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It’s something people have been asking for some time: who will be left? It seems more or less certain that Nvidia is looking to streamline its list of partners, who have become too numerous. One of the problems of this is that competition is tough, while products, above all at the top end of the range, are identical. This makes it difficult to differentiate yourself from competitors and keep margins high.
If you add to that the fact that the current climate for Nvidia is tough, it isn’t difficult to understand why some of its partners are grumbling. Nvidia therefore seems set to eliminate some of its smaller partners in favour of the larger ones.
This doesn’t mean that Nvidia will suddenly stop supplying these partners altogether, because that would mean shooting itself in the leg. We have tried to get a handle on the situation through our various contacts and understand what is going on. Some rumours suggest that the list will be reduced to as few as 6. This seems both true and not quite true at the same time.
It’s important to realise that Nvidia classes its partners into two types. Some are considered close partners, while others are less so. We wont go into all the details because we are ourselves somewhat confused by the complexity of partnership arrangements. One partner explained that the complexity is deliberate as it allows Nvidia to escape any legal problems that might arise in some countries should a directive partnership policy become too apparent.
Put simply, the closest partners can buy chips directly from Nvidia, obtain price reductions, co-marketing agreements and are supplied first or exclusively with products that have limited availability, such as very high-end graphics cards.
Partners who are not quite so close must either buy cards from a close partner or must go through a local Nvidia office to buy the chips on a case by case basis. Generally speaking, if it suits Nvidia then it will supply, but if it doesn’t partners have to find another route. This may well be the grey market. As you’ll remember, the grey market occurs when large account holders (computer manufacturers and so on) want to get rid of a surplus of products that they have bought wholesale. Constructor X for example, will buy 100,000 pieces when it only needs 75,000, so as to benefit from a better price. They will then offer the surplus, more or less discretely, to anyone who’s interested.
It seems only 6 very close partners will remain according to our sources, even though this is still being negotiated. These are reported to be Asus, EVGA, MSI, XFX, as well as the Palit/Gainward/Galaxy and PC Partner/Zotac/Manli/Inno3D alliances.
Some of those partners who were previously considered close will now be demoted down the list. Nvidia, then, is not completely eliminating them but their capacity to differentiate themselves and remain competitive will be reduced over time. Some partners have told us that they are ok for now but are concerned for the future. Others have indeed never been very close and are satisfied with that position. One of these has even told us that their margins on the grey market are in fact higher than when they purchase direct from Nvidia, even when you take into account the bonuses Nvidia hands out when partners achieve sales objectives.
There will, then, be no great changes in the short term, though we will see new partnership groupings as well as the dissolution of older alliances. As far as the consumer is concerned, there will probably be reduced competition for some top-end products and therefore higher prices somewhere down the line.
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