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Market conditions 'forced' Nvidia into retail

Graphics chip firm Nvidia has penned a retail deal with the US chain of tech stores, Best Buy, which will have it selling Nvidia-branded graphics cards.

The move is a departure fro the firm which traditionally relies on board-making 'partners' to sell cards based on its GPUs. The immediate thought that crossed everyone's mind is that of "What about the partners?"

You could almost hear the air raid sirens going off at Nvidia's partners' HQs.

We asked Nvidia for a clarification on the news broken by HardOCP. According to the site - which actually managed to buy a couple of cards ahead of schedule - the cards are standard reference designs, no tweaks, no twiddles: GTX 460 (768MB version w/192-bit memory bus) and the GTS 450. These are cards that are smack dab in the middle of the market and will be selling by the dozens of thousands this Christmas, provided there are enough to go around. HardOCP's impressions? Standard stuff, with awesome packaging... but the pricing ... well, that just might need a little tweaking.

A sidenote, here. ATI, before it was gobbled up by AMD, also played this game: ATI-branded cards would be share the shelf, side-by-side, with partners' kit. This has since evolved differently, depending on the market you are in, but the fact remains that ATI 'built' and sold some reference cards, and some it did not, leaving them to the partners.

Nvidia's seniror PR manager Bryan del Rizzo shed a bit of light on the current goings-on at the company and the relationship with Best Buy. The answers clarified the main questions on how things will go down, but of course, nothing that will conflict with its partners' own quest for financial gain.

"Nvidia will begin retailing its own brand of cards in select Best Buy stores from Sunday the 10th of October, 2010," del Rizzo said. These will be limited to two models - the ones HardOCP mentioned - the GTX 460 (768MB) and GTS 450. The cards will feature reference designs with standard clocks and standard cooling, nothing outstanding about it, although HardOCP did say the retail box was sweet but pricing was so-and-so. Of course, we asked how the pricing worked out. Bryan told us that pricing is entirely up to Best Buy which, by the way, is the retailer set to sell Nvidia-branded cards.

The last question we were able to get an answer to, albeit a short one, might have AIB partners breathe a sigh of relief: would this be extended to other markets (and within what time frame)? The answer was a plain “No.”

Del Rizzo refused to be drawn on expected sales volumes

So, as of Sunday, Nvidia will be actively engaged in retail activities in the USA, through a select (undefined) number of Best Buy stores. This retail activity will not extend outside the USA, according to Nvidia, and is reserved for the above-mentioned types of cards.

Of course dozens of questions will remain unanswered until things actually start rolling at Best Buy - margins being the first one, allocation being the second and the on-going realtionship with traditional partners, the third.

While most analysts will have Nvidia partners busy changing their soiled undies, there is the quasi-silent acknowledgement that Nvidia is being pushed into this by market conditions and a need to evolve its business.

Jon Peddie, President at Jon Peddie Research, believes that even though Nvidia has been tremendous at building up partner relations, “It makes sense for Nvidia to become more vertically integrated, just as Intel has."

He added: "Times have changed and AMD, Intel, Nvidia have done such a great job about establishing their brand, even though they are just components in the PC. most people don’t know the brand of the power supply, disk drive, motherboard, etc. in their PC, yet they know what CPU and GPU it has."

Unfortunately for some, this may turn out to be a zero-sum game. There isn’t simply enough room for all, and Nvidia’s looking ahead to what AMD and Intel are doing. Sitting idly by doing R&D just won’t get the green one across the finish line right now.

On what regards to allocation, as Nvidia’s client is now Nvidia itself, how does this work out? Does Nvidia have dibs on Nvidia? Does Retail Manager A call Sales Rep B sitting two desks down in Satan Clara? Not to mention that having picked two “popular” cards with a very high volume of sales – such as the GTX 460 and GTS 450 – will require draining chips from other partners (unless TSMC could magically churn out a few extra thousands of wafers).

Then comes the financial effect on partners. The market is pretty tight right now, and this will have to generate some sort of whiplash with the weaker partners. The graphics business from the AIB point of view is pretty volatile, just look at what they have to work with: tight supply on GPUs, rollercoaster DRAM, tighter margins, support & RMA on a global scale. Nvidia’s move will definitely put a few partners on notice and may even prompt some radical changes by year’s end.

So, who will be sacrificed on the altar of Retail? This does seem to be the pressing question.

For now, Nvidia is feeling the ground and seeing what comes of it, but if business picks up, we are sure to see a move across all markets, very very fast. Wipe the surprised look off your face. If there’s something we’ve become accustomed to is “expect the unexpected”, at just about every level, when it concerns Nvidia.

The fact of the matter remains, something has to give and Nvidia is evolving its business into something that it will manage in the future (it worked for Intel and AMD, why not for Nvidia?).

Like it or not, you stop, you die. Or as Peddie puts it “eventually Nvidia will take over the channel and shift its partners into a distributor role. I think it’s a natural evolution in the industry and Nvidia has decided it’s time to get further engaged.”