The important thing to take into consideration is the erosion of ATI's gross margin. At times when the graphics chip industry suffered from a squeeze in its margins, ATI would often be able to maintain its margins because, it was both supplier and buyer of its own chips. Other graphics chip vendors would often be scrambling to keep the like of Diamond Multimedia, or Creative Labs happy, and would pay for it by competing on price, and eroding margins. ATI didn't have to go through that process.

The other thing is that Nvidia doesn't really spend a lot of money on marketing itself. Not as much as people think. It doesn't really have retail marketing. The company doesn't need it because, they get enough press as it is. Why buy more?

ATI made the market for its chips itself, selling its own boards at retail, and building its own brand among PC OEMs. That costs money. Until 3dfx took the step of buying STB, the graphics chip industry was at the mercy of brand name board vendors to get products on the shelf, win reviews, and deliver the kind of market reliability that would then draw the top tier OEMs to use their chips. 3dfx built its own brand among gamers, and decided that it was worth cutting its margins or prices to satisfy board vendors who had built their Voodoo board business on the back of 3dfx's marketing. You may also remember that 3dfx spent a fortune on worldwide marketing as well, putting out press releases about how cool its advertising agency was. Hmmm.

To be honest, Nvidia has been as good a graphics board vendor as anyone, but learnt from the mistakes of other chip and board vendors. The company has left nothing to chance, and you could equate the present business in Nvidia-based graphics boards as being franchise opportunities for board vendors. It's Nvidia's brand driving the product, and Nvidia's drivers, and even Nvidia's board designs, more often than not.

However, while ATI has had to bear the cost of manufacturing boards, packaging them, and selling them through retail, and two tier distribution, Nvidia has just had to sell its chips, and gather the royalties from board sales. All the benefits of the board business to Nvidia, but none of ATI's costs.

Hence, that's why we had this announcement from ATI a few days ago. It's a good move in theory because, board vendors need a strong alternative to Nvidia, and ATI can't go it alone anymore. On the other hand, how much it will dilute ATI's brand, and whether ATI can manage the expectations of these new channels is open to debate. Certainly, ATI has managed to deal with the toughest customers of all, PC OEMs, but it will be interesting to see how the company's culture reacts to the new direction.

Still, despite all that, margin pressure on ATI is going to continue, while Nvidia seems to be safe from those kind of problems for now. ATI doesn't necessarily command a premium for its products. The company won't be able to until it comes out with an Nvidia beating product. In the meantime, Nvidia scares the hell out of OEMs who are at the company's mercy.

As ATI transitions its business model, and the company doesn't look like the old ATI chip and board business of yore, you can probably gaurantee that the whole organization is going to ebb and flow. A little shrinkage in retail and marketing areas, and if my assumptions are correct, some growth and investment in R&D. Again, the question of corporate culture has to be raise: can ATI develop a corporate cutlure to compete with that of Nvidia? I really do believe that is as important as anything else they do.