Deal means ATI graphics chips may get cheaper

A major player in the graphics industry, ATI Technologies has traditionally been the sole manufacturer of graphics boards using its graphics chips. But this week the company announced that it will license its chips to other companies, and it pointed to ASUSTeK Computer and Gigabyte Technology as likely candidates to produce graphics boards using ATI chips. Analysts expect ATI's new partners to officially announce products and ship dates at this week's Computex conference in Taipei.

And if enough companies decide to use ATI chips, ATI-based graphics boards could get cheaper, says Peter N. Glaskowsky, senior analyst for MicroDesign Resources.

"In retail, you'll be able to buy ATI-branded products and less expensive versions with the same memory for less," he says.

Battling NVidia

ATI's president and chief operating officer, David Orton, says this new licensing model is meant to boost the company's market share by increasing the number of its chips that go into PCs in the consumer, mainstream, high-end, and workstation markets.

One reason for ATI's strategy change could be its slipping share of the desktop PC graphics processor market. As competitor NVidia's share has grown to nearly 50 per cent, ATI's share has fallen to 34 per cent over the last year.

"The market has changed over the past year and a half, and it is now time for ATI to deepen its penetration into the system integrator and distribution markets through this new strategy," Orton says.

"We decided that instead of competing [with other graphics boards manufacturers], we should provide them with a choice. Now we're giving end consumers and board suppliers a choice."

Dan Vivoli, vice president of marketing at NVidia, thinks this move is an indication that his company's business model is working. Dozens of retail and OEM boards use NVidia graphics chips.

NVidia has always licensed its chips to other vendors. (It only makes its own boards for high-end workstation products.) However, it's widely known in the industry that the company has always dictated the design and engineering of third-party boards.

ATI hasn't announced whether it will force its own design requirements on manufacturers.

Why buy ATI?

ATI still plans to manufacture, sell, and support all of its OEM products as well as retail and graphics boards, such as the All-In-Wonder Radeon and Radeon 64MB.

Company executives say the deal is meant primarily to encourage creation of "white box," nonretail graphics boards for sale to PC vendors, but that it won't stop manufacturers from selling ATI chip-based boards at retail and competing directly against ATI's own retail products.

"If other manufacturers decide to build retail boards, we're not going to fight them," Orton says. "But we could conceivably see an ATI Radeon ASUS [graphics] board [on store shelves]."

If third-party boards do end up in computer shops and for sale online, Orton contends that ATI's brand name, service, and support will keep consumers loyal to ATI-branded boards.

Analyst Glaskowsky isn't so sure, though.

ATI may end up losing margins when people figure out there are cheaper graphics boards with the same configuration, he says.

"There is not a lot of video card maintenance," he says. "The advantage of having a branded product is not as substantial in the graphics board business. This is a very dramatic change for ATI. If they support this new model wholeheartedly, they may have to give up branded hardware."

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Alexandra Krasne

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