Nvidia GTX260s losing money

With Nvidia's recent price drop, the 260 starts to look a little... costly. But not for us gamers.

NVIDIA has been propping up volume by selling below cost for a bit now, and the latest price drop of the GTX260 is sure to bring smiles to the faces of users. The problem is that add-in-board (AIB) partners can't make money on them.

Losing money on each card is not a good business strategy, and making up for it in volume does not make things better. Mercedes could sell S-Class cars for $US10, and volume would skyrocket, but that wouldn't be a very sound business strategy. For some reason, Nvidia not only thinks this is a sound strategy, it is implementing it.

The problem is the same one we told you about almost a year ago, the GT200 die is too damn big. Even with a shrink, it is still too damn big, almost twice the size of its closest rival, the ATI R770/4870. Even with poor yields and an expensive board, the card loses to its much more economical rival from ATI. This means Nvidia has to fight a price war against an an opponent with lower costs.

That brings us back to the latest news, the 260 has dropped to $US169, which puts it between the price of a 512M and 1G 4870. The problem is that the GTX260 costs Nvidia partners a little less than that to make, they are going to bleed cash over this one. Hang on for a close look into the costs of building a modern GPU.

We will say up front that the numbers given here are the best case scenario. If we are given a range of prices, we will give Nvidia the benefit of the doubt and pick the cheapest. In reality, things are worse than we are stating.

Starting out with the selling price, retailers won't touch a product without a 15 per cent margin... it isn't worth their time. That means that $US169 retail price boards have to sell for $US144 to trade to meet that number. Lets assume packaging, shipping and add-ins like cables, dongles and software only cost $US9, probably quite low all-told. That means the NV partners need to get the 260 out the door for $US135 or they are losing money.

The first problem is that Nvidia sells the ASIC bundle, basically a 260 kit with chips and RAM for between $US110 and $US120. Lets be kind and say it is $US110, and there are no shipping or handling costs. FWIW, the GT206 costs around $US80-100 to manufacture based on TSMC volume wafer costs and yields someone told us about. Nvidia isn't making much on this, if anything, 14 16 x 32 high bin GDDR3 chips aren't that cheap, cost for volume purchasers is between $US1.50 and $US2.00 per unit. I would bet NV is losing money here on the kit, 14 x $US1.50 = $US21. $US21 + 80 = $US101, best case, they have $US9 wiggle room, more likely it is a money loser, not counting MDF funding or rebates.

So that leaves the OEMs with $135 - 110 = $US25 to make the boards. Board components are well over $US15, this includes all the passive components, resistors, caps and bits with magic smoke in them. Think everything other than that included in the kit. That puts us at $US25 - 15 = $US10 left in the pot.

A 10 layer PCB is north of $US10, this is easy enough to get prices on. $US10 - 10 = $0. Ruh-roh Shaggy, we have a problem. Heatsink/fans are $10 or so as well, and that brings us to $0 - 10 = $-10. Whoopsy, we have a bigger problem. Add in about $US5 labour that all the AIB vendors tell me it takes to make a board, and we are at $-15.
Looking at the best case numbers, Nvidia board partners are eating $US15 per board, but it's likely more than that. They can either jack up the price and hope people pay... or lose money.

Nvidia doesn't like partners who buck their pricing proclamations, and people will buy from the one company which doesn't raise prices.

The OEMs are trapped. If someone steps out of line and hits the $US169 price point, they will clean up on sales, and the others will lose. Bad situation, but Nvidia has a price point to hit, and they aren't the ones taking a bath. Actually they are, just not that much, and Nvidia can do no wrong. Just ask them.

Ironically, the price cut will spur sales, and everyone will lose money, except the end users. They win. At the end of the quarter, Nvidians will surely blame economic conditions: it can't be that they are putting their own ego and market share above piddling things like profit. Market share is king, and if they ever have a sane reason to back this nutjob theory up, we will bring it to you. Don't stay up waiting.