Ben Gilbert: commitment

Transcript context

…Oh man. That is such a good ‘what would have happened otherwise.’ We use that to transition into analysis for this one. Yeah, let's do it. I thought it'd be fun to do narratives. Let's take it from this point in time. The AMD-ATI deal has just happened. We're looking forward, it's 2006. What's the bear and bull case for the company? I thought an interesting data point to ground this discussion would be that, if we look at the gross margins today for NVIDIA, which we will talk on our whole next episode about everything they do that's so insanely differentiated, they sell their GPUs at a hardware business with a 66% gross margin. Back in 2004, that gross margin was only 29% that they were able to command as a premium on their cards. You can see, all of their economic potential was being competed away and they weren't doing anything to differentiate in a way to get any sort of pricing power. You make that 29%, then you need to use that to pay all your overhead, fixed costs, your engineers, develop the next product, and pour it into R&D. Sure, they had a few great years of doubling in revenue after going public, but it's not looking great right now in 2006. Yes, and there's also another reason why their gross margins are so low in those years following 2001. They made this deal with Microsoft to power the Xbox. And it was absolutely the right strategic decision to power the Xbox, to get Microsoft's support in creating CG for programmable shaders, and protect themselves from Intel. But if you're going to deal with Microsoft, they're going to extract their pound of flesh. You'll note, there are three game consoles in the history of game consoles that NVIDIA has powered. The original Xbox, the PlayStation 3 which we'll talk about next time, and the Nintendo Switch. They have not done any others. People are always asking Jensen about this one. He's diplomatic about this because it's a crappy gross margin business. There's a $500 million a year revenue deal with Microsoft. $500 million a year when their whole company revenue is a billion. Is $500 million a year a very low gross margin revenue?…

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