NVidia (Again)

So, not surprisingly it turns out that NVidia does understand that they have some problems in regards to the probable extinction of the discreet GPU in the X86 space. To recap, both of their main competitors, Intel & AMD are general purpose processor manufacturers first and GPU vendors second. The trend in CPU's has always been to integrate formally external components such as floating point processors onto the CPU. For cost and performance reasons this just makes sense; and if that happens, odds are good that NVidia will have a very hard time continuing to provide competitive product since there will be much less motivation for either AMD or Intel to do the kind of engineering needed to support discreet GPU's.

So, what are NVidia's options here? The most obvious one is to create or acquire their own 64 bit X85 compatible processor. The first of those two options is fraught with danger. Intel is a company that takes intellectual property rights very seriously. You don't want to mess with their lawyers unless you have deep pockets and an airtight case. Such litigation can take years to settle. The second option is much safer, but there aren't really a lot of options. Probably the best is acquiring Via. With a market cap of just over $28 billion as I write this they certainly are affordable. One aspect of the FTC/Intel settlement is a modification of intellectual-property agreements with AMD, Nvidia Corp. and Via Technologies Inc. so that those chipmakers can more easily do mergers and joint ventures with other companies without the threat of a lawsuit from Intel. In my opinion the prospects of both Via & NVidia would be improved by a merger. Consumers would benefit as well by having three credible competitors in this space. NVidia however appears to have other ideas.

Jen-Hsun Huang, NVidia's CEO was recently quoted as saying "Our CPU strategy is ARM," This statement doesn't preclude NVidia acquiring Via but it is worth examining in more detail. Unlike the Intel X86 architecture ARM is readily licensed and costs to do so are modest. ARM processor variants are used in most high end "smart" phones as well as devices such as Apples IPad. The first question that comes to mind when evaluating this strategy is how important is the X86 instruction set likely to be in the future? If you run Windows or recent variants of MacOS, the answer to that question is pretty obvious. Increasingly though the computing devices we interact with do not in fact run either and thus do not require an X86 compatible processor. Given this NVidia's strategy makes some sense. My Droid X is my camera, video recorder, email reader, navigation system, games machine and casual web browsing tool of choice. If it had a keyboard I'd use it even more.

The problem with that strategy is that there tends to be a lot of downward pressure on cost. This isn't a segment where you're going to find high margins for any sustained period of time. We're getting into an area here where I don't actually have a lot of experience or knowledge, but what the heck. NVidia has essentially exited the chipset business. First the acquisition of their main competitor ATI by NVidia essentially closed off that space. Then Intel refused to license newer technologies to NVidia which essentially killed that part of the business. Chipsets likely aren't high margin for the most part because their is a lot of pressure on cost for pretty much every component in a computer. So it seems reasonable to think of NVidia's desire to do more in the ARM space is at least in part intended to be a replacement for their chipset business.

But what about the high margin discreet GPU part of their business? How are they planning on replacing or salvaging that situation? My guess is that they are putting all their eggs in CUDA & high performance computing. In this model the GPU essentially becomes a really fast highly parallel vector processor. If they put enough memory on their GPU cards they can minimize the downsides of not having a low latency/high bandwidth connect to the main memory and CPU. Heck, they could even create their own super computers using ARM processors to do the basic computing tasks, the PCIe bus and a bunch of slots populated with GPU's. The amount of processing power they could get into a single rack with this kind of model would be REALLY impressive. And since most of the processing takes place on the GPU's the processor really doesn't matter much. Linux already runs on ARM so the effort there wouldn't be that daunting.

One of the cool things about the technology field is that change happens really quickly. If you're a business geek this means you don't have to wait around a decade to see how a particular strategy plays out. Generally three years is plenty. I suspect we'll have a good idea as to the long term viability of NVidia in twelve to eighteen months.

Image at top is from Wikipedia.

Droid X One Month Report

Family obligations and work have kept me very busy the past couple of weeks. Throw in some unseasonably cool and damp weather that has allowed me to spend time out in the garage working on my hobby guitar building projects and you get a two plus week gap in posts.

