Taipei, London, Hong Kong, Boston, Toronto, New Delhi, Beijing, Seoul – October 25, 2022
Global PC shipments fell 15.5% YoY in Q3 2022 to reach 71.1 million units recording another wave of huge YoY declines after the severe annual and sequential falls in Q2, according to Counterpoint Research data. The Q3 2022 decline was largely due to demand weakness across both consumer and commercial markets, which was mainly driven by global inflation. Despite components shortage issues being largely resolved, OEMs and ODMs are holding a relatively conservative view on Q4 2022 and first half of 2023.
The lull in PC demand continued in the quarter despite broad promotional activities from major OEMs, especially for consumer product lines. In addition, inventory digestion processes have been activated to deal with abnormally high levels as we enter the second half of the year. Although it is the season of peak consumer device sales, PC OEMs believe the destocking process will continue into 2023. Based on our conversations with supply chain members, especially with components suppliers, the largest inventory numbers were in Q3 2022 and will likely begin to decline in coming quarters but there is uncertainty within the supply chain on when shipment growth will restart.
Global PC Inventory Accumulation Since 2022
Source: Counterpoint Research
Lack of consumer demand in the back-to-school season, shrinking enterprise purchasing due to economic uncertainty and increasing promotional events all created a drag on Average Selling Price (ASP) growth momentum and also impacted PC market revenue.
Apple reported a counter-market 7% YoY shipment growth amid muted market momentum, thanks to its new product launch in late Q2 with shipments refilled after the China lockdowns in Q2 that interrupted ODM manufacturing schedules. Meanwhile, Asus reported a 9% YoY shipment decline in the quarter, reflecting a relatively resilient performance due to its enterprise focused strategy, in line with management’s target of outperforming shipment in 2022.
Lenovo booked a 16% YoY decline, largely in-line with the global PC market, consumer demand weakness was partly offset by enterprise spending. Its 23.7% market share remains flattish compared to last year, reflecting Lenovo’s strong position efforts to cope with a shaky market.
HP took an 18% share in Q3 with 12.7 million unit shipments. This is the second quarter of lower than 20% market share by HP since 2016, largely due to its higher consumer mix, which meant it exited Q3 with a 26.5% YoY decline.
Dell also reported more than a 20% YoY shipment decline with and 17% market share. Its 12 million units were a bit higher than Q3 2020, right before Dell began to benefit from working style changes post the initial waves of COVID.
Global PC Shipment by Vendor, Q3 2022
PC market unlikely to grow until H2 2023
Overall, global PC shipments in the second half of 2022 will still be comparatively higher than the level before Covid broke out. However, Chip maker AMD claimed that PC market weakness already caused negative impacts to its results and outlook; while the management of Taiwan OEMs Acer and Asus, both shared their views that the PC industry will not recover until H2 2023.
Looking into 2023, the sky is still covered by dark clouds. We are also adjusting our 2022 shipment forecast to a 13% YoY decline on soft PC demand. Among all PC product segments, we believe Arm-based PCs and gaming PCs are poised to weather the market downturn best, with the help from Apple’s M-series offerings as well as incremental R&D efforts from chip makers and the wider ecosystem.
Rising inflation and reduced consumer spending are resulting in a lengthening smartphone replacement cycle. So, how are OEMs navigating this trend with different financial schemes, easy upgrades, cashbacks and more? 5G smartphone shipments in Southeast Asia markets are also growing, so how are operators geared up for rolling out 5G services and demonstrating their use cases?
In the latest episode of ‘The Counterpoint Podcast’, host Tarun Pathak is joined by Senior Analysts Febriman Abdillah and Glen Cardoza to discuss the key trends in the SEA smartphone market. From falling shipments to H2 2022 outlook, 5G and online vs offline, we discuss all this and more in the podcast.
Counterpoint will be attending the India Gaming Conclave 2022 on 10th August 2022.
Our Research Analyst, Shilpi Jain, will be attending the India Gaming Conclave 2022. You can schedule a meeting with her to discuss the latest trends in the technology, media and telecommunication sector and understand how our leading research and services can help your business.
