Graphic Designs

From high-end gamers to entry-level PC assemblers, graphics cards vendors are wooing the channel to create routes-to-market

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By  Andy Tillett Published  January 29, 2006

Lucrative market |~|rauf2002.gif|~|Rauf Baig, managing director, Dubai office and regional sales manager Middle East and Africa at ATi.|~|Ask any reseller which component has the most scope for growth in 2006, and few will say graphic cards. Seen as either an expensive toy for gamers or simply a low margin volume product, many resellers overlook the fact that graphics is one of the fastest growing component sectors. Graphics cards have huge margin potential on high-end sales, masses of vendor support, and, with increasing strain on memory from ever more complex programmes, many more users are projected to upgrade. Graphics is the future and the smartest resellers are getting into this market now. The battle for users’ pixels easily draws parallels with the CPU and motherboard markets, in that it is very consolidated, with two major players producing the graphic processor units (GPUs) that power the cards, leaving resellers, integrators and end-users to choose one of two routes: ATi or Nvidia. These two vendors’ graphic processors are added onto actual graphic cards by other vendors and this full product is sold into the distribution channel. The reason the GPU manufacturers work like this is because of supply and demand. ATi used to produce its own graphic boards, but pulled out of the market six years ago to concentrate on GPUs. “In terms of business, the add in board partners that we tie up with can do a lot more in terms of volumes than ATi ever could,” says Rauf Baig, managing director, Dubai office and regional sales manager Middle East and Africa at ATi. Regional distributors such as Almasa and Golden Systems estimate that entry-level product account for around 80% of their overall graphics card sales. Vendor Sapphire broke its sales down as 80% entry-level cards, 15% of sales in the mid range and 5% of high-end cards. At the low end of the market there are only two questions integrators and resellers ask: Whats the price and whats the specification? At the niche, high-end market, technology is the key, and this produces an entirely different attitude. “Once we have gamers in a community we get the high-end sales. They’re the key, they don’t care about paying US$50 more for a better card, whereas at the low end buyers wont pay fifty cents more,” says Mohammed Ibrahim, managing director at Sapphire Middle East, a graphics card vendor working exclusively with ATi. ||**||The GPU face off|~|Saisonnvidia200.gif|~|Daniel Saison, head of sales South East Asia and the Middle East at Nvidia.|~|Although both the GPU giants ATi and Nvidia (from Canada and the USA respectively) are confident they have the best offering in the market, and can show you reams of tests and technical specifications that prove they can outdo their competition, though those that really know which is winning the battle for market share are the distributors carrying offerings from both vendors. “Consistently we do not sell more of one chip manufacturer than the other. Two years ago [2004] we sold more ATi cards, last year [2005] we sold more Nvidia cards; the market is so close,” says Ehsan Hashemi, director of sales and distribution department at Golden Systems Electronics, distributor of Gigabyte and Leadtek graphics cards. Almasa Distribution, which stocks graphics cards from vendors TUL, Sapphire, Asus and Galaxy, echoed this opinion. Vijendra Singh, manager 3C group at Almasa points out that low-end business can still be profitable. “We get tenders, and they are for basic products but they are profitable – if you make a half dollar on a tender for 30,000 cards it’s still good money, plus, you need to be in the volume market. If you don’t have that business you are not going to get the support from ATi or Nvidia. They look at the volume, and you have to have the volume sales in order to then get into the high-end markets,” says Singh. Graphics cards are a complementary product to motherboards, and are popular with local assemblers who use them to enhance the specification of their systems. Some motherboards come with on-board integrated graphics — most notably some Intel and Asus models. Intel has recently upgraded the entry level of GPUs on its boards and also signed with ATi for the OEM supply of its processors, raising the bar on the graphics entry-level. Nvidia sees Intel’s incorporated mainboard offering as its biggest competitor in the Middle East. “There are three types of graphic card applications, basic office use, which doesn’t need much power, gaming application which is high-end and design or video application for those that need video or DVD performance. Intel, with its on-board chipsets, is focusing on office application and this is our biggest obstacle in the region,” says Daniel Saison, head of sales South East Asia and the Middle East at Nvidia. Graphics card technology has also been driving towards internal connections through an updated PCI express bus architecture (replacing AGP bus technology), holding more sales value for resellers. “This region has been predominantly 90% to 95% AGP bus in 2005. By the end of 2006 the total ratio of AGP to PCI-express buses should be around 65% to 35%,” says Calvim Lim, sales director at Taiwanese graphics card vendor Albatron.