I've had my Droid X for a bit more than a month now.  The Honeymoon is over.  I still love the phone but it isn't without some faults.  These include

• The voice recognition is spotty at best.  When I use it for navigation I often comedic results.  An example, Amil Villas is one of my favorite breakfast places.  The android voice recognition software translates this as "Able Phyllis Restaurant"
• The Nav system is buggy and prone to crashing.  Even when I do get it to accept my voice input it will sometimes go off into never never land and never return when searching for directions.  I've also had it crash on a couple of occasions and exit.  This isn't a good thing when you are driving some place you've never been before.  Particularly when you are depending on the speech prompts for directions
• It crashes and reboots, seemingly at random every few days.  On the plus side this has never happened while I was actually doing something.
• It occasionally becomes sluggish and unresponsive.

I'm hoping the 2.2 Android update that is due in a few weeks fixes these issues.  In the meantime I'm still much happier with this phone than I was with my Blackberry Tour.

July 2010 Short Takes

Editors seem to be an endangered species.  I know I'd love to have one but given my budget for this BLOG (zero) it isn't going to happen.  The longer the entry, the better the odds that I'm going to make a mistake that will have me wincing at some future date if I ever go back and take a look at what I've written.  I do try to put out a polished product but I'm human and I see plenty of editing mistakes in Associated Press articles.

With that in mind here are some quick comments/thoughts/experiences on various business and technology related things.

NVidia
No, they aren't dead.  They aren't even in serious trouble yet but the signs are far from positive.  AMD/ATI just passed them as the leading discrete GPU vendor and their financial performance hasn't been making anyone happy. Their key differentiator right now is that they have error correcting memory in their latest generation GPU's. This makes for a very attractive product if you want to build inexpensive super computers.  They currently hold the number two spot on the top 500 super computing list and provide a very tempting value proposition for people,companies and organizations willing to do a little bit of work optimizing their codes to run in a GP-GPU environment. NVidia also provides ports of many popular libraries that make that task much simpler in many cases.

RIM/Blackberry
I loved my 8703E phone.  I replaced it with the Tour a year or so back.  I hated the Tour.  I am very much off the Blackberry bandwagon.  They are still the team to beat but between Apple and Android they have some serious competition and need to execute well in the next year or risk becoming a very small niche player. Their value to businesses that care about security is still high, but shiny (IPhone) and/or functionality (Android) often trump mundane considerations such as the security of ones corporate secrets.

Droid X
I've had this phone for a couple of weeks now.  I love it.  The phone is not perfect.  The virtual keyboard isn't all that easy to use for somebody who doesn't have a lot of experience with touchscreen keyboarding and it has had a few minor glitches but overall the experience has been great. Having a Camera/Video Recorder/GPS/Compass/Calculator/Flash Light/Games Machine/Web Browser in my pocket that also makes and receives phone calls is really liberating/fun.

Apple
The free case/apology press conference should have ended the majority of the coverage of the IPhone 4 woes.  Apple helped keep the story in the press by continuing to point fingers at their competitors. No surprisingly those competitors were delighted to respond. As I've noted before, at this point the facts are very much secondary to perceptions.  Apple just needs to let this go.

Why Not Work From Home?

A friend of mine sent me a link to Laura Vanderkam's most recent BLOG entry which talks about the advantages to business of allowing their employees to work from home and it got me to thinking.

A lot of companies and managers don't seem to like the concept, and it isn't appropriate to all jobs.  You can't really build tractors or do brain surgery at home for example.  However for many jobs it is entirely feasible to spend little or no time at a central office. The fear some managers have of course is that people will be off playing golf, taking naps, watching TV, etc. rather than doing work.  There are a number of  reasons why a particular company or manager might be against their employees working from home.  To be blunt, most of those reasons likely fall in the area of lousy personnel management policies and procedures.

Probably the toughest, and most important job of any manager is providing support, guidance and feedback to the people who work for them.  This is particularly difficult in companies that don't have a well defined and easily understood appraisal process. If you can't see the people who work for you every day, how can you tell that they are getting anything done?  Well, the truth is, if you have to see people to know that they are busy you've already lost the battle.  I've witnessed more than one person over the course of my career who was adept at looking busy while getting almost nothing done.  In many cases they managed to fool management.  Why?  Generally because performance measures either didn't exist or were never actually evaluated. There are very few jobs where there aren't at least a few tangible ways to tell that the people who work for you are being productive.

You have to be careful about which measures you choose of course as people will naturally try to game the system and choosing poorly can have unintended negative consequences.  For instance basing bonuses and raises for sales people off of sales alone without also figuring in margins is likely not a good plan.  If that million dollar sale ends up costing you $1.2 million and no strategic goal is being met than why are you rewarding the person who made it happen?