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The metaverse has become a buzzword for many areas of the technology landscape. But many aspects of the metaverse are not new for the world of online gaming. It has been using the metaverse concepts of digital connectivity and interaction for years, going back to online chatrooms in the early 2000s, and more recently through massive multiplayer online games (MMOs). All this has created the starting point for Big Tech to take the metaverse to new areas through developing various software designs, but it needs to start from the hardware to access this new ‘world’. Meta – formerly known as Facebook – has been the most popular in marketing the concept of the metaverse and has had significant success in developing the initial hardware. Other companies are expected to jump on the metaverse hardware bandwagon, a highly anticipated entrant being Apple with their development of a VR headset.
What is MMO gaming?
MMO gaming often involves open-world games where your character can interact with many people globally within a set world to complete tasks and can communicate with others through audio or text-based communication. MMOs are not restricted to PC gaming. Microsoft and Sony have MMO games like Call of Duty available through their consoles. The first MMO, Neverwinter Nights, came out in 1991 using AOL for text-based communication with other players. MMO games have created mass followings, some of the most popular being RuneScape, World of Warcraft and The Elder Scrolls. The concept of MMO has become so popular that companies are now starting to incorporate successful authors and directors to help make these games as complex and riveting as possible. The newest and most popular game here is Elden Ring, which has George R. R. Martin (author of the global sensation Game of Thrones) writing the storyline.
What metaverse gaming offers and how the VR market will look because of it
MMOs follow a storyline and have set goals and tasks for players to work towards within the confines of the story even though they are open world. Metaverse gaming offers a more immersive experience where there are no confines of the typical gaming story progression. As the games themselves evolve, so does the hardware required to interact within these games in the most immersive way possible.
Metaverse gaming has been developed with the idea that VR headsets would be the prime mode of interaction. Meta developed its standalone Quest VR headset series to drive Metaverse gaming outside of the existing hardware confines of gaming – PCs, consoles and smartphones. In Q4 2021, standalone VR headsets contributed to over 90% of total VR headset shipments globally (mostly Quest 2). This disparity between shipments of tethered and standalone headsets will reduce in future as console hegemons Sony and Microsoft release tethered headsets for their existing consoles.
Sony plans to release its new headset PlayStation VR2 by the end of 2022 but with the ongoing supply chain issues the OEM is facing, it is unlikely to release the device until 2023. Sony has announced that 20 games will be released by both first- and third-party developers with the headset. The games Sony releases with this headset will determine its success, as customers interested only in VR headsets will be more inclined to opt for Meta’s products, which are already on the market. Potential customers for Sony’s PlayStation VR2 will be those who already have a PlayStation console as well as those interested in the game titles that they cannot get with Meta. Many games have not been included on the Meta gaming platform as it needs to be connected to a Facebook account. At Counterpoint, we believe that that the VR standalone will greatly overtake other XR and reach almost 40M by 2025.
Metaverse gaming will not replace MMO and other existing forms
Even as metaverse gaming experiences an uptick with the release of new hardware and games, the popularity of MMOs will continue to see a wider fan base. PC MMO gaming is easily accessible through the existing platforms like STEAM, Xbox Game Pass, Google Stadia, Amazon Luna and other streaming-type platforms that have a wide variety of games that can reach anyone with a decent computer processor. MMOs on mobiles also create a new base of players who do not need to purchase a secondary device to access these games. At the same time, consoles continue to see record sales, with the PS5 and Xbox Series X still experiencing shortages two years after their release, thanks to the high demand combined with the lingering effects of the chipset shortages triggered by the COVID-19 pandemic.
Gaming as an industry has been growing in leaps and bounds globally. While consoles and PCs are widely used platforms, the smartphone gaming demographic is growing the fastest and this is particularly seen in Southeast Asia. The region also looks to be more promising as there are many factors propelling the current growth, chief among them being a whole new demographic adopting smartphones, getting digitally savvy and getting to know the gaming world. There are other important factors like increased internet connectivity and favorable changes accelerated by the COVID-19 pandemic in the last two years.
There are many other reasons at the country level as well, but there is one undeniable factor that would not have made this growth possible – smartphones. According to Counterpoint Research’s Southeast Asia Smartphone Tracker, key Southeast Asian countries’ (Indonesia, Thailand, Philippines, Malaysia and Vietnam) smartphone shipments in 2021 were back to 2019 levels.
