I routinely give @dinscurge alot of crap for hating on NVIDIA but in truth I realize his frustration and well its due to all of you. The customers not the company. Lets talk about it from the beginning of our computer age.
There are typos, Its st patricks day. Im full of guinness and meed
Before the dawn of the personal computer, another machine was used to address businesses computing needs for a long while the minicomputer was used by large businesses and organizations for scientific engineering and would eventually become an office tasks machine. This might seem strange calling computers of those days mini but the computers that could be full mainframes were kind of gigantic in comparison to the point of companies needing whole rooms just to house them. Companies that made minicomputers like DEC were incredibly successful in the mid-sixties and seventies and all the way up to the mid-eighties making billions of dollars in profits. These were regarded by investors and by the computer press and were examples of great management that is the until the late 1980s with the PC met the performance needs of the same market who previously bought minicomputers. The PC market then took over the minicomputer market was created by a different set of companies than those that created the minicomputers including apple and Commodore. Most of the players in this business did not make it to being a player in the desktop PC market. This defined the desktop PC market as a disruptive technology.
Why did the companies that made minicomputer fail to transition?
what type of management with so many resources let’s a smaller company like apple or commodore steal the market away?
Well that’s what good management does that’s right! See the problem with the vast majority of CEOs and other management at technology companies is that they play the game by the rules they do good management rather than what is called disruptive management.
You probably ask now; what exactly is the role of the CEO and who really controls the future of technology companies and their RnD?
Well let me ask you a question? (Answer before continuing)
Which of these choices do you think determined which products AMD or any other company should research develop and release; (Using AMD example)
the board of directors
Now that you’ve answered let’s examine this. Depending on who you are and what you do in your life for a living you might have said that Lisa Su is the one responsible for the products developed and researched. I guess I should note that there is definitely a part of society who loves to make idolize CEOs especially if they are charismatic, i.e Elon Musk or Tim Cook. I guess there is nothing wrong with having a successful CEO as a role model but there is a danger and that is you’re more likely to become emotionally attached to the company they run and by that products even when they are poorly engineered. There is a more cynical bunch that see the investors as the ones that truly decide what products a company should release. Also depending on your corporate political inclination, you might think that the engineers at the bottom are the true determiners and influencers of this a company’s innovation. Sort of sound logic since after all they’re the ones getting their hands dirty in coming up with new technologies. Well guess what, none of these people decide what products will be releasing. Its actually the people and the existing customers who truly decide what products a company releases where their resources are allocated. AMD as an example, their largest customers are Sony Microsoft and us. the desktop and laptop market. Believe it or not I when it comes to innovation the only groups that send a message for the future are these three. Companies really invest enormous amounts of resources into projects that represent a risk for the business if those result in products that their existing customers need. The company’s repeatedly failed to investing simple a disruptive projects that might not even require as many resources show no interesting them at all. A good example of this is how it intel completely failed to enter the mobile processing market when smartphones were emerging intel’s customers at the time had no interest in low-power processors so Intel’s leadership did what any good management would do! they listened carefully to their customers and they tracked what the competition was doing and they kept on making sustaining improvements to the line of products.
As a result of this “good management” intel completely lost mobile market to ARM which they dominate it nowadays. should they have employed disruptive management they could easily have developed low power smart phones for mobile phones seeing as they have way more resources than ARM at the time. However this is today’s day and age and they didn’t and no matter how hard they tried in following years intel hasn’t been able to make a dent in ARMs dominance in the smartphone industry.
Lets take a look at NVIDIA
Nvidia is a company that is currently being held hostage by that customers. Dont believe me? Aks the question: why did Jensen invest so heavily into the expensive on RTX gpus when the market is moving towards commodity that AMD has done decent at exploiting? New Hardware for new/existing customers! The answer is simple I know this is hard to believe but Jenson and the rest of the management at Nvidia have very little power of whether the company invests their RnD into. The customers decide what products Nvidia will launch. In this case their customers are mainly the gaming sector and data centers if you look at nvidia’s Revenue per segment you can see that gaming is the main stream of income with the Datacenter seeing Healthy Growth as well. Well guess what? Resources for research and development are being allocated to satisfy the customer’s in these two segments. Within the sector of gaming gamers who already have a half decent graphics card… see no reason to upgrade seeing as the most popular titles out that all playable on modest hardware with the customers who will buy a new GPUs are the ones looking for the very best gaming experience at 4K in high refresh rate so you can see how NVIDIA is being held hostage by that customers. The ones that do want new GPUs want them significantly faster and with new features even if they arent good features. So when NVIDIA has to invest in enormous amounts in large dies to satisfy them resulting in you getting the expensive on gfx cards because that is what YOU asked for.