||**||Market commitment |~|FDC200.gif|~|R.Chandra Sekar and Taher Kagzi, product managers at FDC distribution |~|Technology is an important driver of the graphics card market, but it means little without commitment and investment in the region from the vendors. The approaches that vendors and distributors take vary dramatically. The number of add in board vendors that are selling their products in the region has exploded over the last two years, with XFX, Asus, Leadtek, Shuttle, Sapphire, Gigabyte, TUL, HIS, MSI, Club 3D, Galaxy and GeCube among others offering their cards in the Middle East. “Competition is growing fast and in 2005 ATi GPUs were in shortage, driving prices up. The competition between Nvidia and ATi is proving hard,” says Ibrahim at Sapphire. With this backdrop of fierce competition ATi reckons that it gains an edge on competitors through its two years of physical presence in the region and its office in Dubai’s internet city. “Having an office gave a lot of confidence to our channel, we did a lot of marketing activities and launched an emerging markets programme that was specifically geared for and only run in this region. For a reseller or distributor to pick up the phone and be able to talk locally has made a lot of difference. We empower them to understand and build their business plans around our partner programme,” says Baig at ATi. Nvidia builds its channel in a different way, placing more emphasis on its distribution partners, using them as its primary contact point in the marketplaces of the Middle East. “It is a tough decision to put an Nvidia person on the ground, as we are very successful today and have the best distributors, but we are considering appointing dedicated sales people to work in country. Our model is working well, so why should we change it?” says Saison at Nvidia. FDC distribution has been working exclusively with Nvidia-powered graphics boards for a number of years and has cultivated a special relationship with the vendor. “We are a launch partner for Nvidia — meaning that we get stocks of new product before it is released, ready to be sold on the actual release day — not all other distributors and resellers have this privilege, it’s not just about price, it is about timing,” says R. Chandra Sekar, product manager at FDC. “The resellers and integrators benefit from our pricing strategy and make more money than any other competitor. We have a channel education programme, and we specifically monitor sales; if resellers don’t abide by the rules then we will cut supply to them,” adds Taher Kagzi, product manager at FDC. ||**||The high end|~|Singh200.gif|~|Vijendra Singh, manager 3C group at Almasa |~|The other option for distributors is to forego vendor favouritism and offer products by add in board vendors that work with both manufacturers. Golden Systems exercises this tactic, working with Gigabyte, and so does Almasa, which works with, among others, Asus. “Both ATi and Nvidia have their own advantages, both have a strong presence and the customer knows what he wants. We want to offer customers what they’re asking for, we’re not trying to convert people either way,” says Singh at Almasa. The differences between the add in board vendors is in the packages and functionality they can offer. Some vendors can get better functionality than others from the same chipsets, and others add in free extras such as computer games. This is a battle for product differentiation that takes place far more intensely at the higher end of the market. Though it is still very much a niche and embryonic market in the Middle East, high-end graphics card sales do exist, particularly in the larger and more developed markets such as the UAE, parts of Saudi Arabia, Kuwait, and to an extent the Levant. Enthusiasts pay hundreds of dollars to keep abreast of the latest technology, and have the best performing and fastest cards; which, in turn, translates to profits across the channel. Almasa estimates that 10% of its market buys into high-end graphics cards, accounting for 20% of the distributor’s overall graphics card revenue. “Profit from selling 1,000 entry-level cards can be the same and even less than profit from selling 100 high-end cards. And by looking at the difference in numbers, one can imagine less logistics and after-sales issues with 100 pieces compared to 1,000 pieces be it manufacturer, distributor or retailer,” says Lim at Albatron. ||**||Growing high end sales|~|GOLDEN200.gif|~|Ehsan Hashemi, director of sales and distribution department at Golden Systems Electronics|~|Managing stock is also a very important and tricky business, requiring close interaction between vendors, graphic chip manufacturers and their roadmaps. Lifecycles are very short and products are constantly being updated. New models cause a very sharp price drop on their predecessors. Equally, if distributors under-stock they risk missing out on the profit from the high-end sales. As vendors put more end user pull marketing into the high-end graphics market, sales are growing. “At the end of 2004 we sold only 1% of all of our sales in the high end – now we are speaking about 40% of sales in the UAE at this level,” says Ibrahim at Sapphire. This sort of marketing doesn’t come cheap and initiatives to generate interest, such as gaming parties and tournaments, have been piloted in the region successfully by vendors to generate interest and exposure of their products. Another major factor that will push the graphics market further along in 2006 is the influence of the impending release of Microsoft’s Windows Vista operating system. This will put greater demand on PCs graphic capabilities and those running old or very basic machines will struggle to keep up. All of the graphics card see Windows Vista as a turning point and are gearing up for a surge in sales about this and preparing for a surge in sales when it is released. “The main issue we have today is the fact that we gained such a large market share in such a short time that we need to face a large demand. We know that there will be an even bigger demand when Vista comes out so we are having to plan for this already,” says Saison at Nvidia. While Windows Vista will boost sales, the region also presents other challenges to graphic card manufacturers that restrict sales. “Compared to other parts of the world, the Middle East is still catching up – in some parts of the region the internet is still not easily available, so people aren’t playing games over the net as much so our business is lower on that score. Also, people simply can’t afford it in this region, they are trying to reach the price point.” Says Baig at ATi. GPU vendors both have a strong position in the Middle East and there is no sign of one emerging prominent over the other. Graphics card vendors will face more of a battle to establish a separate identity, and local integrator relationships will be of increasing importance, as will using their relationships with the GPU manufacturers to promote their products to end users who are projected to invest more in graphic cards as technology develops. ||**||

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