Source: Counterpoint Research Southeast Asia Smartphone Tracker
Gaming smartphones continue to see an increase in demand. During the festive season in Q4 2021, gaming smartphones saw a 270% YoY increase. The affluent gamer demographic is growing exponentially, and this trend is likely to increase with all the focus that gaming is getting in these markets. Along with consumer interest, there is an increased focus on e-gaming from governments and industry players across the ecosystem. Currently there are more than 102 million active smartphone gamers in the 5 key Southeast Asian countries and this number is bound to increase in the coming years.
Source: Counterpoint Research Southeast Asia Smartphone Tracker
Indonesia, Malaysia, Thailand, Vietnam, Singapore, and the Philippines are the six most significant countries for mobile gaming in Southeast Asia. Whether they are small quick games to pass some time or more engaging strategy and shooter-type games, the gamer consumer base has gone up in the region just as fast as smartphone adoption over the last two years.
Factors pushing gaming growth over the last two years:
An effective way to pass the time when stranded at home during pandemic lockdowns and restrictions. For many people, less work or no work is a motivation to play on smartphones.
An escape from ongoing volatility in macroeconomic factors like inflation, sustained COVID-19 repercussions, war situation in Europe and other more country-level factors.
Widening choice with multiple gaming genres (like strategy, shooting and e-sports) across multiple platforms (mobile, PC, console and even television).
Types of games all the way from casual to elaborate heavy-duty games that make a player a full-time earning pro-gamer. Some countries in this region also promote international gaming tournaments.
Connectivity and Ecosystem Initiatives:
Connectivityhas played a vital role in increasing online gaming in the region. Fixed broadband connections have seen tremendous growth in the last two years along with a jump in new subscribers. Tier 2 and Tier 3 cities in the key SEA countries have seen some major growth as well. Broadband, whether fiber or fixed wireless, makes up more than 38% of the base in these key SEA countries. 5G connectivity is being improved starting with metro and Tier 1 cities. 4G connectivity is being increased throughout these countries as well. All this has played a major role in pushing the gaming culture irrespective of geography, age, gender, or economic background of the user.
OEMs have understood that a good gaming experience is supposed to be a necessity even for the casual gamer and not just the heavy-duty gamer.
Esports is big in the Philippines. realme, one of the top smartphone brands in the country, has partnered with the national team SIBOL for esport tournaments. realme itself has its pro-gaming tournament ‘Realme Mobile Legends Cup’ in the country.
Infinixis an upcoming brand in most Southeast Asian countries. Its focus on gaming models has led to the brand being considered for low-range to mid-range smartphones for gaming. Gaming smartphone biggies like Asus have said that the gaming smartphone business is not yet profitable for them, but they are still sticking to their image and launching more gaming phones.
Operators like Dtac in Thailand are offering gamers a specialized package with maximum speed and special internet lanes to make sure excess usage does not result in lags.
Top semiconductor companies Qualcommand MediaTekhave been focusing on the gaming consumer for a while now with gaming-related chipset versions of their standard offerings. Even chipset makers like ARM have been considering gaming as a motivation behind future tech. ARM recently came out with a gaming-specific chip.
The Changing Ecosystem:
There is a mix of low-end to high-end smartphone users in each of the SEA countries, but every country shows different characteristics and preferences in gaming genres. Southeast Asia’s consumer base is maturing. Indonesia and Thailand are the region’s largest revenue earners, followed by the Philippines and Malaysia. The Indonesian market is not only the region’s largest but also the fastest growing. In Southeast Asia, the younger population, which used to play smaller games on cheaper phones, is upgrading to mid-tier phones and preferring more heavy-duty games.
It is already established that SEA is a huge gaming market with more potential but there are many factors changing this volatile tech trend currently.
Trends changing the gaming ecosystem:
Female gamers lead male gamers in many areas of the region. Most avid gamers can be found between the ages of 25 and 60. The bulk of this demographic in the region usually does not have a very high-priced smartphone. This means that even low-range to mid-range smartphones are being used for gaming and not necessarily just for casual games.
Increase in video content related to gaming, with the rising viewership on online platforms such as Twitch and YouTube, is resulting in marketing initiatives across platforms, apps and games.