The other segement
By far the segment that saw the largest growth in revenue was the Datacenter at 51% last year so it’s sales of gaming gpus are declining and the high margin datacenter business is growing NVIDIA will naturally gravitate towards that business and going forward and unfortunately for us that means less resources will be allocated to finding truly disruptive technology. Here is the proof. Recently NVIDIA bought mellanox with 6.9 billion dollars. This is the largest acquisition in their history. The company makes high performance networking for clusters. Well in the data center this is important because it doesnt matter how powerful your hardware is if you limit it by the network connection. They have worked together before on SUMMIT.
Interestingly enough NVIDIA is following pray to good management which means in time they are self destructing. They will move higher into the data center and slowly away from the PC market. This move is dangerous because its happened before. Youve probably never heard of DEC. They were once a market leader and were the nvidia of the time. They were second only to IBM. Does DEC make computers? No. Compaq bought them. As a result… Compaq also got bought by HP because they couldnt sustain the high margin profits. This is similar to how nvidia is choosing to move to the data center. The same thing will occur again. Also HP buying compaq was another reason why HP also in time fell apart. Look at every decision a company makes. They move towards high margins with good management. They move towards low margin disruptive markets with disruptive management. A good board of directors will shift CEOs to balance these two operational motifs in the corporate world. IBM did something smart at one point by targeting the PC market with a completely separate division they started in florida. They fell pray to good management again and pooled all of them together which resulted in IBM nearly going bankrupt and them following out of the PC division altogether.
ARM is well positioned to take advantage of the market at the current point. You wonder why. It all has to do with you. Now that new super fast expensive hardware is not as important. The companies that benefit the most are the disruptors. The companies that provide innovative disruptive hardware at a cheap price point. AMD is sort of doing this but not really… so you label them as not an evil company for example when they are just the same as other companies. They are following a disruptive management model to exploit the customer base. You think it benefits you because its cheap. No its just good for business. AMD faces a huge challenge today though in the stock market. The low value definitely stops AMD from being able to be innovative due to investors. You might think OMG Ryzen was so good. It disrupted everything and so on. No it really didnt. Yes its better, yes it kind of caught intel off guard but guess whos catching up? Intel. Yes they brought 8-16 cores to the mainstream. It shook up the market but this isnt what disruptive means. Disruptive means that you create a new market with new customers. AMD did not do this. Intel is quickly catching up. NVIDIA didnt do this and faces the challenges of stagnation due to good management. These are all sustatining innovations and not disruptive ones. Lisa Su has been a wonderful manager of a AMDs resources. She hasnt been disruptive. Her role has been to increase the share prices which affect the company’s ability to access capital on favorable terms. This also affects stock options which are used to reward engineers who could create disruptive technology. Guess what happens when they are low, its bad two fold as you can see and vice versa. When the stocks fell notice that Rajah Kaduri left for intel. This is no uncommon deal. Notice that also jim keller left. Engineers are smart, They will absolutely go where they get the most gratitude for their intelligence. All those factors are closely tied to innovation in a company. Healthy growth rates because of a good customer base are more likely to lead to a company creative disruptive technology. When your customer base allows you to stagnate and only focus on sustaining innovation or good management techniques [insert nvidia or amd here].
Now AMD COULD create a disruptive technology if done correctly. APUs if the ryzen 3400G and so on could replace mid range to higher mainstream GPUs. AMD could create a new market of cheap gaming and VR boxes. This is something NVIDIA had all the potential to also do with the NVIDIA shield but both companies have failed to do so due to “Good Management” and their customer base. Yes you are to blame. If you think NAVI is going to do anything research this trend I just spoke about. Following it will show you that navi will not be spectacular. It will sell just as well or worse than previous AMD GPUs in the last decade. Sorry fanboys on each side but both companies suck. NVIDIA will always have alternatives with it. This is why disruptive management is needed. AMD could create a new market where NVIDIA would have no competing option or vice versa but neither do. This leads to alot of frustration but its the truth of what good management is. This is the effect of the customer base. You want to change it? Change the way you shop. Seek newer disruptive technologies over the current high margin ones. Start up a company and make one. Grab a bunch of insane engineers. You have the potential to do so. Another point is that you (the customer base) label companies that are evil based on which side you are on. What you dont realize is that YOU are the evil one not the companies. In the end you push the company to do what it does. Not the other way around at all. So think about these things before getting frustrated with a company. Think about the processes going on inside.
Comment below. Tell me other patterns youve seen. Let’s talk about it. This is a very interesting topic.
Decent books on the topic:
The Innovator’s Dilemma
The Innovator’s Solution
The Innovator’s DNA
Easily found illegally too if you dont have money. Go read