Graphics card market shrinks by 42.7 percent

It’s no secret that the current economic weather is thundering down on the tech industry at the moment, but it looks as though the discrete graphics card market has been particularly badly damaged. Market research firm Jon Peddie Research (JPR) has just issued its Add-In-Board report, which analyses the worldwide sales of discrete graphics cards, and the firm describes the findings for the end of 2008 as “downright ugly.”

According to the report, the discrete graphics card market started to shrink in the second quarter of 2008, in which sales of graphics cards were 6.7 per cent down on the same period in 2007. However, graphics card sales then nosedived towards the end of the year, with sales in the fourth quarter of 2008 plummeting by 42.7 percent when compared with the same period in 2007.

The report shows that the fourth quarter of the year has previously been a lucrative phase for graphics card vendors, with 26.51 million units sold in the period in 2007. It’s also worth noting that this figure for 2007 represented an increase of 25.9 per cent over the same timeframe in 2006. By comparison, the number of graphics cards sold plunged to just 15.2 million in the fourth quarter of 2008.

Although it’s fair to say that most tech companies have taken a beating in the recent economic downturn, JPR points out that graphics cards have been particularly dramatically affected. “Markets in every corner of the economy — and every corner of the globe — contracted,” says JPR, “and the AIB market was no exception.” However, the firm adds that this is “really an understatement, as the AIB market took a substantially bigger beating than the closely related markets for PCs and workstations, as OEMs and the channel curtailed new orders and ran down inventories.”

The research firm notes that sales of PCs and workstations dropped by around ten percent in comparison, but emphatically states that this doesn’t mean that chipsets with integrated graphics have been encroaching on discrete graphics cards’ territory. JPR notes that the market share from integrated graphics in the fourth quarter of 2008 was 40.6 percent, which was only marginally up from the 40.2 percent in the same period in 2007. Instead, JPR suggests that PC manufacturers have relied on existing inventories of old graphics cards rather than buying in new ones.

“Deeper inventories are a safety valve,” explains JPR, “making it a lot easier for buyers to stop buying — at least for the short term — while allowing them some time to sort out the situation and determine how to properly adjust orders to meet the new, lower run-rate. Drain down inventory for a bit to keep orders filled near term, and build it back up later when the coast is clear.” This is bad news for the graphics cars business, though, and JPR notes that “in any industry where deep inventories can act as a buffer between supply and demand, the extent of the impact during a downturn is likely to be more pronounced. “

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