Cloud-based gaming and interconnectivity of gaming platforms are likely to affect device purchases in the coming year. There is an opportunity for consumers to opt for phones with lower specifications. As cloud gaming increases its footprint, gamers will only need a steady, fast internet connection.
To counter the frequent churn due to higher boredom levels in casual games, more variety is now being introduced in these games. Game makers are investing in research, marketing campaigns and, more importantly, associating with the right players in the ecosystem.
Consumers are actively demanding the capability to play heavy-duty console and PC games on mobile platforms. This is a big opportunity for smartphone OEMs especially with growth in 5G connectivity.
Gamers and their Smartphones:
Source: Counterpoint Research
Gamers who are invested in heavy multiplayer graphics online games like PUB G make up a smaller portion of the pie in this region. Instead, games like Subway surfer, Mobile legends, Arena of Valor, Roblox and Free Fire are played the most.
Gaming companies are making sure that smartphone versions of their games are available and that the hardware requirements need not be too high to enjoy these games on the mobile phone. Multiplayer gaming platforms on mobiles are nascent in this region as of now but as the telecom sector advances, this gaming preference is set to grow.
5G and Gaming:
5G penetration into gaming will be a slow process for another 2-3 years, especially for major markets like Indonesia. While Singapore is leading the curve in 5G, Thailand and the Philippines are more capable of advancing with 5G in gaming. The future of cloud gaming and multiplayer mobile setups, however, is bound to remain bleak in this region as compared to the West.
The 5G share in monthly smartphone shipments is likely to reach well above 45% by the end of this year. Most gamers, whether casual or professional, will look to include 5G in their gaming experience, especially since there is growth in the smartphone version of games usually played on consoles and personal computers.
Source: Counterpoint Research Southeast Asia Smartphone Tracker
The Future of Gaming
Though Southeast Asia has the highest number of gamers in Asia, it contributes the least revenue. The entry point of free games is a crowd puller, but gaming companies and developers are trying to have a stronger revenue model. Ecosystem players have focused on all segments of consumers and made sure that multiple platforms can cater to different demographics based on their convenience and motives. Mobile gaming in Southeast Asia is capable of not just increasing gamer volumes and revenue but also spreading across multiple sectors like retail, e-commerce and sports.
While gamers in Southeast Asia are spread across early teens to senior citizens, the 18-35 age bracket is the one contributing most to the maturing gamer ecosystem.
In the coming months, we will likely see more marketing initiatives on platforms, and gaming business models centered around profit generation, which could be through increased micro-transactions within free game offerings. OEMs, operators, and retail distributors will combine the gaming aspect much more with their offerings.
AMD reported its best-ever quarterly revenue at $5.9 billion in Q1 2022, a 71% YoY increase driven by the cloud computing, automotive, gaming and data center segments. This revenue includes six weeks of performance of Xilinx, whose acquisition was successfully completed by the company during the quarter. Xilinx is an FPGA and networking compute solution provider. Excluding Xilinx, AMD’s Q1 2022 revenue was $5.3 billion, a 54.7% YoY increase. We give below some of the key takeaways from AMD’s Q1 2022 earnings statement:
The gross margin was at 48%, up 190 bps YoY.
Revenue for the Computing and Graphics segment was $2.8 billion, up 33% YoY.
Revenue for the Enterprise, Embedded and Semi-custom segment was $2.5 billion, up 88% YoY.
The company intends to acquire Pensando, a distributed services platform provider.
Wafer shortage for 16nm and below will remain constrained till H2 2022.
All values in USD Million
Client Compute revenues
The company launched seven new CPUs for desktop processors and first desktop processors with 3D chiplet architecture. In the notebook segment, the company extended the mobile processors to cater to customers across the spectrum, including gaming and creators, with features like better battery life and compute synergies.
Desktop GPUs grew significantly owing to mobile GPU launches, but data center GPUs, including the new launch of Instinct MI210 accelerators, remained flat.
The revenues across the client compute PC market will see a correction in the next quarter, driven by inflationary pressures and dampened demand.
The company will focus more on premium, high-margin segments as the PC market softens in the next quarter.
GPU demand will also remain muted due to lowered prices and improved supply in the market. Weakening crypto markets will also contribute to the growth pace of the product portfolio.
