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Why does Nvidia give its GPUs to other companies to sell?

Hey guys, I’m a little bit late to the news but apparently there was an incident in which MSI was accused of selling 3080s at scalper prices under a subsidiary called Starlit.

 

After hearing about it I began to wonder: “Why doesn’t Nvidia just sell all of their GPUs under the Nvidia name?”.

 

Is there a reason for this? I mean they do sell “Founder’s Editions” so why not just make all of their GPUs into say 3080 & 3090 “Founders Edition” and sell ALL of them instead of the small fraction they do today?

 

I would appreciate any input from anyone who happens to have further insight or knowledge about this.

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Quick answer : It's easier logistically and marketing wise, more profitable this way too.

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People want options, Founders Edition is great, but it serves as a baseline reference.

Selling themself not always a good thing, as you have to manage the distribution & after sales also, which is a different ballpark.

They learned from 3DFX mistakes, which is the reasons why ATI/Nvidia beats them in the first place.

3DFX chips are the best of the time, but they don't have enough time to manufacture the products, resulting in delays after delays.

And when it actually available in stores, people already bought competitors card.

AIB partners already have the manufacturing capacity, marketing and distribution so they can focus on the chip making.

 

The problem today is that they rely heavily on samsung's 8nm capacity and they tried to outpaced the release of Xbox/PS5/ navi 20 release, but they don't have enough chips on release date.

Should the release posponed to december / january, we probably won't see this problem.

 

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3 minutes ago, SupaKomputa said:

People want options, Founders Edition is great, but it serves as a baseline reference.

Selling themself not always a good thing, as you have to manage the distribution & after sales also, which is a different ballpark.

They learned from 3DFX mistakes, which is the reasons why ATI/Nvidia beats them in the first place.

3DFX chips are the best of the time, but they don't have enough time to manufacture the products, resulting in delays after delays.

And when it actually available in stores, people already bought competitors card.

AIB partners already have the manufacturing capacity, marketing and distribution so they can focus on the chip making.

 

The problem today is that they rely heavily on samsung's 8nm capacity and they tried to outpaced the release of Xbox/PS5/ navi 20 release, but they don't have enough chips on release date.

Should the release posponed to december / january, we probably won't see this problem.

 

Well I mean Nvidia could always add different designs later based on binning and putting the best chips in the best boards with the best cooling at the highest price and then scale downwards for lesser, cheaper options. 
 

But I thought the delay was with the chips themselves though? Not the AIBs?

 

I mean why give a 3080 to EVGA to make into an XC3 Ultra 3080 when they can just stick it in a “Founders Edition”, and basically they both perform about the same anyway. My 2080 Ti XC2 Ultra is very close performance wise to a Founders Edition 2080 Ti.

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15 minutes ago, nox_ said:

Quick answer : It's easier logistically and marketing wise, more profitable this way too.

How is it more profitable?

 

Think about it.

 

Nvidia makes a 3080 and sells it for $699.

 

OR

 

Nvidia makes a 3080, sells it to MSI for $649, and MSI sells it for $699 to make some profit.

 

Cutting our middlemen whenever possible is always more profitable because you can sell directly to the consumer and keep the maximum profits.

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8 minutes ago, GamerBlake said:

How is it more profitable?

 

Think about it.

 

Nvidia makes a 3080 and sells it for $699.

 

OR

 

Nvidia makes a 3080, sells it to MSI for $649, and MSI sells it for $699 to make some profit.

 

Cutting our middlemen whenever possible is always more profitable because you can sell directly to the consumer and keep the maximum profits.

@SupaKomputaExplained in more detail but you it seems you just glossed it over and went to oversimplify everything. Nvidia would need to have distribution centers all over the world, even bigger marketing departments, etc. that costs money and must be less profitable in the end.

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5 minutes ago, GamerBlake said:

Nvidia makes a 3080, sells it to MSI for $649, and MSI sells it for $699 to make some profit.

That's thinking short term, not long term.

 

Sure, they may get a $100, $200, or however much more selling the card themselves, but by having a middleman (like MSI, ASUS, etc.) Nvidia is effectively transferring many others costs to these others companies.

Managing relationships with vendors? Customer service? etc. those are now in the hands of the AIB, instead of Nvidia having to manage everything around the  world.

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Just now, nox_ said:

@SupaKomputaExplained in more detail but you seem to just gloss it over and went to oversimplify everything. Nvidia would need to have distribution centers all over the world, even bigger marketing departments, etc. that costs money and must be less profitable in the end.

