NVIDIA: AI, GPUs, & the Race Against AMD - Essay Sample

Introduction

NVIDIA is an American based corporation that specializes in graphic processing units (GPUs), self-driving vehicles, and gaming devices. Over the last years, NVIDIA has explored other applications related to its proprietary technology which includes the field of Artificial Intelligence (AI) and enhanced computing (Aliaga et al., 2017). The main competitor for NVIDIA is AMD, who despite having a low market share compared to that of NVIDIA, remains the closest rival in the GPU sector. The company has grown progressively as more gamers move from playing games on consoles to having individual high graphic PCs made by NVIDIA and AMD. Since both corporations are striving to increase their market share, there is a need to undertake intensive market research and release product lines and remain competitive.

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Strength of Each of the Five Forces in the Graphics Chip Industry

The Five Force is a strategic tool applied to asses an industry and highlight the levers of profitability. The graphics chip industry uses the Five Forces to understand how these five competitive forces can determine the profitability then create a strategy for improving competitive advantage and long-term profitability.

Threat of New Entrants

Threats to new entrants in the gaming industry is low. This is because new entrants will require a significantly huge investment to achieve positive financial results. This is a very complex sector which requires a massive investment in R&D to produce technological products in bulk. For the new entrants, there are challenges of securing a robust distribution channel; strong relationships with manufacturers and suppliers would need to be created.

The Bargaining Power of Buyers

There is low bargaining power. This means there are single buyers and consumers choose to make purchases one at a time. Just like other business ventures, the graphics chip industry relies on retailers to make sales other than providing direct supplies from the company (Rumelt & Profile Books, 2017). The switching cost for buyers is moderate to low, and this means that the graphic cards have a significantly high resale value which facilitates switching process.

The Bargaining Power of Suppliers

The suppliers bargaining power is moderate to high. In other words, there are a limited number of suppliers that meet the requirements of NVIDIA and AMD, strengthening the suppliers. The suppliers do not manufacture anything, and this gives the graphics chip industry more strength. Since both corporations do their R&D, switching manufacturers can be done at low costs (Aliaga et al., 2017). Nevertheless, the suppliers play a fundamental role, and without them, the graphic card companies cannot function.

Threat of Substitute Products and ServicesThe graphic card industry has a high threat of substitute products and services. Some of the alternatives that can be used include Xbox One or PS4, which can cost less than the graphic cards. The strength in this is that graphics can be upgraded to achieve the best performance. For a console, a new version must be purchased which in the end is costly.

Intensity of Rivalry Among Competitors

There is a high intensity of rivals within the graphics chip industry. New products produced are more or less the same. Both NVIDIA and AMD sell products with almost similar specifications as the gaming industry flourishes. The growth of the graphic card industry is high, and this gives room for innovation and partnership with other companies. Both NVIDIA and AMD want to strike an exclusive collaboration with Intel to propel further growth.

Nvidia's Competitive Strategy

The gaming industry takes a significant portion of the larger entertainment sector. NVIDIA invests in their business to continually release competitive products. The business model is to create modern graphic cards and improve on the existing-free of cost to the consumers; an attempt to offer more value to the consumers. It also acts as a segmentation strategy to increase market share and profit volumes. There is a new strategy which focuses on a targeted and narrow product line (Rumelt & Profile Books, 2017). For instance, rather than dealing with the larger multimedia, NVIDIA focuses on 3-D graphics. Instead of the earlier proprietary concept to graphics, it has embraced the SGI-based triangle approach. The only change is their commitment to the "fabless" chip company, product design, and distribution channel. Through the focus strategy, NVIDIA had been able to produce graphic cards with the ability to support 4K resolution, something not available in the PC gaming yet.

Advantage Created by Nvidia's Strategy

Through the focus and differentiation strategy created by NVIDIA, it has outperformed other business entities using a single competitive advantage. As a result, the company has been able to distinguish itself from other companies and create strong brand loyalty among consumers who can make future purchases. The strong competitive advantage adds to the existing barriers of entry to new companies in the graphic chip industry. This also reduces the threats to substitutes.

Why the Advantage Sustainable For Many Years

The advantage was sustainable for many years because NVIDIA was able to diversity and create new business entities which ultimately synergized with other core competencies and available resources. Through the strategy, NVIDIA was able to enjoy the benefits linked to the larger graphic chip industry while at the same time developing other business entities to bring substantial growth and development for the corporation.

Why NVIDIA'S Successful Strategy Run Out Of Steam after Many Successful Years

The strategy ran out of stream because of the surprising resilience of PC gaming. The management had projected that the market would take all products that would be provided in the market. The management judged that it would be self-defeating to coordinate with 3dfx's Glide in the graphic chip industry. For this reason, there was a reduction in sales volume due to inadequate market research. The competition also affected the successful strategy at NVIDIA. There were other companies such as AMD and Intel that produced almost similar products at competitive prices.

How Likely Would NVIDIA'S New Strategy Be Successful?

The new strategy is likely to succeed because there is an increasing demand for the graphic chips (Graphic processing units) from both the existing and new customers and this means increased profit ratios and high market share. The graphic processing units(GPU) turns the normal PCs into gaming devices hence convenient for all users across the board. At the same time, the company has a head start on AMD, Intel and all other competitors in the graphic chips industry (Llanes, 2019). For a long period, it dominated the market, which has facilitated a strong market base and competitive advantage. Because of the existing market share, there is a high probability that the new strategy will be successful. The company has strong brand loyalty and heavy investment in R&D for continuous innovation.

Conclusion

NVIDIA has dominated the graphic chip industry for a long time despite the intense competition from AMD, Intel, and other companies. The competitive strategy has been focused and differentiated approach, which aims at reaching a wider market. For instance, rather than dealing with the larger multimedia, NVIDIA focuses on 3-D graphics, and instead of the earlier proprietary concept to graphics, it has embraced the SGI-based triangle approach. The company has invested heavily in R&D to remain competitive through their innovations. There is a need, however, to control expenditure on R&D since this does not guarantee new products.

References

Aliaga, J. I., Dufrechou, E., Ezzatti, P., & Quintana-Orti, E. S. (2017, September). Evaluating the NVIDIA Tegra processor as a low-power alternative for sparse GPU computations. In Latin American High-Performance Computing Conference (pp. 111-122). Springer, Cham. https://doi.org/10.1007/978-3-319-73353-1_8

Llanes, G. (2019). Competitive strategy for open and user innovation. Journal of Economics & Management Strategy, 28(2), 280-297. https://doi.org/10.1111/jems.12282

Rumelt, R. P., & Profile Books. (2017). Good strategy, bad strategy: The difference and why it matters. London: Profile Books.