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updated 4/14/2004 6:01:10 PM ET 2004-04-14T22:01:10

Nvidia wants to show you the light.

The $1.8 billion graphics chip maker is today releasing a ground-breaking programmable processor that doubles the performance of its predecessor. Dubbed GeForce 6800, the new chip set promises to propel video gamers into a new realm of reality by letting game developers create cinematic special effects such as real-time shadows and natural-looking reflections of light. Jen-Hsun Huang, cofounder and chief executive of Nvidia, says the new processor also has the potential to bolster the company's efforts in other markets, such as consumer electronics.

Nvidia, a fabless chip company that designs products for PCs, workstations, media centers and handheld devices, has been in an arms race of sorts with Ontario, Canada-based ATI Technologies to deliver the coolest graphics chips for the gaming market since its founding in 1993.

Global gaming to swell
The competition is tough, but opportunities for all players abound. Pricewaterhouse Coopers estimates that global video game software spending will swell to $36 billion in 2007 from $21 billion in 2002 — and you can't play games without the chips to power the computers that run them.

Yet despite the frenetic growth of gaming — 20 percent a year, according to research analyst Rob Enderle of Enderle Group — Nvidia's performance last year was unimpressive. For fiscal 2004, ended Jan. 25, the company brought in $74 million in net income on revenue of $1.8 billion. This, after reporting $1.9 billion in revenue and $90 million in net income for fiscal 2003. Its stock hit a high of $72 per share in January 2002, then dipped as low as $7 in October 2002 before climbing to its current price near $26.

Huang hopes the GeForce 6800 will help goose revenue. He spent two years and $300 million to develop the chip set, which he expects will be Nvidia's "next couple hundred million-dollar business."

Inside the GeForce 6800
The GeForce 6800 is the third generation of "programmable shader" processors to come from Nvidia and a five year-long partnership with Microsoft. (MSNBC is a Microsoft - NBC joint venture.) The new technology enables game developers to write richer programs that run on top of each pixel. Previously, developers had to work with pre-defined decals of sorts that were then pasted onto a pre-coded geometry. With programmable shading, characters and backdrops look less like the triangulated, flat drawings of yore, and more like the life-like characters and settings from animated movies such as Pixar's Finding Nemo.

The secret is the power in the chip: It houses 220 million transistors and can perform 100 gigaflops, or 100 billion calculations per second. With more room on the chip for more operations, developers can create longer programs. Imagine, for example, if you had to describe the look and feel of velvet versus leather or tweed in less than 100 words. Now imagine you have 10,000 words at your disposal.

The result is smoothed-out jagged edges, reflections of light, glowing surfaces, motion blur and more realistic fire. Each strand of a mermaid's hair can now be programmed to be highlighted according to the direction and intensity of sunbeams.

More than just gaming
Nvidia's chips also are used for non-gaming purposes such as medical imaging or helping the Apache helicopter navigate terrain. But Huang wants more. He talks about putting his chips in slot machines, cell phones and 3-D navigation systems in cars. "Image processing is what we're good at," he says, "and as we improve drive and performance, we increase our available markets."

Huang's latest product is equipped with the first ever on-chip video processing engine. That means the same chip that powers video games could also be used for high-definition video or DVD playback. That could mean big business with consumer electronics giants such as Panasonic, Samsung and Sony. Huang also has his eye on handsets and mobile phones, which he predicts will be the next platforms for richer games and other rich video. "When we run out of pixels, then we're done," he says. "We'd love to light up every pixel in the world."

It's a good thing Huang has his sights set on other markets. Analyst Enderle warns that the introduction of a newfangled chip isn't enough to ensure the gaming industry's future growth. "To say Nvidia has control over its destiny would be pushing it," he says. "Titles drive growth, just like the movie industry. If folks like Electronic Arts can't deliver good games, the market will collapse."

© 2012 Forbes.com

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