Offices cost a lot of money.  I'm not going to sit here and say that there aren't advantages to having people in the same room or area together, particularly when they are working towards a common goal.  Periodic in person meetings should almost certainly be a requirement whenever feasible.

Having people dispersed also puts an additional burden on managers and companies who for whatever reason do not do a good job of managing their people.  If you and your company do not resemble this description than there can be significant advantages to both sides in minimizing the amount of time spent in a traditional office setting as the study referenced in the BLOG mentioned at the start of this entry showed.

Image by Jonathan D. Blundell via Flickr

Loss of Signal III

OK, first things first. In the interest of full disclosure I just bought a DroidX.  It'll be arriving in the next few days. To be clear, I really like the IPhone, I'm just not a fan of AT&T.  To be fair I'm not really a fan of Verizon either, but they've managed to annoy me marginally less and are thus the lesser of two evils, at least for now.

Apple had their press conference today and it's hard for me not to give them a passing grade.  Sure, some in the media are not impressed and the anti Apple types are frothing at the mouth but what else is new?  Was anyone really expecting Apple to recall three million phones over an issue that has a well understood work around?  By offering to take back phones with no restocking fee or pay for a case Apple did the right thing.  One could argue that disgruntled owners are still going to be at a loss since AT&T isn't going to be cancelling any contracts unless people who are interested do so within their standard thirty day window.

So, is the crises over?  I certainly hope so, but we'll have to wait a couple of weeks to be sure.   We don't like to admit it, but most of us get a secret thrill out of seeing successful people or companies taken down.  The feeding frenzy on this story has been fairly intense so it's not clear to me that the story will die a quick death now that Apple has made an effort to explain the problem and compensate their customers.

Image via Wikipedia

Loss Of Signal II

It's really hard to imagine how Apple could have handled the whole IPhone 4 antenna debacle any worse.   At this point it really doesn't matter how big a deal it is technically, what matters is that it keeps getting time in the press and that analysts are starting to speculate about how much it is going to cost Apple to "fix" and the estimates go up with each passing day.  Apple has apparently scheduled a news conference this Friday to discuss the issue.  Or maybe they are going to announce a new Apple TV or some other whiz bang consumer electronics gadget that will instantly take our minds off of the IPhone 4. It's never good to assume that Apple is going to do the conventional thing.

So far as I can tell there hasn't been a noticeable impact on sales and I don't expect one.  We're talking about the company that somehow made tablet computing cool. I don't think even Consumer Reports recent about face to a thumbs down is going to have much of an effect.

Of course, if Apple continues to stone wall and essentially say "what's the big deal?" that could change.  Apple has an immense reservoir of brand loyalty and customer satisfaction; but every day that goes by without a move to resolve this situation in a way that customers, the press and courts will find satisfactory is going to be another withdrawal from that "bank" and no company should spend that kind of capital foolishly.  Even one as cool as Apple.

Steve Jobs may have a reputation for being a difficult guy to work for but he's clearly no dummy.  It may be tough for him, but I think he'll have Apple do the right thing.  And if he doesn't, well we just might get to see them falter seriously for the first time since his return.

Image by Steve Rhodes

Martin Guitars & The Price We Pay (Part 3)

No company operates in a vacuum. It is very rare not to have competitors, and if you manage to find a niche where there aren't any and have success than you'll soon have some. The cost of producing your goods and/or services is also going to be a factor in your success. If you can't do what you want to do at a cost that leaves you enough margin to make an acceptable profit than you have no business being in business. This is why figuring out the cost and likely pricing of your product or service as early as you can is so important.

Not surprisingly, in this final article on the Martin Guitar company I'm going to look at their competition & possible issues related to their raw material costs & availiability. Guitar companies have some unique and interesting challenges, particularly ones that have been around for a long time and have customers with very specific ideas as to what is, and isn't acceptable.

The Competition

No other company in this business has had the longevity or consistent reputation for Quality of Martin. Taylor and Gibson are their two largest competitors. The quality of both companies is currently very good. Gibson has been around since the late 19th century and has had both highs and lows in terms of the quality of the product they deliver. Their reputation is built more on electric guitars and arch tops though they have made some well respected flat top acoustic guitars as well. Taylor has only been around since the 1970’s but has had a reputation for building quality instruments during that entire time. There are two additional categories of competitors to Martin. The first are “boutique” builders. Boutique builders are very small, generally one to five person operations. The most successful charge very high prices and have long waiting lists. Prices vary greatly depending on the reputation of the builder and how custom the desired instrument is. The final category is inexpensive imports, generally made in China or some other part of Asia. Build quality and materials vary but is often quite good. Many of these builders have little or no interest in where their materials came from and how they were harvested. This translates into lower material costs on top of much lower labor rates.

