Nvidia Porter’s Five Forces Analysis
Porter’s Five Forces analytical framework developed by Michael Porter (1979)[1] consists of five individual forces that shape an overall extent of competition in the industry. Nvidia Porters Five Forces are illustrated in figure below:
Threat of new entrants in Nvidia Porter’s Five Forces Analysis
Threat of new entrants into graphics processing unit (GPU) industry is low. The below are the main factors that determine the level of threat of new entrants:
1. Time of entry. GPUs are highly saturated market with dominant market players already in the business for decades. Moreover, customer loyalty towards dominant players such as Advanced Micro Devices (AMD, Intel Corporation, Qualcomm Inc., Broadcom Inc. and Arm Holdings (a subsidiary of Softbank Group) is high this fact crates entry barrier for potential market entrants.
2. Massive investments. GPU producing requires massive capital requirements of millions of dollars. It will be very challenging for potential market entrance to secure funding for producing GPUs unless they offer unique competitive advantages with the potential to disrupt the market.
3. Specialist knowledge. GPUs are highly advanced technological products. The production requires highly specialist knowledge and technological know-how. New market entrants will face substantial difficulties in terms of finding employees with specialist knowledge who will agree to join a new company in a highly saturated market.
Bargaining power of buyers in Nvidia Porter’s Five Forces Analysis
The bargaining power of buyers for Nvidia products is generally insubstantial. The following considerations need to be taken into account in this regard:
1. Switching costs. Nvidia’s products are often integrated into larger systems and it is often difficult to replace these products with similar products produced by competitors due to massive costs and expertise knowledge involved. Such a situation limits buyer bargaining power with positive implications for Nvidia.
2. Price sensitivity. GPU buyers are considered to be less price sensitive compared to other types of products such as household items and grocery products. This is because customers purchase GPUs less frequently compared to many other types of products and they don’t usually mind to pay more for advanced features and capabilities.
3. OEMs in gaming industry have greater bargaining power. Original equipment manufacturers (OEMs) in the gaming industry such as Sony, Microsoft, and Nintendo have greater bargaining power compared to other buyers because they purchase large quantities of GPUs in their gaming consoles. Massive quantity of orders from gaming OEMs increases their bargaining power.
Bargaining power of suppliers in Nvidia Porter’s Five Forces Analysis
The bargaining power of Nvidia suppliers is significant. Supplier bargaining power depends on the following factors, among others:
1. Diversity of suppliers. Nvidia uses a wide range of suppliers worldwide. The importance of volume is Paramount for Nvidia suppliers. In fact, Nvidia is the largest customer for many of its suppliers. From this perspective, bargaining power of each individual smaller-sized supplier is not substantial in relation to the multinational technology company.
2. Key suppliers. There are some key suppliers for Nvidia such as Taiwan Semiconductor Manufacturing Company Limited and Samsung Electronics Co. Ltd for semiconductor wafers, Ibiden Co. Ltd., Kinsus Interconnect Technology Corporation, and Unimicron Technology Corporation for substrates and Micron Technology and SK Hynix for memory.[2] These key suppliers have great bargaining power because not many other suppliers can provide spare parts in the similar quality and quantity.
3. Supplier switching cost. Major the multinational technology companies such as Nvidia depend on a diverse and complex supply chain operations to run their operations smoothly. Switching to a new supplier for spare parts can prove to be costly in terms of time and investments. Furthermore, new suppliers may fail to deliver spare parts as per Nvidia standards, thus exposing the company to major risks. It is important for the software and fables company to form strategic collaboration with its suppliers to be able to develop new products and technologies to stay ahead in the market. Formation of strategic collaboration takes a lot of time and effort and this fact increases supplier bargaining power.
Nvidia Corporation Report contains a full analysis of Nvidia Porter’s Five Forces Analysis. The report illustrates the application of the major analytical strategic frameworks in business studies such as SWOT, PESTEL, Value Chain analysis, Ansoff Matrix and McKinsey 7S Model on Nvidia. Moreover, the report contains analyses of Nvidia leadership, business strategy, organizational structure and organizational culture. The report also comprises discussions of Nvidia marketing strategy, ecosystem and addresses issues of corporate social responsibility.
[2] Annual Review 2022, NVidia Corporation