So what features does ATI build into their products that their competition doesn't? I have no arguments about ATI's profit or its management, but I need more than "they make money in a cut-throat industry" in order to add them. Keep the discussions coming
Justin - ATI is definitely not a Gorilla, but it is King of the PC graphics card industry. I think you may be asking me to show that they have a Gorilla-type advantage in locking customers into their products. Since ATI is only a King, it does not enjoy a Gorilla advantage over its competitors in setting the architectural standards. But it meets the standards for King as defined in "The Gorilla Game" page 59.
It is the market leader in this industry, "enjoying some Gorilla-like benefits, including economies of scale, favorable distribution terms, enhanced access to customers & partners, & favorable PR." Admittedly, this industry is not huge, but we could probably say it is 5-10% of the size of the PC box industry, from the cost of hardware in the average PC. As I recall, ATI has the biggest market share and is bigger than its 3 or 4 biggest competitors combined, but I do not have the data at hand.
Their major product is PC graphics cards and chips, so to survive, they must focus on producing highly saleable products (if not "the best" or "the fastest"). Their competitors, like Creative Labs, Diamond, STB - produce other PC peripheral products, like modems, sound cards, CDROM/DVD drives, and may be less focussed on being tops in PC video graphics.
Their product advantages are subtle, but can add up to be the deciding factor in a purchase decision. Their cards have been at or near the top of the popularity and performance heap since about 1985, so they have a good reputation. Features in their products include extra memory to handle more resolutions, colors, and fonts, early support for AGP bus, good 2D and 3D graphics acceleration, special graphics chips for notebook computer OEMs, and TV/video capabilities in some products.
I like the way they are getting into cards for flat-panel displays, and the merger of TV and computer video. They have announced the third generation of the All-In-Wonder card, which has fast 2D/3D graphics, a built-in TV tuner, input & output video jacks (composite and S video), and DVD support. With this card, you can do a lot: run standard Windows applications or graphics-rich games, monitor video from cable, dish, VCR, or DVD, or edit camcorder movie clips on the hard drive, with output to a TV or computer monitor.
ATI has been good at growing revenues and profits at a rate (30-100%) that exceeds their P/E (28) so the stock price will likely be higher in a year.
Uncle Frank - I got into Gorilla investing only about 2 years ago, after thinking about what a good idea it was to stop trading MSFT in 1992 and just hold it. Also I came across references to "The Gorilla Game" and the book has been a great influence, as well as reading the posts of smarter and richer people on SI and Yahoo who discovered some Gorillas early and held them. Too bad I did not find the book before I read about CSCO years ago and did not dig deeper.
Investing in the mature "silverback" Gorillas and Kings/Princes seems to be a good way to go, and maybe we can still find some young ones.
Some people have too much nervous energy to just sit on a great stock. We get antsy when we have a small profit, because of the need for trading activity and the fear that the small profit will vanish. It takes a different mindset to just hold a stock and monitor it on a regular basis with a long-term view, because this can be boring. Technical Analysis and massive amounts of business news and opinions also contribute to frequent trading. Gorillas and some Kings/Princes should be held as long-term core holdings, while other stocks can be traded (to fulfill that nervous activity requirement).
Amazingly, I have had people tell me to sell MSFT for years. I think investing is an ego thing to some people. They want to find some obscure stock that will go up very fast, not only to make money, but to prove how smart they are for finding a "diamond in the rough". They consider it too "obvious" to just buy a silverback like MSFT. Also they overlook its Gorilla advantage and think it is overpriced and risky.
- ILG |
