AMD, Nvidia shares rise as Intel scraps graphic chip

SAN FRANCISCO Mon Dec 7, 2009 8:01pm EST

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SAN FRANCISCO (Reuters) - Shares of Nvidia Corp (NVDA.O) and Advanced Micro Devices Inc (AMD.N) surged on Monday after Intel Corp (INTC.O) scrapped plans for a competing technology, giving the dominant graphics card makers a boost.

Analysts saw a setback for the microprocessor giant's efforts to reduce its reliance on core businesses, while others noted it was good they quit before committing more money or effort toward trying to take on established graphics players.

Nvidia and AMD's ATI graphics unit now dominate an advanced, or discrete, graphics chip market that typically serves computer gamers and video editors who rely on high-speed, three-dimensional visuals.

Intel said on Sunday it had dropped plans to launch an advanced graphics chip based on its Larrabee design because development had been disappointing, a blow for the company's plans to expand its footprint in the graphics arena.

"What it did do was say that, basically, the big bad wolf wouldn't come around to rain on the parade for another four-to-eight quarters," said Wedbush Morgan Securities analyst Patrick Wang.

Intel had touted its Larrabee-designed graphics chip since 2007, but had never specified a release date nor pricing details.

Some investors had feared that Intel's marketing dollars and industry influence could have enabled it to grab a slice of AMD and Nvidia's revenues.

"When Larrabee was first announced over a year ago, there was a lot of concern and speculation," Wang said. But he added: "Clearly it's not as easy as Intel initially thought it would be."

For Intel, the move represented a setback for its plans to diversify away from core chipsets and microprocessor design and put a dent in the leading chip maker's research credibility, though some analysts said the short-term impact was unclear.

Apart from graphics, Intel executives have spoken of forays into markets from mobile Internet devices to cars. The company signed an agreement with Nokia (NOK1V.HE) this year to develop mobile chips, and it sells a host of storage products

"For them to not have it (Larrabee), it doesn't mean they're going to make less money, it just means they're not going to make more," Wang said.

ITIC analyst Laura DiDio said, "Obviously somebody within Intel saw a number that they didn't like," adding that while graphics chip profit margins sustain business for Nvidia and ATI, they may not be fat enough for the world's largest chipmaker.

"Intel clearly feels they can cede this space for whatever reason."

WHAT NEXT?

Still, Intel spokesman Nick Knupffer said the company plans a Larrabee product to be used as a software development platform for graphic and high-performance computing, without elaborating.

That side of the spectrum, analysts say, has much larger margins and room to grow, with nascent technologies like Nvidia's new push to parallel, or shared computing between the microprocessor and graphics card.

Auriga analyst Daniel Berenbaum said shares for Intel did not move as dramatically as its competitors during the day because Larrabee did not represent much to investors... yet.

"I was fairly skeptical that this would be an interesting product for Intel in 2010 to begin with," he said, adding the news does not change most of his analysis of the companies.

Other analysts saw Monday's share reaction in Nvidia and AMD as a tad overdone.

"You could have told me on Thursday morning that this was going to be announced, I would have told you it's positive for Nvidia but I would not have guessed the stock would move 13 percent," he said.

Shares of AMD rose 8.4 percent to close at $8.52 on the New York Stock Exchange, while Nvidia rocketed nearly 13 percent to close at $16.09 on the Nasdaq. Intel fell 0.44 percent to $20.37.

(Reporting by Ian Sherr; Editing by Steve Orlofsky, Phil Berlowitz, Leslie Gevirtz)

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