ATI and Matrox . Graphics and settop boxes??!!...........
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From Page One of Electronic News: August 17, 1998 Issue
Coming From Canada: PC Graphics
First In A Series
By Peter Brown
Toronto and Montreal, Canada--The volatile PC graphics market has undergone many
changes in the last year, including a move to complete Accelerated Graphics Port (AGP) systems,
more 3-D centric engines and enhanced video and DVD functionality. These changes have been
realized by numerous graphics companies and are already being implemented in most graphics
ICs. However, an innovative business model coming from Canada may be the real change and the
real impact the graphics industry has been waiting for.
Toronto-based ATI Technologies and Montreal-based Matrox Graphics have set the mold for
the PC graphics industry in the past year. Both companies have done very well in a market that
has been struggling due to a downturn in the PC industry and growth of the low margin, high
volume sub-$1,000 PC marketplace (EN, July 20). Both Canadian companies have made a
successful business out of sticking to their core business, retaining personnel and creating a
strategic plan like no other in the graphics industry.
"The last three years we have really hit our stride and right now we have working for ATI more
than 600 graphics engineers half in software and half in hardware," said Phil Eisler, director of
component marketing at ATI. "We have the ability to deploy multiple design teams now to bring
technologies faster and bring features to devices that others would take a considerable amount of
time to develop."
ATI indeed hit its stride last month when the company said it achieved the $1 billion mark in sales,
unprecedented in the graphics market for a long time. In addition, according to most analysts, ATI
in 1Q98 took over the number one slot as the PC graphics leader in the world in terms of
revenue--knocking off incumbent S3. Subsequently, ATI has also taken over the leadership
position as the leader in units shipped, also knocking off S3. In its own light, Matrox has silently
but steadily developed its own successful business and has grown to be the third top-ranked
graphics supplier in parts and in revenues.
The Board Factor
Both Canadian companies develop their own graphics boards and their own chips. Matrox and
ATI are currently the only two PC graphics vendors developing both chips and boards.
According to industry observers, this may be the biggest factor in ATI and Matrox's success.
"Because they do their own boards, they are not totally reliant on third-party board houses who
can show little loyalty to graphics houses and usually go with what they can sell the most," said
Scott Hudson, analyst at In-Stat, a market research firm based in Scottsdale, Ariz. "ATI and
Matrox are able to push their own product without having to go through anyone else. It obviously
is a relatively successful model because ATI and Matrox have climbed to the number one and
number three spots in the world in PC graphics."
Because of their board capability, ATI and Matrox have a hard time going through third parties
because it is considered just another step toward making it to a PC OEM. "Our board business
has helped us survive the peaks and the valleys of the graphics market and now we are really
seeing the benefit by being able to deploy cards to our OEMs quickly without having to stop at a
third-party board maker," said Mr. Eisler.
"When building your own boards you have to take responsibility for the board you produce so
you have to have quality chips, with the right drivers; the layering of the board must be good," said
Mary Ellen Power, international marketing director for Matrox. "This produces a very, very stable
board that lasts a while. Also building your own boards allows you to have an upgrade path that
more than likely is not available with most third parties."
Mr. Hudson said another reason for success may be to a lack of turnover in the company. By
keeping teams together a lot of R&D is done by the same people and can be done faster than
having people enter and exit frequently. "Being in Canada enables them to keep other companies
from pulling them away. In the valley that's not necessarily the case," he said.
Although Matrox and ATI are not solely in the graphics business, a majority of its business is in
the PC graphics business. In the past most companies not solely focused on the graphics market
have suffered from lack of focus. However, ATI and Matrox have both succeeded while others
have failed, at least so far. Most industry observers agree a graphics company can be successful
competing in other markets as long as they remember where their bread and butter is.
Not Stagnate
To continue the move to forward and not remain stagnate, ATI is embarking on new ways to
differentiate itself from its competition as well as move into new areas for graphics. Mr. Eisler said
ATI has already invested in set-top boxes and are developing reference platforms and software
so it can move into that highly convoluted area.
"By and large we have stuck to our knitting and at the moment really don't have a crushing market
share as some of the leaders have had in the past, some even over 40 percent," said Mr. Eisler.
"However, we are looking at other ways to bring in revenue including set-top boxes and a higher
focus on notebook graphics."
In fact, ATI said in the next few months it plans to target the notebook and corporate desktop
markets with new graphics engines. ATI has limited business in notebooks right now, especially
with NeoMagic claiming a commanding 55 percent market share in 2Q for notebook graphics,
according to In-Stat numbers.
In addition, breaking into the notebook market is much more difficult than the desktop space
because of the constraints on power, battery life and the need for embedded DRAM memory
on-chip that has become almost a check-off item these days. ATI, however, claims to be the only
company shipping AGP graphics engines for notebooks and will look to this area as a spark for
design wins. It worked in the desktop arena, it might in the notebook market.
Matrox, so far, does not compete in the notebook market. Although the company does have
some distinct advantages in other areas including having a full line of imaging, video and
networking products. The company is already in production with various integrated products for
vertical markets. However, the company is working on new areas of interest that combine
Matrox's graphics technology with other aspects of its business, namely imaging and video.
"We already have integration into a lot of vertical markets such as digital graphics, DVD,
consumer imaging and all sorts of new monitor market devices like enabling four monitors to run
on one board, this is very good for the financial and real estate markets," said Matrox's Ms.
Power.
The Segment Zero Killer
A definite need to generate revenue in other areas might also be the reason for this diversification
of business. Matrox and ATI both have been hit by the sub-$1,000 PC craze, however, more
than likely it has not been a positive experience. Segment zero is not friendly to PC component
makers because the margins have to be so low for PC OEMs to sell them at the $899 to $599
level.
Matrox said it experienced a 25 percent across the board drop in average selling prices (ASPs)
and is looking for new ways to manufacture devices more cheaply. Matrox is looking into moving
its manufacturing facilities to lower cost fabs in Ireland, the U.S. and perhaps China. Matrox said
it is also investing in R&D to make all of its products pin compatible so when a new design comes
into play a PC OEM can just drop in the upgrade or new product without having to redesign the
system. Also, the company is using R&D to make its graphics designs more simple and easy to
integrate into PCs. Other companies are reportedly working on similar ways to cut the costs of
manufacturing these chips to improve margins.
ATI said it has certainly taken some margin hits but the company is developing these chips at a
lower cost than most of its advanced process chips. The company is also doing other things to
help the manufacturing of these chips at a lower cost that drives down the cost of bill of materials.
"It's been a challenge for us no doubt. But we have kept the old technology relatively cheap to
make and we can reduce the development costs as much as possible which increases our margins
in the long run," said Mr. Eisler.
How To Stay On Top
ATI is making a bid to stay on top now that it has gotten there. The company is working on
bringing product to market sooner and looking to identify changes in the graphics market quicker
than in the past. ATI is set to launch a high-performance graphics engine later this month that it
claims will "leap frog" all current technology and put ATI at the leader of the pack in the high
performance arena.
The company is also working on integrating digital interfaces into all of its desktop computer
chips. With the growth and forecasted enormous growth of the digital flat panel monitor market,
ATI is predicting a need for graphics engines to have digital interfaces. By creating its own digital
interface the company hopes to strive ahead of a potential change in the graphics market.
"We are focusing on bringing to market products that are in demand throughout the year. Rather
than wait for the entire market to react we want to be there ahead of time." |
