Wedding bells for Intel and Nvidia?

Forbes.com's Mary Crane: Nvidia shares soared on Wednesday following rumors of a possible takeover by Intel.
Written by David Berlind, Inactive

Forbes.com's Mary Crane:

Nvidia shares soared on Wednesday following rumors of a possible takeover by Intel.

More than 22 million Nvidia (nasdaq: NVDA - news - people ) shares changed hands Wednesday — more than twice the three-month average daily volume — on news reports indicating Intel (nasdaq: INTC - news - people ) might buy the graphics chipmaker.

Since July, when Nvidia rival ATI Technologies (nasdaq: ATYT - news - people ) was acquired by Advanced Micro Devices (nyse: AMD - news - people ) for $5.4 billion, investors have speculated that Nvidia might be acquired by Intel.

Neither Nvidia nor Intel would comment on the market’s speculation.

It's going to happen.Computers as we know them have been and will continue to give way to what the geeks call embedded systems or "appliances" but what consumers call TiVo  (just one example).The winners in that market will be the ones who can provide innovative appliance makers with the best ingredients. What are the best ingredients? The kind that minimize the amount of system level customization and R&D that must be done (by appliance makers). The kind that offer world-class peformance. The kind that are bottom-line friendly.

For example, take another very relevant-to-this-news appliance example: xBox (or any of its competitors). These gaming systems just scratch the surface of the sorts of specialized compute-enabled appliances that are going to become a part of our everyday lives. Sure. Maybe the competition between the major gaming players justifies the R&D that goes into a solution that's custom-built from head to toe.

But there's an entire marketplace of appliance innovators to whom eeking out 5 more nanoseconds doesn't matter and they need some platforms that make it 1000 times easier and cheaper to bring their wares to market. Many of those platforms will need some standard componentry coming out of the gate (computer power, video, etc.). But flexibility will be important as well. Rather than soldering everything together and tying innovators in, give them some room to build stuff we haven't dreamed of. AMD's Torrenza architecture clearly paves the path towards that future and AMD's acquistion of ATI (Nvidia's archrival) makes sense not only because ecosystems like Torrenza need to be seeded with working "clients," but because of how, more often than not, video will be an important ingredient to appliance innovators. 

EMC's Mark Lewis is absolutely right. Forget PCTVs (where TV technology is integrated into the PC). The other way around is the direction that computing is going to take (just look at Apple's forthcoming iTV) and given that, I don't think Intel has a choice at this point. Intel's Centrino and, more recently its Viiv brand (more like PCTV than TVPC), are perfect examples of how the company is already trying to do the lion's share of the technical heavy lifting (pre-bundled technology) so its OEMs don't have to. One critical key to Centrino's success has been Intel's ownership of the networking piece (Centrino uses Intel's WiFi radios). OEMs (mostly notebook manufacturers) know it will work out of the box so they can focus on things that will differentiate whatever it is they bring to market. So, Intel already has that state-of-mind. Not to mention some additional revenue since it gets to profit from the sales of its WiFi radios too.

Sure. Intel could depend on the Apples of the world to figure out how to do the integration themselves. But that simply isn't a scalable business model and if anybody understands scalable business models, it's Intel. And, I highly doubt that Intel is going to sit around and watch AMD errect an ecosystem around Torrenza that gets all those appliance innovators (the ones without the resources of an Apple) 95 percent of the way home.

On the day that AMD announced its acquistion of ATI, my first question/comment was: Is Nvidia next? It's right there in the headline. I've never had my doubts.

For you investors out there that missed yesterday's surge, the question now becomes, who is next? When appliance OEMs are buying pre-bundled platforms, what beyond compute-power (microprocessor/memory), video (ATI/Nvidia), and networking (Intel already has it), will they expect to be included in the bundle? Somewhere, on some confidential PowerPoint presentations at AMD and Intel are three bullet points: the definites, the maybes, and no-gos. At least in AMD's case, that's where the genius of Torrenza co-processor-esque open socket architecture kicks in. Just because some bundle candidate may be on AMD's no-go list (today), doesn't mean another OEM can't come along and redo the bundle (perhaps to satisfy some niche appliance market that's too small for AMD to go after).  

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