I understand what he’s saying but I don’t think you understand the financial situation Nvidia is in.

 

I invested in Nvidia 5 years ago and since then it’s share price has gone from $22 per share to $540 per share, which means Nvidia has huge financial resources to handle that kind of logistics and distribution.

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Just now, GamerBlake said:

I understand what he’s saying but I don’t think you understand the financial situation Nvidia is in.

 

I invested in Nvidia 5 years ago and since then it’s share price has gone from $22 per share to $540 per share, which means Nvidia has huge financial resources to handle that kind of logistics and distribution.

But it would probably not provide a commensurate return on the investment. The business of making graphics cards using GPU chips generally has much thinner margins than the business of designing the GPU chips (and outsourcing fabrication, usually to TSMC).

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1 minute ago, minibois said:

That's thinking short term, not long term.

 

Sure, they may get a $100, $200, or however much more selling the card themselves, but by having a middleman (like MSI, ASUS, etc.) Nvidia is effectively transferring many others costs to these others companies.

Managing relationships with vendors? Customer service? etc. those are now in the hands of the AIB, instead of Nvidia having to manage everything around the  world.

But what I’m thinking is doesn’t Nvidia already do that when they sell Founder’s Editions? 🤔 

 

I mean sure they would have to expand customer service and such but Nvidia has gone from $20 per share to $540 per share in the last 5 years which means it’s grown 27x larger today than it was 5 years ago. Those higher share prices means more money for Nvidia to do things exactly like that, expand.

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Just now, Sakkura said:

But it would probably not provide a commensurate return on the investment. The business of making graphics cards using GPU chips generally has much thinner margins than the business of designing the GPU chips (and outsourcing fabrication, usually to TSMC).

Ah well I guess in that sense it would probably be better for them to just buy a company like EVGA or Gigabyte and merge it into Nvidia then starting up from scratch.

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4 minutes ago, GamerBlake said:

I understand what he’s saying but I don’t think you understand the financial situation Nvidia is in.

 

I think you underestimate Nvidia. If they do things this way it must make sense, they must have financial analysts and things like that and not just some guy on the internet who bought Nvidia shares.

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3 minutes ago, GamerBlake said:

But I thought the delay was with the chips themselves though? Not the AIBs?

No, the problem is not the manufacturing bottleneck, but the chip itself.

Talking about production capacity, If they want to sell everything themself, let say with only 2 factories, with 10000 capacity a day.

Compare to AIB which has 1 dedicated gpu factories with 5000 a day, times 5-10 AIB partners.

They just give them the chip, let them figure out the costumizations.

 

AIB have different design, different customizations, different parts to choose, that cost more time to plan and execute.

People love to see more options on the table than just 1-2.

Some people love the green FE colors, but hate the fans, some love red, blue, two fans, three fans etc.

With AIB you can have 100 flavors of the same chip.

That's why Android (as a whole) have 80% of the worldwide market share.

 

8 minutes ago, GamerBlake said:

Nvidia makes a 3080 and sells it for $699.

 

OR

 

Nvidia makes a 3080, sells it to MSI for $649, and MSI sells it for $699 to make some profit.

 

No that's not how it works, they sell MSI the CHIP for say $200-$300 a piece.

AIB manufacture the card for $100, distribution for $20, marketing for $20, after sales support for $10, the rest is profit.
Nvidia still get a good chunk of each card without doing the second part, which is more profitable if you ask me.

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1 minute ago, GamerBlake said:

But what I’m thinking is doesn’t Nvidia already do that when they sell Founder’s Editions? 🤔

If you ignore the scale of videocard sales, sure 🤔

 

Selling 1000 videocards or 100000 videocards is a bit different of course, in terms of how much of your company you need to allocate to all these jobs you're moving to other companies.

5 minutes ago, GamerBlake said:

I mean sure they would have to expand customer service and such but Nvidia has gone from $20 per share to $540 per share in the last 5 years which means it’s grown 27x larger today than it was 5 years ago. Those higher share prices means more money for Nvidia to do things exactly like that, expand.

Train a whole bunch of people to do a certain job, create an entire workflow, a system behind it, etc.? Difficult and expensive.

Make use of AIB's to market, sell and support your products? It seems to have 27x'd their share value, so it must work.