Enterprise, Embedded and Semi-custom segment
Gaming console, automotive and data center units were the growth drivers for this segment, including a new launch by Valve in the gaming console space. The company also launched its first processors for the cloud and HPC markets, featuring 3D-stacked chiplets architecture.
The Data Center Compute segment will continue to drive growth as hyperscalars continue to expand cloud infrastructure and enterprises upgrade their IT infrastructure.
In networking and communication, due to enhanced synergies with the Xilinx portfolio, the company’s FPGA-as-a-Service and Smart NICs will help in penetration and diversification of the market to mainly telecom and fintech players.
The company will focus more on AI workload-based GPUs and expanding its software stack.
COVID-19, work from home and study from home have accelerated the demand for Wi-Fi products at an unprecedented rate. According to Counterpoint Research’s latest estimates, Broadcom shipped more than 1.2 billion Wi-Fi chipsets in 2021 for the smart device and gateway segments.
Broadcom has been one of the key players leveraging their strong position in providing Wi-Fi chipset solutions to capitalize on this surge in demand. The company has been at the forefront with its vision and roadmap to deliver advanced Wi-Fi experiences. Wi-Fi 6/6E has been the major growth driver for Broadcom across both consumer and enterprise segments. Since the launch of its Wi-Fi 6 portfolio, Broadcom has shipped more than a billion Wi-Fi 6/6E chipsets globally. Riding on this success, Broadcom recently announced its complete portfolio of the next-generation Wi-Fi 7 chipsets.
The new Wi-Fi 7 standard unlocks newer capabilities that provide users a richer experience when they connect, learn, game, and consume content. This standard boosts capacities and throughputs to multi-gigabit levels even in congested scenarios. Wi-Fi 7 more than doubles the bandwidth compared to the current generation of Wi-Fi 6 solutions by leveraging two or more available spectrum bands and advanced modulation and transmission techniques. This drives next-generation applications such as UHD video streaming, low-latency AR/VR, cloud gaming and higher capacity hotspots even in constrained environments not possible earlier.
Broadcom’s Latest Wi-Fi 7 Solutions Driven by Key Foundational Capabilities
320 MHz channel: Wi-Fi 7 brings double the channel width compared to Wi-Fi 6/6E. Channel bandwidth determines the signal’s data rate. The higher the channel bandwidth, the faster the connection. On the 6 GHz Wi-Fi band, it can provide 3×320 MHz channels. 320 MHz effective channel can be created by combining two 160 MHz channels in the high bands. This, in turn, allows for improved user data speeds and capacity.
4K-QAM (Quadrature Amplitude Modulation): QAM transmits data through symbols containing a specific number of bits. It is an advanced modulation technique for digital telecommunication. The higher the number, the more data is carried in each cycle. The new 4096-QAM can transmit 12 bits per symbol as compared to 10 bits of 1024-QAM, which results in the peak PHY data rate increasing by 20%.
Multi-Link Operation(MLO) allows two bands (5 GHz and 6 GHz) to be combined to form a single connection. This allows APs and base stations to have multiple radio interfaces to transmit and receive data. In situations where the wireless traffic is non-uniformly distributed across the channels, MLO aids in improving the network reliability and capacity under tough conditions, while ensuring continued availability of bandwidth and speed to mission-critical and consumer applications.
Zero-Wait Dynamic Frequency Selection is a system that is designed to eliminate the wait time while connecting to another channel. Access points need to change their channel immediately when a radar signal is detected in the current DFS channel. When transferring to a fresh channel, the access point must hear to the medium for a minute before it is allowed to transmit a beacon to be certain that no radar is presently being operated on the same channel. This allows the transition to a newer channel with negligible interruption.
Native Automated Frequency Coordination(AFC) is an open-source framework system for broadcasters that pertains to (6 GHz) indoor/outdoor applications. AFC improves the range and lowers the latency while transmitting at higher power. AFC in the background allows the device to validate with a registered database in real time, calculate the channel and spectrum availability, and allot the available frequency while the existing services are shielded and safe from interference. This helps improve Wi-Fi range and link speed. It automatically boosts coverage even in the 6-GHz transmit range for both indoor and outdoor environments and makes use of the best available spectrum.
