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Intel Lowers Expectations for Its Graphics Card Launch

For decades, there have been two producers of the graphics chips that power gaming PCs and workstations: NVIDIA and AMD. NVIDIA was all about graphics from the start, while AMD entered the business by acquiring ATI back in 2006.

Intel (NASDAQ: INTC) has a long history with graphics. Many of its CPUs include integrated graphics chips, and those have been getting more powerful over the years. They can’t hold a candle to graphics cards that cost hundreds of dollars their own, but they’re capable of playing some games at low settings with acceptable performance.

Missing the target

Graphics cards have become a massive business, accelerated by gaming demand during the pandemic, cryptocurrency mining, and the use of graphics chips for accelerating enterprise workloads. It’s a market that Intel would be foolish to ignore. The company announced in 2017 that it would be entering the discrete graphics market, and now that plan is finally coming to fruition, although not without a fair share of delays.

Originally, Intel planned to have graphics cards ready to go by 2020. The company missed that target, but it was able to launch something in 2021. That product, the DG1, was only meant for OEMs and system integrators. Intel laid out some ambitious plans earlier this year at an investor event: Ship at least 4 million GPUs in 2022, with products tackling the notebook, desktop, workstation, and server markets. By 2026, Intel expects its accelerated computing and graphics segment to be approaching $10 billion in annual revenue.

With Intel’s second-quarter report, the company confirmed that it definitely won’t be hitting that goal of shipping 4 million GPUs this year. Software issues have slowed the company down. “Our software release on our discrete graphics, right, was clearly underperforming. We thought that we would be able to leverage the integrated graphics software stack, and it was wholly inadequate for the performance levels, gaming compatibility, etc., that we needed,” Intel CEO Pat Gelsinger said during the earnings call.

There are already some laptops on the market that feature Intel’s Arc graphics chips, and a data center GPU is shipping to customers, but the launch of the desktop variants is still a work in progress. The company now expects its Arc A5 and Arc A7 desktop graphics cards to launch in the third quarter, although an exact date hasn’t been set.

Breaking the duopoly

While Intel will take longer than expected to become a major player in the graphics card market, graphics still represents a multi-billion-dollar opportunity. Jon Peddie Research reported that $8.6 billion of graphics cards shipped in the first quarter of this year, and that number was down substantially from the fourth quarter as the crash in cryptocurrency prices knocked down demand and prices.

Intel probably won’t be able to compete at the high-end of the market with this initial launch, but depending on how the company prices its products, it could be a disruptive force in the mid-range. If Intel can be competitive in the $200-$400 price range, it’ll be able to sell a lot of graphics cards. The most popular graphics card in use, according to Steam’s latest hardware survey, is NVIDIA’s GTX 1060. That card was announced in 2016 with an MSRP of $249.

Intel’s biggest opportunity is to offer those with mid-range graphics cards who have been unable to upgrade because of soaring prices an affordable option. Intel will fall short of its graphics card goal this year, but 2023 could be a huge year for its nascent graphics business.

Timothy Green has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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