Disclosure: I am long AMD, NVDA, INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
I have always wondered why Advanced Micro Devices (AMD) spent so much time trying to compete head-to-head with Intel (INTC), a cash generating juggernaut that pays out more than AMD's market cap every two quarters in dividends (and spends roughly 7x what AMD does on R&D). Perhaps previous management had an ego problem, but it seems that under the leadership of Rory Read, AMD is trying to forge a new path that plays to the company's strengths as a smaller, fabless IC design house with an X86 license.
One thing that I have noticed lately is that AMD is finally doing something about the market share that it is losing to graphics giant Nvidia (NVDA). For those of you who follow the industry, Nvidia has been quickly becoming to AMD in graphics what Intel has been to AMD in CPUs. While Nvidia was severely disadvantaged from a performance-per-watt perspective with its "Fermi" generation of cards, the company retargeted its designs to squeeze out maximum power efficiency, which has led to substantial market share in the notebook market:
(click to enlarge)
The desktop market share numbers probably also look fairly similar, as Nvidia's PC graphics revenue is roughly twice AMD's, and it is my belief that the desktop PC market is where the bulk of the revenues/margins come from in this space.
AMD Tries To Build Brand Equity
AMD has taken a page from Nvidia's playbook and has very seriously begun ramping its developer relations efforts, as well as its end-user marketing efforts. In particular, it has been very aggressively working with developers/publishers and providing very attractive game bundles to end users. In the most recent "Never Settle" campaign, AMD included EA's (EA) Crysis 3 as well as 2K Games' (TTWO) Bioshock Infinite and Tomb Raider from Square Enix, depending on what card(s) you purchased.
Nvidia, on the other hand, is bundling "in game credit" for a number of popular free-to-play games with its GPUs. While AMD seems to be targeting triple-A mainstream games, Nvidia seems to be backing the more PC-exclusive gaming scene, which plays into Nvidia's view that the majority of PC gamers are actually overseas in countries like China and Taiwan (where these types of free-to-play games are highly popular). I think for going after the broader PC gaming market, Nvidia's strategy makes sense (and probably cheaper), but for AMD, which needs to build obvious brand recognition here in the USA, its strategy makes perfect sense (albeit is probably more costly).
I can also tell you from experience that many of the PC gamers who aren't big free-to-play nuts are definitely going to take a long, hard look at the AMD graphics cards simply because they know that the bundled games can be resold, significantly lowering the upfront costs of the card. Further, this also helps to incentivize sales of multiple high end graphics cards in a single system, especially as gamers may want the new games and can justify the cost of the new graphics card with the fact that the game bundle alone is "worth" $100+ to them.
Conclusion
Make no mistake -- AMD will gain some market share in the high end of the PC gaming graphics market thanks to the "Never Settle" bundles. The real question is whether share gains in the very high end (which comprise perhaps 10% of total GPU sales) will be enough to trickle down into the mid-range. The problem AMD faces here is that while its own "7790" card for the $150 price band is quite nice in its own right, Nvidia very deftly countered that launch with its own "GeForce 650 Ti Boost" which, according to [H]ardOCP (one of the leading independent PC enthusiast hardware sites), is the best card that money can buy in that price band:
If we haven't made it clear yet, the GeForce GTX 650 Ti Boost is a good upgrade if you are on an aging Radeon HD 7770, or GeForce GTX 650. The GTX 650 Ti Boost will get you a substantial performance improvement. If your choice is between the Radeon HD 7790 or GeForce GTX 650 Ti Boost, the new GTX 650 Ti Boost is the better option for a better gameplay experience. If you are trying to decide between a Radeon HD 7850 and a GeForce GTX 650 Ti Boost, we'd have to go with the GTX 650 Ti Boost. It offered slightly better performance; just make sure you get the 2GB model. And it is less expensive.
It will be an interesting battle to watch, and AMD's aggressiveness on the developer relations and game bundling front may finally be what it needs to help claw back some of the market share that it has lost in this space. Nvidia is a tough, tough competitor with lots of money, arguably better cards from a performance/watt and features (3D vision, PhysX, better drivers) perspective, and a lot of brand equity. But AMD is finally doing what it needs to in order to, at the very least, stem market share loss and perhaps reverse the trend. The only question is, just how big of a check is AMD writing to these game publishers, and how long can it last?