Summary
-Microsoft’s Surface 3 tablets will be powered by Intel’s chips and not Nvidia’s ARM chips, as was formerly the case.
-Nvidia’s PC gaming business has, however, been growing very well.
-This segment can help offset any losses the company will suffer from loss of Microsoft’s business.
This info is taken from multiple sources online. To many to cite. Enjoy-
News that Microsoft's (NASDAQ:MSFT) new Surface 3 tablet will be powered by Intel's (NASDAQ:INTC) Atom processors instead of ARM (NASDAQ:ARMH) chips that powered earlier Surface versions must have come as a bad blow indeed for ARM and Nvidia's (NASDAQ:NVDA) fledgling efforts to get a foothold in the Intel-dominated PC and tablet business. Nvidia licenses CPU and architecture IP from ARM.
Other than earlier Surface versions, ARM chips are widely used in Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Chromebooks, Windows RT devices and Linux PCs. But, these are small markets which have yet to become real contenders, with estimates that they constitute less than 2% of the PC and tablet market. ARM's best hope of getting a proper foothold in the PC and tablet lay in Windows tablets, which Gartner predicts will grow its market share from 7% currently to around 14% in 2018. Windows tablet shipments reached 2 million units during the fourth quarter of 2014, driven by strong demand for Surface Pro 3. This was about triple what was shipped during the fourth quarter of 2013, meaning Microsoft might finally have managed to crack the Windows tablet dilemma. Surface Pro 3 has generally been well received in the market, and could have helped Nvidia gain a stronger foothold in the tablet market, had Microsoft continued using ARM chips on the tablet series.
Nvidia has also been losing market share on chromebooks as well. Chromebooks have been doing quite well, with ABI Research estimating that chromebook shipments will grow at 28% CAGR to reach 11 million shipped units by 2018. Unfortunately, Nvidia and ARM have been losing to Intel even on chromebooks. About two years ago, virtually all chromebooks were equipped with ARM chips. But things have changed, fast. NPD, an organization that tracks retail sales, says that close to 70% of chromebooks shipped during the third quarter of 2014 were equipped with Intel chips with ARM chips taking the rest of the pie. Ironically, hardware makers have been shunning ARM chips in favor of the Intel chips due to one word: ubiquity.
Microsoft was forced to make the decision to switch to Intel processors for the Surface 3 tablet because of major compatibility issues that ARM processors face. Surface 2 and Surface RT were both powered by ARM processors. Both tablets were also powered by Windows RT operating system, an OS that Microsoft designed specifically for the ARM architecture. But, Windows RT has a big downside - it is incapable of running software designed for x86 Windows PCs. This is the same reason why chromebook manufacturers have been ditching ARM chips. Intel architecture is much more compatible with a wide variety of operating systems ranging from Windows, Chrome, Android, Tizen and others, while ARM is not. This is one important feature that ARM architectures lack.
ARM, however, is not likely to be banished completely from tablets. The architecture helps to differentiate tablets, and can help to bump up display resolution. That's why Samsung included 64-bit ARM chips in the Samsung Galaxy Note and HTC Nexus 9. Other chromebook makers such as HP and Acer have also stuck to ARM. But, a huge 70% market share loss in the space of just two years tells you that the days of ARM dominance in tablets are over.
Microservers Fail to Gain Traction
ARM-based servers is yet another area where investors have been waiting for ARM companies such as Nvidia to capitalize on. IHS iSuppli Research had earlier predicted that microservers would account for 10% of all servers shipped in 2016.
But current indications are that microserver adoption is nowhere nearly as strong as anticipated, with updated estimates that microservers will only account for maybe 1%-2% of total server shipments by 2018. One big reason why microservers have not taken over the datacenter yet can be chalked up to software incompatibility. A lot of the software that powers the web was written from 2005-2010, with the vast majority based on Intel's Xeon microprocessors. Trying to use a lower unit of compute such as ARM simply does not work well.
It, therefore, appears that Intel's huge install base of its proprietary processors is largely working in its favor, by acting as a defensive barrier against ARM companies such Nvidia. But, there are a few key niche areas where Intel is not so dominant, which can help Nvidia to expand its chip business beyond mobile chips (which are becoming commoditized).
PC Gaming Growth Powered by Maxwell
If you ask most people which is the most dominant gaming platform, you can expect to be told either mobile gaming or consoles. But, that just isn't true. The PC is by far still the most important gaming platform, with about 40% share of the gaming market. That's the biggest market share by any single gaming platform in the market today.
Source: GDC, DFC Survey
PC gaming, unlike other PC sub-segments, is growing at a healthy clip. This is great news for Nvidia, which derives more than 80% of its revenue from GPUs. Nvidia's GPU segments grew 13% during the last quarter, significantly faster than 9% overall revenue growth for the company.
Source: Nvidia
One of the key uses of Nvidia's GPUs is in PC gaming. The company's gaming-focused graphic chips grew a healthy 38%, powered in part by strong adoption of Maxwell architecture. Maxwell is Nvidia's 10th generation GPU architecture that offers 10 times better performance than the company's Kepler architecture. Nvidia is also the market leader in add-in board graphics, where it enjoys a huge 76% share of the market. Add-in boards are high-end graphics that use discrete chips.
Maxwell can help Nvidia to keep growing its PC gaming and GPU business at a healthy clip and help offset any shortfalls the company might experience from the loss of the Surface 3 business. Nvidia's Tegra Processor (12.4% of revenue) was used to power Surface tablets. In my own estimation, Surface tablets accounted for maybe 2%-4% of the company's revenue, or perhaps much less. I, therefore, do not expect the company's top line growth to suffer materially from Microsoft's shift to Intel.