Applications and Use Cases
AR/VR and Gaming: Broadcom aims to drive immersive Metaverse (AR/VR) applications across home and enterprise with its Wi-Fi 7 portfolio. Higher throughputs and reliable connectivity are critical to power the immersive experiences in AR/VR, whereas lower latency is key for cloud gaming experiences where it is incredibly important for gamers to have a lag-free, responsive, and accuracy-driven gameplay.
Telemedicine: Doctors can monitor and collect data on patients with the help of sensors from the patient monitoring machines in real time to get instant insight and make quick decisions in these types of mission-critical situations. The high-throughput and low-latency promise can also power remote or robotic surgeries with higher precision and high-definition remote diagnosis or surgery assists.
Multi-room Video/Audio Distribution is another use case that enables users to connect to multiple devices and provides a seamless way to efficiently stream/share the latest 4K movies and stream high-resolution music to multiple devices throughout the home without the hassle of wires/cables hanging everywhere.
Similarly, there are multiple applications possible where high throughputs, low latency and high capacities are required.
Key Takeaways
With the Wi-Fi 7 standard coming to the market, Wi-Fi connectivity will be the powerhouse for digital growth across various industries and applications.
Main focuses on reliability and performance in congested networks are vital value propositions that Broadcom is trying to address with its new Wi-Fi portfolio.
Latest services such as the Metaverse, cloud gaming, 4K/8K video streaming and enhanced mesh networking can use Wi-Fi 7 to its fullest potential. Smartphones and AR/VR will be the primary driving force for Wi-Fi 7 adoption.
Low latency, high speeds and high reliability from Wi-Fi 7 can power the growing demands of the industrial, retail and enterprise segments.
Broadcom’s chipsets which are being sampled right now will make their way into the products in the second half of 2022.
Key Broadcom customers which should adopt Wi-Fi 7 solutions starting this year include Apple, Hewlett-Packard, Motorola, IBM, Linksys, Tenda, Cisco, and others.
However, the competition remains strong as Qualcomm continues to expand its Wi-Fi 7 portfolio across multiple devices and infrastructure which will drive Wi-Fi 7 adoption faster than we have seen for previous generations.
Compared to the last few years, 2021 saw much more activity in terms of handheld announcements on new devices, new technical standards and new sales records. Seven years ago, the popular Sony PSP (PlayStation Portable) was discontinued after selling over 73 million units in 10 years. Nintendo too discontinued numerous handhelds over the years. But why are handhelds again gaining popularity in these times of connected home consoles and PC gaming? It is the technological advancements and increased interest in mobile gaming that have brought handheld gaming back into focus since the last year. The ability to save hundreds of dollars by opting for a handheld device to play a new game with new graphics standards has also appealed to the new-age gamers.
Fall and re-emergence of handhelds
The Nintendo Switch was the most sold console globally in 2021 with around 25 million units. The crossover console also released a new edition of the Switch family with the Switch OLED, which features a bigger and brighter screen, a sturdier dock with a LAN port for high-speed gaming, and larger storage. These technological boosters and quick upgrades are the reasons why the Switch model is doing so well and exactly why the PSP had a rather large falling-off in the gaming market.
The PSP had to compete with advanced mobile gaming, but the graphics and tech upgrades to it could not hold up. But Sony’s latest graphics capabilities combined with the Switch’s popularity could put it back in the realm of possibility. Another new feature that will be required for the comeback device to succeed is the ability to withstand cloud and digital download gaming, as many game developers are now moving to streaming platforms. In the absence of these enhancements, the home console and PC gaming will continue to triumph in the overall user experience.
Outlook for handhelds
Even as new technological standards are being set for handhelds, the next step will be to make the wider scope of gaming accessible in this format, including PC gaming. This segment has already been penetrated by the world of mobile gaming through smartphones. OEMs are pushing up and advertising refresh rates and display resolutions aggressively to appeal to this rising market. Brands like Asus and Lenovo have been topping the market for the phones targeted at the gaming segment.
