Originally Posted by i7monkey
Can you explain the skyrocketing of prices in what used to be known as the "smarter buys" tier?
Why have prices for this tier (GXX04 lineup) more than doubled
The GTX 460 (the equivalent of 680s and 980s) used to cost $229. Now they are asking $499 and $549.
Can you explain this, or customers supposed to go even lower
down the foodchain?
The reason why is simple costs have gone up and AMD is less competitive.
Those two combinations are the reasons why prices have gone up. Wafer costs themselves have basically doubled for Nvidia at 40nm vs 28nm. Nvidia had a terrific agreement in place at 40nm which allowed them to pay only for working dies. This let them make big die's for relatively cheap because there was less risk involved.
Also lesser volume in the desktop market means prices have to go up to compensate, particularly when R and D costs are going up.
Sure Nvidia has had some good quarters recently but their profit margins after paying all the bills is basically the same. The year you referenced where gtx 460's where 229 were years where Nvidia lost money. So you can't really use that 229 figure as a historical figure to base what future pricing should be at. Those years were terrible for Nvidia.
Notice it has stayed around 15% besides the 2010 which is was just a bad year.
Gross margins have risen because AMD is less competitive and has allowed Nvidia to charge more but that is only one part of the equation. Margins have only risen 16% from 45 to 61%. Far less than what your 229 to 550 example implies. I will illustrate this with math.
lets take 2010 45% gross margin. If gross margins are 45% if Nvidia sells a chip for 100 dollars, it costs $55 dollars to make and they make $45. If you think Nvidia is simply pocketing that extra $321 dollars. And from your implying the cost of the chip is the same, Nvidia would be making 321 + 100 = $421 off a chip cost of 55 dollars from the previous example. That would make it a sky high 87% margins or 100 - 55/421*100%. No hardware tech company, even apple has margins this high. So why aren't margins 87%? The cost of wafers has increased 50-100% with each node shrink and the defect per wafer(the amount of unusable chips goes up) as we pack more transistors into a smaller area has also increased.
So Nvidia is making an extra 16% off of gross margins, what are they doing with it?Having better gross margins either leaves room for extra profit or room for other expenses. And that leads to R and D.
nvidia R and D expense have grown tremendously and it takes better gross margins to fund it.
In fact Nvidia spends 33% of it's total revenue on R and D. The highest percentage out of all semiconductor companies. So out of that 61% from gross margins, 33% is spent on R and D which leaves 28% which 13% goes to paying marketing, administration, overhead etc leaving Nvidia with 15%. There might be some other things but growing cost of product and R and D expenses increasing(which they are allowed to do because AMD has been generally losing marketshare after the gtx 5xx series) is why the price of Nvidia cards have increased. So why is Nvidia spending so much on R and D? It helps them get ahead of AMD as this recent product cycle has shown and number 2, the graphic market is one that could disappear in 8 years from now. With things becoming more integrated with GPU's being built in, the market for discrete shrinks. Nvidia I would imagine is trying to expand its product portfolio so it is less reliant on graphic revenue. Hence why they are going into tegra and super computers so much. Like AMD, they are looking for fast growing markets that could become a revenue stream in the future.
You really have to look at the financial to get an explanation.Edited by tajoh111 - 3/23/15 at 12:01am