Fourth quarter ’06 graphics add-in board market sluggish, but hope in sight

Both units and revenue down

Q4 wasn’t a total bust for the graphics AIB market, but it certainly wasn’t anything to brag about either. We estimated the add-in graphics board (AIB) and supplier market share for the fourth calendar quarter of 2006, and we have to report disappointing results.

Graphics AIB vendors shipped approximately 21.1 million units in Q4’06, accounting for roughly $4.5 billion in revenue. Units were down 2.9% sequentially and down 5.7% year-to-year.  While volume was down a bit, ASPs and revenue were down more substantially. Total AIB revenue was down 9.6% sequentially and 15.1% year-to-year.

Why the lull? JPR see several reasons:

·         Waiting for Vista. The emergence of Microsoft’s Vista is expected to help graphics cards AIBs longer-term. Vista’s graphics demands are much higher than XP’s, making vendors hopeful of some up-selling in the future. But that’s ideally the case once Vista arrives, and Vista wasn’t around in full release until Q1’07. And that meant some buyers of PCs (with AIBs) and aftermarket AIBs were holding off purchases during the Q4’06 season (and most unfortunately, skipping the normally lucrative holiday season).

·         AMD is on the cusp of releasing a new GPU, the R600. The R600 is already late and leaves some buyers – especially Performance and Enthusiast category buyers – waiting for the new GPU.

·         Nvidia released the G80 GPU in gamer cards in Q4. Making room for the G80 to migrate down the price bands over the next few quarters means pushing down ASPs in the mid-range price bands to help move out older G7X and NV4X class cards.

·         Continued pressure from Integrated Graphics Procesors (IGPs) below. IGP shipments were especially strong in the second half of ’06 compared to the first half. That bump is most likely attributable to Intel’s rollout of new chipsets with enhanced IGPs to support Core 2 Duo. Some IGP buyers in the second half of ’06 were AIB buyers in years past.

Despite ending ’06 on a sour note, the big two graphics add-in card vendors have reasons to be optimistic in 2007, thanks to Microsoft’s Vista. Vista was fully released in January, and while Vista isn’t the obvious upgrade that XP was over Windows 98, most buyers of new PCs will choose Vista and also be a bit more likely to choose a higher performance add-in board over integrated graphics.

Now unfortunately for AMD, the R600 probably won’t be here until Q2, and that still may put a damper on AMD’s business until Q3 (or more likely Q4) for bigger volume. With several factors in play, it’s going to be an interesting year to watch in the AIB market.