Although smartphones are a good all-in-one option for gaming, there are still technological and ergonomic restrictions that cannot be removed in the mobile phone format. On the other hand, developments in handheld PC gaming devices have been on the rise, the most anticipated device being the Valve Steam Deck. The success of the handheld PC device will be to make the user experience close enough to a full PC set-up, which will make gamers realize that saving money on the handheld device is worth the inevitable downgrades in gaming. Nintendo has been able to balance this need for quality gaming in a handheld, but it is still not enough for more dedicated gamers who often do complex gaming. In order to be a successful addition to the gaming market, the Valve Steam Deck and successors will need to appease a more niche market that requires higher demands from the hardware and software for optimal gaming.
NVIDIA has reported a 62.3% YoY increase in its 2021 revenues to $26 billion. In Q4 2021, revenues were at $7.5 billion, a 52% YoY increase. Gaming, data center and professional visualization segments contributed to the overall growth in revenues. In terms of products, high-end desktop/laptop gaming processors, data center GPUs and AI rendering workload-specific hybrid workstations contributed to revenue growth. Networking revenues suffered most from the shortages and disruptions in the supply chain, followed by GPUs.
Annual revenues are CY estimates; Source: Company Earnings, Counterpoint estimates
Segment Revenues
Gaming gets biggest slice of revenues with 46.7% share at $12.2 bn
Gaming revenue grew 63.7% YoY to $12.2 billion in 2021
The revenue came primarily from its RTX 30 series of GPUs. Steam grew 50% over 2 years and had nearly 28 million active users by the end of Q4 2021, the second largest for a cloud gaming platform.
RTX GPUs help NVIDIA realize $2 bn in professional visualization segment
Professional visualization revenue almost doubled to $2 billion in 2021, realizing the best year for the segment.
Growth due to the COVID-19 driven consumer and enterprise shift to remote workstations that can take higher workloads of AI, 3D renderings and visualizations.
Supercomputer compute helps data center to shine in best revenue year ever
Data Center segment reported a growth of 59.1% to $10.2 billion in 2021 to make it a record year for NVIDIA.
Offerings across GPU, networking and software, along with synchronization of technologies stemming from the Mellanox acquisition, have made NVIDIA the leader in accelerated computing. The whole suite of offerings and mass adoption of AI technologies in enterprise applications fueled the demand for accelerators. Supercomputing contributed to <1% of overall Data Center revenues.
Additionally, demand from hyperscalars and cloud focusing on inference workloads and AI workloads contributed to the sales of NVIDIA A100 GPUs, a high-end accelerator. Specifically, Meta has purchased over 6,000 GPUs for SuperCluster, its AI supercomputer for natural language processing and visualization workloads.
Slower lap for automotive revenues with growth of 5.6%
This segment proved to be the outlier in NVIDIA’s growth story, posting only 5.6% growth at $573 million and a decline of 18.2% from its best year in 2019.
We believe the decline is due to shift from legacy cockpit processors and an increased focus on software suites that will contribute to revenues over a period of time.
‘OEM and Others’ segment sees 5.7% revenue growth on volatility
OEM and others reported $574 million in revenue, up only 5.7% from previous year
Crypto mining contributed about $24 million in the ‘OEM and Others’ segment for Q4 2021. The annual revenues from CMPs (cryptomining processors) were estimated to be about $550 million in 2021.
The visibility of crypto revenues is due to the changes in GPU software launched in Q1 2021 to detect Ethereum Mining Algorithm to ensure the intended supply of GPUs to gamers and dedicated CMPs.
The segment continues to be among the company’s key volatile segments as the revenues fell 77% sequentially from the previous quarter. The factors contributing to this volatility include limited stocks of the GPU processors, geopolitical tensions at the Russia-Ukraine border (Ukraine is one of the leading crypto miners in the world) and the increasing climate impact.
According to NVIDIA CEO Jensen Huang, “NVIDIA is a software-driven business. Accelerated computing is a software-driven business”.
As the company comes close to executing its triple chip strategy – CPU, GPU & DPU, with the data center CPU coming next year and sampling late this year, it is extensively focusing on building next-generation software suites that support Metaverse, 3D and robotics.
FOCUS: The company is focusing on creating an end-to-end complete stack of firmware that complements and augments the functionalities of hardware that serves as a one-stop solution to implement upcoming technologies and the required compute demanded by them.
