Reuters
UPDATE - ATI wins Xbox deal from Nvidia, stock surges
Thursday August 14, 11:39 am ET
By Jeffrey Hodgson and Ben Berkowitz
(Recasts, adds further analyst comment, updates stock. Figures U.S. dollars unless noted)
TORONTO/LOS ANGELES, Aug 14 (Reuters) - ATI Technologies Inc. (Toronto:ATY.TO - News; NasdaqNM:ATYT - News) struck a blow to rival Nvidia Corp. (NasdaqNM:NVDA - News) on Thursday, winning a potentially lucrative deal to provide graphics technology for the next generation of Microsoft Corp.'s (NasdaqNM:MSFT - News) Xbox video game console.
Shares of Markham, Ontario-based ATI, a leading graphics chip maker jumped as much as 13 percent on the news, and were up 84 cents to $13.09 late Thursday morning on Nasdaq, on a volume of more than 11 million shares. In Toronto, the stock rose C$1.23 to C$18.15 on a volume of more than 4 million.
Nvidia stock fell 58 cents, or more than 3 percent, to $16.20 on Nasdaq, after losing about 5 percent at the open.
ATI said the deal with the world's largest software maker will see it develop custom, leading-edge graphics technologies for use in future Xbox products and services.
Graphics chips for the Xbox are currently provided by Nvidia, which was not immediately available for comment. A spokesman for ATI would not confirm the agreement covers chips, but analysts said it almost certainly does.
"Microsoft is always particularly vague in terms of its press releases and not spilling too much, but we are very confident that this in fact represents the next generation of Xbox, which we believe will be introduced in the fall of calendar 2005," said David Hodgson, an analyst with Dundee Securities.
Speculation has run rampant among investors for months that ATI was well positioned to take the next Xbox contract away from Nvidia, particularly because of a recent arbitration dispute. ATI already produces chips for Nintendo's GameCube.
"They've been back and forth I'm sure for over a year," Wedbush Morgan Securities analyst David Wu said. "My guess is, in the final analysis, Nvidia and Microsoft did not have such a good taste in their mouths after the arbitration thing."
Desjardins Securities analyst Paul Howbold said the win shows ATI has maintained a technology lead over Nvidia. But he cautioned that the financial benefits of the deal likely won't kick in until late 2005.
"It does indicate that ATI is winning the graphics chip war ... however there's another reason, and that is Nvidia's previous legal dispute with Microsoft clearly soured relations," he said, adding he has a "buy" rating on the stock with a $13 target, which is under review.
GRIEF FOR NVIDIA
While the Xbox contract has been, at times, lucrative for Nvidia, it has also caused it some measure of grief.
Last summer, Nvidia had to take a charge to dispose of excess inventory of Xbox chips after Microsoft ordered a redesign to deal with security flaws.
The two sides also had a high-profile dispute that went to arbitration before being settled over the price Microsoft paid for the chips and the volume in which they were produced.
Nvidia had warned at one point that if it lost the arbitration it could be forced to produce the chips at a loss and in a volume large enough that it would be forced to cut production of some other chips.
At the time of the settlement, Nvidia and Microsoft said they planned to work together on next-generation products.
Wu said the loss of the Xbox contract would leave Nvidia scrambling to find another video game partner by 2005, the assumed end of the current console cycle.
"Whether they can get Sony or not, that's up to debate," he said, referring to the next generation of Sony Corp.'s (Tokyo:6758.T - News) dominant PlayStation console.
($1=$1.39 Canadian)
biz.yahoo.com/rc/030814/tech_ati_microsoft_4.html
UPDATE - ATI wins Xbox deal from Nvidia, stock surges
Thursday August 14, 11:39 am ET
By Jeffrey Hodgson and Ben Berkowitz
(Recasts, adds further analyst comment, updates stock. Figures U.S. dollars unless noted)
TORONTO/LOS ANGELES, Aug 14 (Reuters) - ATI Technologies Inc. (Toronto:ATY.TO - News; NasdaqNM:ATYT - News) struck a blow to rival Nvidia Corp. (NasdaqNM:NVDA - News) on Thursday, winning a potentially lucrative deal to provide graphics technology for the next generation of Microsoft Corp.'s (NasdaqNM:MSFT - News) Xbox video game console.
Shares of Markham, Ontario-based ATI, a leading graphics chip maker jumped as much as 13 percent on the news, and were up 84 cents to $13.09 late Thursday morning on Nasdaq, on a volume of more than 11 million shares. In Toronto, the stock rose C$1.23 to C$18.15 on a volume of more than 4 million.
Nvidia stock fell 58 cents, or more than 3 percent, to $16.20 on Nasdaq, after losing about 5 percent at the open.
ATI said the deal with the world's largest software maker will see it develop custom, leading-edge graphics technologies for use in future Xbox products and services.
Graphics chips for the Xbox are currently provided by Nvidia, which was not immediately available for comment. A spokesman for ATI would not confirm the agreement covers chips, but analysts said it almost certainly does.
"Microsoft is always particularly vague in terms of its press releases and not spilling too much, but we are very confident that this in fact represents the next generation of Xbox, which we believe will be introduced in the fall of calendar 2005," said David Hodgson, an analyst with Dundee Securities.
Speculation has run rampant among investors for months that ATI was well positioned to take the next Xbox contract away from Nvidia, particularly because of a recent arbitration dispute. ATI already produces chips for Nintendo's GameCube.
"They've been back and forth I'm sure for over a year," Wedbush Morgan Securities analyst David Wu said. "My guess is, in the final analysis, Nvidia and Microsoft did not have such a good taste in their mouths after the arbitration thing."
Desjardins Securities analyst Paul Howbold said the win shows ATI has maintained a technology lead over Nvidia. But he cautioned that the financial benefits of the deal likely won't kick in until late 2005.
"It does indicate that ATI is winning the graphics chip war ... however there's another reason, and that is Nvidia's previous legal dispute with Microsoft clearly soured relations," he said, adding he has a "buy" rating on the stock with a $13 target, which is under review.
GRIEF FOR NVIDIA
While the Xbox contract has been, at times, lucrative for Nvidia, it has also caused it some measure of grief.
Last summer, Nvidia had to take a charge to dispose of excess inventory of Xbox chips after Microsoft ordered a redesign to deal with security flaws.
The two sides also had a high-profile dispute that went to arbitration before being settled over the price Microsoft paid for the chips and the volume in which they were produced.
Nvidia had warned at one point that if it lost the arbitration it could be forced to produce the chips at a loss and in a volume large enough that it would be forced to cut production of some other chips.
At the time of the settlement, Nvidia and Microsoft said they planned to work together on next-generation products.
Wu said the loss of the Xbox contract would leave Nvidia scrambling to find another video game partner by 2005, the assumed end of the current console cycle.
"Whether they can get Sony or not, that's up to debate," he said, referring to the next generation of Sony Corp.'s (Tokyo:6758.T - News) dominant PlayStation console.
($1=$1.39 Canadian)
biz.yahoo.com/rc/030814/tech_ati_microsoft_4.html
