San Jose, Calif. -- Nvidia Corp. pushed the boundaries of PC graphics at both ends of the spectrum last week by launching a novel processor architecture and buying PortalPlayer for $357 million. The moves show that innovation lives, even as the core business for desktop graphics processors rapidly matures.

At the high end, Nvidia's GeForce 8800 represents the first in a new class of graphics processors to use a unified architecture that aims to bust through old bottlenecks in traditional graphics realism. The chip will also open the door to a style of thread processing for a range of data-intensive technical applications traditionally served by DSPs, FPGAs and vector processors.

At the low end, the acquisition of PortalPlayer Inc. is part of Nvidia's effort to build a business that serves the booming mobile world of cell phones and MP3 players. The billion-unit volumes of this consumer business in- creasingly demand good graphics for games and video.

Both opportunities look sweet for a company that is effectively the last of the major independent designers of PC graphics, a sector that is shifting toward more-integrated chips.

A whopping 76 percent of notebook PCs now use graphics integrated into core-logic chips, a figure expected to go as high as 85 percent in the next few years. Desktops have plateaued at about 63 percent using integrated graphics over the last two years. Still, increasingly, sales of PC clients are shifting from desktops to notebooks, said Dean McCarron, principal of market watcher Mercury Research (Cave Creek, Ariz.).

Adding to the pressure, Advanced Micro Devices Inc. has said it will roll out a line of CPUs with integrated graphics cores, starting in 2008, as part of its merger with Nvidia archrival ATI Technologies.

"There has been a slow erosion in the standalone market" since integrated chips first hit in 1998, said McCarron. Nevertheless, "pretty much as long as people care about computer graphics there will be a market for standalone chips," he added.

Indeed, referring to the primary role of graphics in the next generation of Windows, David Kirk, Nvidia's chief scientist, said that"with Vista, standalone graphics could become the fastest-growing part of the market." He likened merging CPU and graphics cores for high-end products to "taking two sports cars and two Hummers and putting them in your Prius--and at the low end, people will still want more performance, not less."

Whatever the challenges, Nvidia (Santa Clara, Calif.) is firing on all cylinders with both standalone and integrated parts. In its last quarter, Nvidia led the market in overall graphics shipments. "They displaced Intel, something they haven't done for a while," said McCarron.

Also in the last quarter, Nvidia saw two years of investments in mobile chips pay off when it pulled neck-and-neck with ATI in the rival's strong area of notebook graphics chips. "We have a genuine horse race in mobile graphics now," McCarron said.

Unified architecture
In Nvidia's core desktop graphics market, the GeForce 8800 sets a new watermark. The chip is the first to adopt the unified programming model for Microsoft's DirectX 10 software interface for graphics, which will ship with Vista in January. The chip employs a pool of 128 simple processing units that can rip through graphics for Vista as well as thorny tasks in technical computing.

Analysts applauded the design, but said they will wait to see competing parts, expected in the next few months, from ATI and Intel before rendering a final judgment. "This [unified architecture] will be a major shift in PC graphics," said McCarron. "The Nvidia part looks strong on paper, but we need to wait until all the products are out and running to determine who is ahead."

Previously, graphics chips used separate arrays of custom hardware units optimized to handle tasks like calculating vertex points or shading pixels. Sometimes chips bogged down when an application needed more resources for a process than a chip offered. Under the new architecture, data will stream across a generic pool of arithmetic logic units (ALUs) that can handle any graphics process needed.

ATI and Intel DX10 devices are expected to have roughly similar unified hardware architectures . "Implementations will vary, but if you have a DX10 part it will likely have this basic capability," said McCarron.

Nvidia is taking that model one step further by creating a special mode in which those ALUs can handle computing threads instead of graphics primitives. That opens the door to easier use of the chips in data-intensive technical applications like medical imaging or oil and gas exploration. Those apps are increasingly turning to highly parallel graphics processors.

"During the [four-year] process of designing this product, it became clear some people were increasingly using graphics to do nongraphics applications. But that's quite awkward because you have to pretend to write graphics code when you are not, so the thought was to do this more directly," said Kirk of Nvidia.

The outlook for Nvidia's mobile business after last week's acquisition of PortalPlayer is less clear. Analysts said Nvidia got a deal on the company given it had recently lost a major design win in Apple's iPod.

Besides the addition of crack mobile and analog designers, PortalPlayer brings some intellectual property (IP) in cell phone applications processors and notebook displays that could give Nvidia a boost. And then, Nvidia's video prowess may help PortalPlayer get back into the iPod.

Some 85 percent of Nvidia's sales are tied to the slowing PC industry, and PortalPlayer will accelerate its efforts in the exploding mobile market, said Chris Caso, who tracks the company for Friedman, Billings, Ramsey & Co. Inc. (Arlington, Va.).

"The acquisition is part of Nvidia's overall handheld strategy, likely com- bining PortalPlayer's application processor with Nvidia's graphics processor for mobile devices such as PDAs, game players and hand phones," said Craig Berger, an analyst with Wedbush Morgan Securities Inc. (Los Angeles). "Nvidia also thinks it has a better chance of penetrating Apple iPod video products if it owns and integrates PortalPlayer's technology. I'll bet Apple told Nvidia: 'If you want to sell chips into the iPod beyond the first half of 2007, you'd better buy PortalPlayer.' "

But Berger also warned that the acquisition may prove fruitless. There are no guarantees that Nvidia will sustain design wins at Apple, and "we believe there are other semiconductor firms that offer more technology for less money [than PortalPlayer]," he said.

Still others think Nvidia's intentions go beyond Apple. Nvidia's working relationship with Apple has soured in recent times and the chip maker is actually looking to bolster its IP portfolio with the acquisition.

"I'm not telling my investors that Nvidia is angling for the iPod business," said Doug Freedman, an analyst with American Technology Research Inc. (Greenwich, Conn.). "Nvidia will gain SoC [system-on-chip] and application processor technology and expertise that will complement its graphics technology in the handset space. The company will also gain important analog design and implementation experience."

Besides MP3 chips, PortalPlayer is working on a secret, unannounced wireless solution. It is also pushing its so-called Preface technology, which works with Windows Vista to enable a secondary LCD screen built into a laptop computer lid that displays data and pictures and runs other applications. PortalPlayer said Preface is power-efficient, running for hundreds of hours without draining a notebook battery and providing "always-on" access.

Recently, PortalPlayer gained a big MP3 design win at SanDisk Corp. (Milpitas, Calif.), a supplier of flash-based products that has thrown its hat in the MP3 player ring. The SanDisk deal is also part of a new licensing/royalty model that PortalPlayer has adopted to target the sub-$100 MP3 player market.

In April, the chip maker lost a major design for Apple's flash-based iPods to Samsung Electronics Co. Ltd. The vast majority of PortalPlayer's sales were generated from Apple. But the company still owns the MP3 decoder socket for the current video iPod line at Apple.

For its part, Nvidia has been rumored to be a contender for a major graphics design win in the next-generation video iPod, due out early next year.

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