The following table shows a comparison of five different guitar types across three different companies.

MSRP Comparison (Summer 2009)

Type	Martin	Taylor	Blueridge
Premium Rosewood	$9,999	$7,498	$1,650
Mid Rosewood	$6,499	$4,998	$1,095
Low Rosewood	$2,999	$2,898	$895
Mahogany	$2,599	$2,398	$895
Laminate Back & Sides	$1,199	$798	$496

Blueridge is a brand marketed by Saga[i]. These instruments are made in Asia and generally considered to be of good quality. As you can see the price differential between Martin and Blueridge is substantial. So long as Martin can maintain their reputation as the preeminent builder of American style acoustic flat top guitars they will be able to continue to charge a high premium for their instruments. Sales volumes will vary depending on the strength of the economy but there has been and likely always will be people willing to pay top dollar for the Martin name. The Martin advantage is clearly differentiation.

Cost

Traditional materials are increasingly rare and costly. Over the past few years Martin has resorted to modifications in their standard models in order to keep their desired price points. Exhibit i from part 2 of this series shows the MSRP of Martin’s D-28 Guitar in 2008 dollars from 1980 through this year. Over that entire time the price has rarely strayed far from $3000 in year 2008 dollars. In order to maintain that real price point the company has had to make many changes including factory upgrades and material changes. The most substantial being switching from Mahogany to Spanish Cedar for the necks of most of their guitars. There is a silver lining to this cloud. Martin is able to market special edition instruments that still use the rarer materials and charge very favorable prices.

Martin’s strong adherence to environmental standards and laws such as CITES[ii] likely leads to higher material costs. There are also opportunity costs as they cannot always attain the volume of material they need to service demand for rare and premium wood types. Here is a link to a video from a public statement on the challenges that Martin faces in regards to materials that Chris Martin IV made in August 2006.

http://www.youtube.com/watch?v=epN43HC8g4k

For more readily available materials Martin does enjoy a cost advantage due to their high volumes.


Mission/Strategy

A big part of the Martin brand is the location of the factory and the history. As such all but their least expensive instruments are still made in the very same town that has been Martin’s home since the mid 19th century. Martin has a strong environmental focus, insisting on proper documentation for all materials used.

Martin clearly prices their instruments at a very high premium and seeks in real terms to maintain a consistent price point across time. They can and have made adjustments to materials and manufacturing processes in order to maintain these desired price points. As materials such as Mahogany become increasingly difficult to attain Martin is going to be under a lot of pressure to make further changes that may alienate their core customers who are very conservative in regards to what they consider acceptable. Every change that Martin makes in their standard series and above (D-18+) causes new complaints and cries that the world is ending even though these sorts of changes have been made in the past; for instance the switch away from Ivory as an ornamentation material in the early 20th century and the switch from Brazilian Rosewood to Mahogany on their 18 series guitars at about the same time.

Summary

Martin’s biggest pricing challenge is and will continue to be the increasing rarity and cost of the materials used in their mid to high end instruments. This challenge is not unique to Martin but they do face additional difficulty because of their volume and strong environmental stance. Smaller and/or less scrupulous builders can and have continued to attain materials in sufficient quantity and often at lower cost. The conservative nature of many of Martin’s best customers makes it difficult for them to make substantial changes in the materials used to build their standard and above series guitars. However Martin has been able to satisfy some of the traditionalist’s desires by introducing limited edition guitars that conform much more closely to historic specifications than current models. In addition they are able to charge an additional premium for these special edition instruments that almost certainly offsets the added costs and generates improved margins. Even so the time is coming when Martin will have to make some very fundamental shifts in materials or increase real prices substantially. That will be a significant inflection point in Martin’s history. There is the potential that they will see substantial brand erosion when that happens which could in turn lead to significant sales volume reductions. It is doubtful that they can continue to exist in their current form if that happens. It took Martin 150 years to make their first half million guitars. Between 1990 & 2009 they made an additional eight hundred and thirty thousand.

[i] Link

[ii] Link

[iii] Info taken from “Martin Guitars: A Technical Reference” by Johnston, Boak & Longworth