With the introduction of three prominent software suites, the company intends to have a comprehensive software portfolio covering all hardware products:
NVIDIA Omniverse for individuals and enterprises for creation of virtual content
At last year’s Nvidia GPU Technology Conference, the company announced that the software suites, particularly the Omniverse, would be made available for free to all creators. The company is betting on the business that would materialize from the connection between a real-world entity like robots or connected cars and the virtual world through digital twins. The software would act as a bridge and the company would reap benefits as the bridge becomes busy and populated!
Analyst Takeaways and Future Outlook
Gaming: As announced at CES 2022, the introduction of the RTX 30 GPU series to laptops will bring the AAA gaming experience and accelerated computing to wider audiences, adding to revenues. Penetration of GeForce NOW in 5G mobile devices, smart TVs and newer titles will continue to augment revenues through software subscription.
Data Centers: As the hyperscalars enter the rush of the metaverse and enterprises focus on weaving the AI technologies across all processes, the workloads will increasingly demand the accelerators to achieve objectives. In the short term, the company would be looking to fill the demand gap due to semiconductor shortages in the networking product portfolio.
Cryptomining: In the short term, as economies around the world reel under inflation, rising fuel prices and geopolitical tensions in the East, we expect a limited demand coming from miners this year. However, as the metaverse gains momentum, crypto regulations become more clear and enterprises get familiar with the possibilities of the virtual world, the demand will again start shooting up from later this year/early next year.
Future Deals: Due to the termination of the ARM-NVIDIA deal, the company has now over $20 billion in cash and will look to augment its growing suite of software and hardware peripheries in networking to develop efficient solution stacks.
On July 6, Nintendo released the announcement trailer for its new addition to the Switch line-up, the Switch OLED model. The console comes four years after the original Nintendo Switch and two years after the release of the Nintendo Switch Lite. The new model is expected to be available on October 8, 2021, at the retail price of $349.99.
The model’s features highlighted in the trailer include a new OLED 7” screen with vivid colors along with an updated speaker to improve the user experience when engaging directly with the handheld device independently from the TV display. A new spec that will improve the TV mode of the device is the LAN port on the dock that will create greater ease for gamers in online play. A new kickstand has also been included to allow the stand to be adjustable at wider angles. These features add $50 to the retail price when compared to the $299.99 Nintendo Switch released in 2017. The refreshed colors for the new device are white, as seen in the trailer, and gold, as seen on the Nintendo website. Both colors appear on the joy-con controllers as well as on the dock to match.
Nintendo has done a great job in creating the anticipation and excitement around this new device. But our initial thoughts on this new addition to the Switch family are mixed. The speculations that have been going around for months about the “Switch Pro” may have had people’s expectations set too high for this new model. The joy-con controllers from the original Switch can be used on the new model, causing fans to be disappointed with no new plans to improve on the problem of “drifting”, or when the motion sensors on the controllers begin to veer off center. That is not to say there is no possibility for updates in this model’s joy-cons or future accessories.
It is not abnormal for Nintendo to release a larger model with other smaller upgrades for its devices. Back in 2013, Nintendo had released the Nintendo 3DS XL, essentially a larger version of the 2011 Nintendo 3DS. Four years after the release of the original Nintendo Switch is a good timespan for people looking for an upgrade or wanting to improve the handheld experience of their Switch.
This year’s Electronic Entertainment Expo (E3) also shed light on some exciting new games that will be released in the next couple of years, the most notable being the second trailer to the sequel of hugely popular ‘Zelda: Breath of the Wild’ game, which remains in the top five best-selling games list, four years after its initial release along with the original Switch. Other games like ‘Mario Odyssey’ and ‘Animal Crossing: New Horizons’ are still incredibly popular long after their initial release dates.
The love for the original device and the games that came along with it will surely reignite the excitement once again for a new edition of this device and the new games that will be launched alongside, which hopefully will be announced in the coming months. Nintendo sold over 17.79 million units in its launch year. Four years later, a lot of those users may be looking for an upgrade, as well as the continuously growing fan base. The Nintendo Switch has now sold over 84 million units globally, including the Switch Lite introduced in 2019. With the booming success of this device since its introduction, the Nintendo Switch OLED model may not reach the heights of the original device but will certainly add to the success story of this hybrid device.
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