything new, but because it was a standard for all software developers. This vicious circle is created by a marriage between the hardware manufacturer and software developers.

Some words about the market future of mobile devices

Look at this graph from Forrester Research, which is rather eloquent. Even if their forecast turns to be pessimistic and the market will enjoy faster growth, it will simply make those changes more vivid even sooner.

Have you paid attention to the dropping sales of traditional computers? Intel and AMD were present on the market of laptops and netbooks from the very outset as it was only too logical to branch out into adjacent segments of a bigger computer pie. The market of tablets was created by Apple. Before iPad was unveiled we had a dozen of related devices, but they never enjoyed high popularity. Only Apple managed to create a special environment around the product and connect it with other offerings. Suddenly, after the market started growing Intel and AMD were left on the sidelines as their place was taken by ARM (in different incarnations and several limitations).

We cannot underestimate the dependence of hardware manufacturers from Microsoft. For example, MeeGo was created when Microsoft decided not to develop a version of Windows 7 for netbooks on Intel Atom. To sell its hardware Intel had to come up with its own OS. They went for Linux Moblin, which was hardly developing at that time. Together with Nokia Intel created MeeGo and paid it more attention ever since. By the way, MeeGo is available both for Intel Atom and ARM.

The moral is simple. A winning solution is a successful bundle of hardware and software. I think Microsoft decided to bet on a market, which is several times bigger than that of PCs. A combination of Intel and Microsoft will continue in future as both companies depend on each other. It applies to the market of computers and laptops. The market of mobile solutions is a whole different ball game. At the moment Intel cannot offer attractive solutions. At the same time this segment suddenly became extremely lucrative for OS developers. Every iPad we buy has an OS as well as all Android tablets target Microsoft.

What should Microsoft do? They need their own OS for mobile devices to dominate the segment by meeting the hardware requirements of such products. In fact Microsoft enters the mobile universe not with Windows Phone 7 (I think this project will not be successful), but by offering OS for tablets. Microsoft confirms that this solution may be unveiled in 2011-2012 with the support of ARM processors. Game over for everybody else.

It is a win-win situation for Microsoft. They enter the market of tablet OS and start competing against Apple and Google, which has not been happening of late. By developing this OS and expecting a dramatic increase in performance of mobile devices in the nearest future Microsoft could adapt it for smartphones as well. Will they do it is a question for future, but this development will be possible. This is the key point in this story. Business is always about generating opportunities. Some of them may be used, but other will be forgotten. Anyway, only those companies capable of generating such opportunities will win. Apple is a prime example of this trend. Throughout the history it carved numerous niches and created various opportunities for development.

Market consolidation or how Nvidia comes to the fore?

As a consumer I am familiar with Nvidia as a manufacturer of graphic processors. The competition is heating up, while AMD is doing well with their products, which makes the profits leaner in comparison with the initial years of the segment development. On this mature market it is hard to expect dramatic development. AMD has an advantage as they produce processors and can benefit from the synergy between them and graphic processors. Nvidia on the other hand can negotiate well with hardware manufacturers to integrate its graphic processors successfully into the reference design of a particular platform. Anyway Nvidia had no bright future in the segment and required a breakthrough.

Five years ago the company started the development of Tegra2, which is a dual core processor for mobile devices. Slightly later it was followed by Denver project, linking ARM processor (designed by Nvidia) with a graphic processor. This very news was broken by Nvidia CEO on stage, but coming at the end of the press conference it did not make a stir. It's a pity. The revolution has happened. ARM processors from Nvidia herald the emergence of a new player to change the status quo and motivate current leaders to invest more into new processors, system logic and other components. To my mind the addition of Nvidia to this market does not only bring new products (which is important, but another aspect is even more pivotal), but transfers methods and business know-how from the PC market to that of mobile devices. I decided to highlight this utterance due to its importance. I think Nvidia will use its experience in development of separate chips and reference platforms to promote them on this market. They will not just manufacture products, but will offer building blocks for others. This company is particularly strong in this field. The market of mobile devices already has such an expertise, but it was formed in different conditions and new players will change the rules.

Now let's mention a new alliance. Microsoft hinted that they are planning to create an OS for tablets with ARM processors. At the same time Nvidia promises to offer 4 types of reference design for various gadgets (I can forecast super phones, netbooks, desktop/laptops and super PC). CPU will be joined on one crystal with GPU. Everybody wins, especially the consumers. Competition is getting more heated. Share prices for Nvidia went up 7.7% after the announcement as the market reacted positively to this development. You should also remember that this revolution will not happen overnight and may take at least several years. There will be many steps required on behalf of ARM, Nvidia, and Microsoft to reach overall success. I agree with the CEO of Nvidia that we witnessed a key event for the development of mobile devices. New name in the processors markets cannot be ignored. The success of Tegra2 is highly probable on the basis of CES announcements and can be supported by Nvidia's own processor. At the moment I can say that with their announcement Nvidia considerably altered the situation in the market of mobile devices. In the coming weeks its rivals will develop their strategy to answer this threat. The computers of today will soon become a thing of the past. Look at the announcement from Motorola when a laptop resembling device is used as a dock-station for Atrix 4G smartphone, which starts operating immediately. This "laptop" is empty inside, because everything is concentrated in the phone. This future is coming. The world is changing to the better. I like these developments. What about you?

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Eldar Murtazin ([email protected])
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Translated by Maxim Antonenko ([email protected])