Here's Why Intel Corp. Is Building Discrete Graphics Processors

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A few days ago, chip giant Intel (NASDAQ: INTC) announced that it had formed a new group called the Core and Visual Computing Group. One of the charters of this newly formed group will be to produce "high-end, discrete graphics solutions."

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Intel's current lineup of PC processors, sold under its Core and Atom brands, generally integrate Intel-designed graphics processors alongside the company's central processing unit (CPU) cores on the same silicon die. Those graphics processors aren't particularly powerful, nor are they designed to be -- Intel essentially throws graphics in for free alongside its CPUs.

Intel's integrated solutions are good enough for most users. They can handle casual games without any issues, and they're usually filled to the brim with specialized video and image processing engines that help to deliver good user experiences in common use cases such as video playback.

Those solutions are awful for games, though. Intel's latest integrated graphics processors struggle to play today's top titles, even at dramatically reduced quality settings and barely passable frame rates. It's just a terrible experience. 

This leads individuals who are interested in playing the newest, graphically intensive PC games to buy computers equipped with stand-alone graphics chips. Those chips are produced by companies other than Intel.

I think Intel's aim in trying to build such "high-end, discrete graphics solutions" is simple: It sees an opportunity for revenue growth.

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Riding the growth wave

The overall PC market isn't growing, but sub-segments of the market are. One of them is the market for PCs designed specifically for high-end gaming. Intel participates in this market by selling high-performance CPUs, but other companies, like graphics specialist NVIDIA (NASDAQ: NVDA), profit from selling the stand-alone graphics processors in such systems.

The market for such solutions is quite large, too. NVIDIA commands the lion's share of the gaming graphics processor market. The company disclosed in its Nov. 9 earnings report that its gaming business, which generates most of its revenue from the sale of stand-alone graphics processors for gaming-oriented PCs, took in $1.56 billion in revenue last quarter.

That figure represented 25% growth from the prior year.

So, the market for such products is growing quickly and it's quite large. Though NVIDIA's gaming graphics processor business is only a fraction a size of Intel's overall PC processor business (last quarter, Intel's PC processor chip business took generated more than $8 billion in sales), the revenue gap between those two businesses is rapidly shrinking.

It's little wonder that Intel wants in on the action.

If Intel can successfully develop high-performance stand-alone graphics processors, then it'll have an opportunity to grow the amount of dollar content that it sells into the gaming PC market, which could accelerate both revenue and profit growth in its core PC processor business. 

Beyond PC graphics

Graphics technology is important in areas beyond the personal computer and gaming markets, too. 

Perhaps the best example of this is the fact that graphics processors are proving important in the data center market (NVIDIA's data center business, which sells specialized graphics processors tailored for data center workloads, saw revenue growth of 109% last quarter).

Intel's CPUs still power the vast majority of data centers, but because GPUs are better suited to handle highly parallel applications than CPUs are, GPUs are displacing traditional CPUs for many interesting use cases, like artificial intelligence

Beyond data center applications, I can certainly see graphics becoming increasingly important in other areas like self-driving cars (NVIDIA's aggressively going after that market with its graphics technology, too) and even in the segments of the Internet of Things market that Intel participates in, such as retail point of sale terminals. 

Graphics technology is quickly becoming a technology that's fundamental across the entire spectrum of computing devices, so it's encouraging to see Intel to publicly acknowledge that reality and take solid steps to enhance its competence in this area.

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Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.