Nvidia’s Low Volume Loss Leaders
In June, Igor’s Lab ran a story alleging he had sources confirming the Founders Edition coolers cost more than $150 to manufacture. My source concurs with Igor, even going as far as to say that Igor’s number may be a lowball based on what this individual has been told. Additionally, AIBs have confirmed to my source that Nvidia forced them to provide BOM (Bill of Materials) cost-downs in order for their cooling designs to be approved for sale. This is far from a normal requirement for Nvidia, and in fact it gets weirder when you learn that supposedly most AIB BOM’s detailed margins below 40% if sold even close to MSRP. Some of you probably just connected the dots to what is going on here.
For those who don’t know - Nvidia usually likes margins above 60%, and Nvidia’s cooler definitely costs far more to manufacture than most GPU cooler designs that will be hitting the market on Ampere cards this fall. However, they don’t plan to actually sell many of those Founders cards…
I now need to mention another of Igor’s Lab’s published findings. According to Igor, Samsung’s 8nm node is not having bad yields. In fact, the limited launch availability is due to a shortage of Founders Edition coolers. But the truth according to my main source is that there isn’t a shortage of coolers per se. If Nvidia wanted more of them, they could have had more of them – it’s scarcity by design.
Now let me spell out the real purpose of Nvidia’s extravagant Founders Edition: making sure reviewers have the best samples, with the best coolers, and at an alluring price most gamers won’t be able to obtain by design. They are accepting lower margins than usual on their FE cards with the knowledge that these published results will set unrealistic expectations for gamers. Unrealistic expectations that will stand the test of time in Day One Reviews that will be referenced for years…
But this story goes much further than simply “putting your best foot forward” with Day One Review Cards most people can’t buy. Both Founders and AIB cards will be in short supply in September, but AIB cards will stuff the channels by the end of October.
Therefore, I think this is Nvidia’s Ultimate Play: Intentionally causing an initial dearth of Ampere stock, allowing “supply and demand” to inflate the street price of Ampere when those beautiful $699 Founders cards instantly sell out, and then ultimately forcing AIBs to sell most of their models well above MSRP due to the required BOM Cost-Downs…that will be in ample supply once the street price is elevated.
The Ultimate Play
Nvidia knows that RADEON will be more competitive this year than they have been for the past 5 years. This means they need to go hard with aggressive marketing and perceived price/performance than they have had to for quite some time. At the same time, Nvidia’s stock price is sitting at an all-time high, above $450 as of this writing. That is over double where it was just one year ago. If what this source alleges is true, Nvidia is seemingly attempting to keep margins elevated for another killer earnings season, and yet at the same time trying not to be perceived as the “bad guy” anymore. I will now completely lay out what I am saying, and provide the remaining details:
Nvidia wants to keep their 50%+ average margins while pretending they are offering good value.
They seek to accomplish this by selling incredible Founders Editions with low margins (at MSRP) from their website, but with painfully limited stock by design.
Nvidia knows that if they get stellar Day One reviews praising Ampere for its performance and value, they will win back the hearts of gamers – which they lost with Turing – before RDNA 2 launches. Most people only read and remember the Day One reviews.
There should be AIB models available day 1, but I am told only ~20% of the stock is required to be near MSRP, and likely in models with far inferior coolers to the FE design. Already a glance at some of the announced AIB cards shows that indeed, these are not going to be sold at MSRP:
https://www.techspot.com/news/86681-aftermarket-rtx-3080-rtx-3090-card-prices-revealed.html
Additionally, Nvidia is allegedly causing supply of all Ampere models (including AIB) to be artificially limited during the first month of sales. Nvidia is supposedly doing so by controlling some key components AIBs need. I was able to independently verify this with an AIB who said “There will be low stock at launch, but it’s just propaganda.”
Ampere demand will outstrip the initial stock, and so the price will balloon by October.
Eventually, this stock issue will suddenly disappear, much sooner than we have been led to believe with rumors about bad yields.
If all of this is true, Nvidia could state that the elevated prices aren’t their doing, and they could do so while pointing to a very limited number of cards that sell for MSRP every week. Likely models with the cheapest coolers.
The double memory versions of cards (RTX 3080 20GB, RTX 3070 16GB) should land roughly around when Nvidia stuffs the inventory in October. These will also come with a far higher price than the original models.
I can confirm that the double memory cards will not be sold from Nvidia’s website, and thus they will be able to claim AIBs are behind the price hike. These marked up cards are likely what Nvidia really wants you all to buy, and yet all those Day One reviews will say the 3080 is “Just $700.” Having your cake and eating it too.
Samsung’s 8nm node sounds much more able than previously reported by MLID. It doesn’t sound like there are “yield” problems on Samsung’s glorified 10nm node in 2020. At least not problems big enough to cause Ampere stock to be as low as it will be artificially at launch.
I will be honest. The logical side of my brain has tortured me into admitting this plan is brilliant, if true. AMD may compete with Nvidia in price, performance, and especially efficiency this fall – but Nvidia is the master of winning mindshare and keeping margins high at the same time. In this writer’s eyes, the plan could absolutely allow Jensen to send golden samples, the best of the best, to reviewers, with a stunningly effective cooler that garners universal acclaim next to their aggressive (and mostly fake) MSRPs.
This could go down in history as Jensen’s Ultimate Play, and I am honestly not sure what we can do about it. But I do concur with my source that gamers deserved to know.
