Coming From Canada: PC Graphics

Electronic News, August 17, 1998 by Peter Brown

Toronto-based ATI Technologies and Montreal-based Matrox Graphics have set the mold for the PC graphics industry in the past year. Both companies have done very well in a market that has been struggling due to a downturn in the PC industry and growth of the low margin, high volume sub-$1,000 PC marketplace (EN, July 20). Both Canadian companies have made a successful business out of sticking to their core business, retaining personnel and creating a strategic plan like no other in the graphics industry.

"The last three years we have really hit our stride and right now we have working for ATI more than 600 graphics engineers half in software and half in hardware," said Phil Eisler, director of component marketing at ATI. "We have the ability to deploy multiple design teams now to bring technologies faster and bring features to devices that others would take a considerable amount of time to develop."

ATI indeed hit its stride last month when the company said it achieved the $1 billion mark in sales, unprecedented in the graphics market for a long time. In addition, according to most analysts, ATI in 1Q98 took over the number one slot as the PC graphics leader in the world in terms of revenue--knocking off incumbent S3. Subsequently, ATI has also taken over the leadership position as the leader in units shipped, also knocking off S3. In its own light, Matrox has silently but steadily developed its own successful business and has grown to be the third top-ranked graphics supplier in parts and in revenues.

The Board Factor

Both Canadian companies develop their own graphics boards and their own chips. Matrox and ATI are currently the only two PC graphics vendors developing both chips and boards. According to industry observers, this may be the biggest factor in ATI and Matrox's success.

"Because they do their own boards, they are not totally reliant on third-party board houses who can show little loyalty to graphics houses and usually go with what they can sell the most," said Scott Hudson, analyst at In-Stat, a market research firm based in Scottsdale, Ariz. "ATI and Matrox are able to push their own product without having to go through anyone else. It obviously is a relatively successful model because ATI and Matrox have climbed to the number one and number three spots in the world in PC graphics."

Because of their board capability, ATI and Matrox have a hard time going through third parties because it is considered just another step toward making it to a PC OEM. "Our board business has helped us survive the peaks and the valleys of the graphics market and now we are really seeing the benefit by being able to deploy cards to our OEMs quickly without having to stop at a third-party board maker," said Mr. Eisler.

"When building your own boards you have to take responsibility for the board you produce so you have to have quality chips, with the right drivers; the layering of the board must be good," said Mary Ellen Power, international marketing director for Matrox. "This produces a very, very stable board that lasts a while. Also building your own boards allows you to have an upgrade path that more than likely is not available with most third parties."

Mr. Hudson said another reason for success may be to a lack of turnover in the company. By keeping teams together a lot of R&D is done by the same people and can be done faster than having people enter and exit frequently. "Being in Canada enables them to keep other companies from pulling them away. In the valley that's not necessarily the case," he said.

Although Matrox and ATI are not solely in the graphics business, a majority of its business is in the PC graphics business. In the past most companies not solely focused on the graphics market have suffered from lack of focus. However, ATI and Matrox have both succeeded while others have failed, at least so far. Most industry observers agree a graphics company can be successful competing in other markets as long as they remember where their bread and butter is.

Not Stagnate

To continue the move to forward and not remain stagnate, ATI is embarking on new ways to differentiate itself from its competition as well as move into new areas for graphics. Mr. Eisler said ATI has already invested in set-top boxes and are developing reference platforms and software so it can move into that highly convoluted area.

"By and large we have stuck to our knitting and at the moment really don't have a crushing market share as some of the leaders have had in the past, some even over 40 percent," said Mr. Eisler. "However, we are looking at other ways to bring in revenue including set-top boxes and a higher focus on notebook graphics."

In fact, ATI said in the next few months it plans to target the notebook and corporate desktop markets with new graphics engines. ATI has limited business in notebooks right now, especially with NeoMagic claiming a commanding 55 percent market share in 2Q for notebook graphics, according to In-Stat numbers.

In addition, breaking into the notebook market is much more difficult than the desktop space because of the constraints on power, battery life and the need for embedded DRAM memory on-chip that has become almost a check-off item these days. ATI, however, claims to be the only company shipping AGP graphics engines for notebooks and will look to this area as a spark for design wins. It worked in the desktop arena, it might in the notebook market.