The 3D graphics semiconductor industry is starting to mature, forced into adolescence by an acceleration in demand, which is changing the dynamics of this niche sector. According to industry watcher Jon Peddie Associates, shipments of 3D graphics semiconductors exceeded eight million units in the first quarter of this year and the 3D market now represents […]
The 3D graphics semiconductor industry is starting to mature, forced into adolescence by an acceleration in demand, which is changing the dynamics of this niche sector. According to industry watcher Jon Peddie Associates, shipments of 3D graphics semiconductors exceeded eight million units in the first quarter of this year and the 3D market now represents more than a third of all graphic chips sold. Jon Peddie, head of the research company, even suggests that by 1999 3D graphics capabilities are going to be standard on every PC, opening a huge opportunity to those companies providing 3D graphics chips. Once dominated by small, innovative, niche companies, 3D graphics technology is now starting to attract the big boys in the wider semiconductor industry, not least the giant of them all, Intel Corp. In July, Intel announced its plans to acquire California-based Chips & Technology, a move which put a spotlight on the 3D graphics industry. If Intel was getting into the game, then the industry really was growing up and those small companies, many of which were little more than technology research centers, had to start growing up too, a pressure which is starting to change the dynamics of the industry.
Standard in all machines
In the mainstream 3D graphics industry, companies such as S3 Inc, Matrox Graphics Inc and Trident Microsystems Inc are having to move fast to avoid getting stamped on by the giant and even at the more specialist, entertainment end of the industry, increased demand for the technology appears to be having an effect. Intel is not the only large chip manufacturer which has shown an interest in 3D graphics. Last year, NEC bought a three per cent stake in the specialist 3D graphics chip developer VideoLogic and the two embarked on a joint research and development programme. The partnership gave small VideoLogic access to NEC’s great manufacturing capability and corporate muscle in the market, while NEC gained an entry into the hot new world of 3D graphics. The deal, believes Trevor Wing, marketing director at VideoLogic is crucial to the company’s long-term future. Today 3D graphics come in a minority of PCs, but it will start to come as standard in all machines. The chips in these machines will have to be capable of high performance and to manufacture such chips cheaply you need to have access to high tech fabs and use the latest production process, otherwise the exercise proves too expensive. The deal appears already to have paid off, with strong rumors suggesting the pair are about to win a massive contract from Sega, which recently dropped another small but innovative player 3Dfx. With no supplier of 3D graphics chips for its upcoming video games console, Sega is now on the search for a replacement to the discarded 3Dfx. Multimedia giant SGS Thomson has also been quick to spot the need for it to gain access to 3D graphics.
By Rachel Oldroyd
It has developed a partnership with California-based Nvidia Corp. Although no equity was swapped between the two companies, they are both committed to the other in a joint research and development program. A similar deal has been struck between 3Dlabs Inc and Texas Instruments Inc. At the high performance end of the 3D graphics industry, all the main players have now entered into partnerships with larger chip manufacturers, all that is except 3Dfx, the company recently dropped by Sega. Andy Keane, vice president of marketing at 3Dfx, believes the company’s independence is an advantage rather than a threat to its existence. The company is fabless like all its competitors, but has stayed clear of the dating game, choosing commercial manufacturing contracts instead. We believe our strategy is more flexible, says Keane. He also believes 3Dfx gets a better deal than its competitors because its manufacturers do not have their own agendas. We work with manufacturers which only manufacture chips for other companies. They do not sell their own chips, he explains. However, there are risks attached to this strategy. Today chip manufacturing is cheap but if, as happened a couple of years ago, supply suddenly outstripped demand, the price of manufacturing would shoot up leaving 3Dfx possibly unable to compete with those 3D graphics chip companies cushioned from the price hike by their close relationships with some of the world’s largest semiconductor companies. By staying independent 3Dfx also lacks the corporate muscle which some of its competitors now have behind them. Keane feels unthreatened, however, arguing that if the company can keep ahead in terms of its products it will always be in demand. For such a strategy to work, believes Keane, 3Dfx has to remain as nimble as it is today so that it can react quickly to market changes and its competitors’ moves. In this respect 3Dfx is no different from its competitors with partners. Even those specialist 3D graphics companies that have found a date have fairly lose relationships. For these adolescent companies the dating game has only just begun. None of them are yet prepared to commit to marriage.
Michael Hara, director of marketing at Nvidia, talks about the company’s relationship with SGS Thomson as great at the moment, but is adamant that if either companies objectives change the two will go their separate ways. It is Nvidia’s intent to stand alone. We want to build a company with or without partnerships which will be a strong company in its own right, he says. Although there appears to be a shake up among the specialist 3D graphic chip developers, the industry is still a long way from any serious consolidation. In many respects Nvidia, 3D Labs, even VideoLogic, which has the strongest partnership with its semiconductor partner, are not really taking any different route to maturity than 3Dfx. And with new companies, such as Rendition, entering the market all the time there is much that can still happen. Peddie points out: Market consolidation in this industry never happens. People have been looking for it since 1984. Intel’s acquisition of Chips & Technology and its soon to be available 3D chip made a lot of nervous investors and analysts think it was happening. But the multimedia sector moves faster than the CPU sector and it will continue to be populated by a bunch of really smart, small, aggressive entrepreneurs.