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1 minute ago, nox_ said:

I think you underestimate Nvidia. If they do things this way it must make sense, they must have financial analysts and things like that and not just some guy on the internet who bought Nvidia shares.

..I’m not even claiming to know anything! I was simply asking a question in the first place not declaring or stating that I knew something others don’t.

 

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2 minutes ago, SupaKomputa said:

No, the problem is not the manufacturing bottleneck, but the chip itself.

Talking about production capacity, If they want to sell everything themself, let say with only 2 factories, with 10000 capacity a day.

Compare to AIB which has 1 dedicated gpu factories with 5000 a day, times 5-10 AIB partners.

They just give them the chip, let them figure out the costumizations.

 

AIB have different design, different customizations, different parts to choose, that cost more time to plan and execute.

People love to see more options on the table than just 1-2.

Some people love the green FE colors, but hate the fans, some love red, blue, two fans, three fans etc.

With AIB you can have 100 flavors of the same chip.

That's why Android (as a whole) have 80% of the worldwide market share.

 

 

No that's not how it works, they sell MSI the CHIP for say $200-$300 a piece.

AIB manufacture the card for $100, distribution for $20, marketing for $20, after sales support for $10, the rest is profit.
Nvidia still get a good chunk of each card without doing the second part, which is more profitable if you ask me.

Oh ok wow! Thanks I didn’t know all that! :)

 

That was exactly the kind of well informed answer I was looking for.

 

Thanks! 🙏 

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5 minutes ago, minibois said:

If you ignore the scale of videocard sales, sure 🤔

 

Selling 1000 videocards or 100000 videocards is a bit different of course, in terms of how much of your company you need to allocate to all these jobs you're moving to other companies.

Train a whole bunch of people to do a certain job, create an entire workflow, a system behind it, etc.? Difficult and expensive.

Make use of AIB's to market, sell and support your products? It seems to have 27x'd their share value, so it must work.

Well the increase in share value is a good example of how Nvidia’s resources have drastically increased. That’s why being expensive can’t be the reason it has to be something else. But I think it’s what Supa said. That makes sense to me rather than just being difficult and expensive.

 

Also if you think about it, 1000 or 100,000 3080s all turned into 3080 FEs still would’ve sold out. 😆 

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Other than most of the answers here they don't have to deal with older stock either.

Doesn't matter to Nvidia if AIB's still have thousands of older gen cards they can't sell, they will release the next generation regardless of that.

 

They can just design the cards and reap money

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Selling in bulk gets your capital back fast and you can re-invest quickly.  Time is money.  You also have less overhead not having to sell it and work through distributions.

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Because of logistics. Nvidia does not want to manufacture graphics cards, they just want to develop them. It's not the same thing.

You are looking at all of this from a very childish basic point of view. You just imagine Nvidia is so big they could just make all their own stuff and send it all over and ooooh yes of course they can make more designs later... why not. Maybe Barbie edition as well?

 

All of the shit you are listing is all extra work that requires extra budgeting, takes money and most of all it adds a ton of more risk to their operations. AIBs also pay them upfront which is a big amount of instant cash they get without having to sell it to consumers. By handing it to AIBs they are giving them also the risk and letting them handle the entire logistics of shipping products all around the world. The main issue with your thinking is that you have no idea whatsoever how complex it is to ship things all over the world and sell them there. The amount of money Nvidia makes from gaming cards is non-existent compared to what they get for their professional cards.

And what if someone wants RGB? What do they do then? Nvidia shall waste their time adding some shitty RGB? They'll have to buy or rent and start manufacturing all the extra RGB shit and all of that because of what? You think so?

And if they were to own all the factories themselves and manufacture everything on their own, who is going to keep paying for the factory maintenance? Necessary upgrades that the factories require? What do they do if sales decrease? Keep paying rent and maintenance for factories that do not produce anything because sales dropped? Do they sell machinery that they no longer have a use for and take the loss.. because a random guy on the internet feels that they should manufacture everything themselves?

 

I'm actually going to blow your brains now mate. Are you aware that all of those Chinese companies do not actually ship directly to your little village store? AIBs actually all ship to distributor companies that nobody has ever heard of before. There are a handful of them and those distributors actually sell the items to the retailers that you buy the shit from. Sending shit around is so hard that they don't even deal directly with the billions of retailers, they send it to a couple of big distributors and those deal with the millions of retailers. In Europe there are a couple of them and they deal with all the European countries. If you think business and economists is so simple and basic then please go get rich.

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