Last month, Nvidia (NASDAQ:NVDA) scored a point against rival AMD (NYSE:AMD) with Apple (NASDAQ:AAPL) switching back to the former’s GPUs for its next generation MacBook Pro. (See: Apple Switches Back To Nvidia Graphics For The New MacBook Pro) However, with the Chinese government cancelling its order for Nvidia GPUs and replacing it with AMD’s graphic processors, it was the AMD’s turn to even the score.
Linux’s CEO public condemnation of Nvidia’s lack of support for its operating system (OS) is believed to have triggered the Chinese government’s decision to cancel its order of 10 million Nvidia GPUs. The government was looking for GPUs for its pilot school project that would run on the Linux platform. However, Nvidia’s drivers were incompatible with the processor architecture, and the company was not willing to release the source code to fix the same.
Though AMD also has Linux support issues, the fact that it was open and willing to work around fixing the issues lent confidence to the Chinese government.
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Possible Impact On Nvidia
A lack of co-operation with the Linux platform might lead to a potential loss between $200 million and 500 million for the company.  We forecast Nvidia to register over $4.5 billion in revenues in the current year and between $5 billion and $7.5 billion for the rest of our forecast period. Thus, even an estimated opportunity loss of $500 million will not have any significant impact on the company’s valuation.
Linux currently accounts for around 1% share in the desktop OS market. Although the share is hardly significant, we feel that the recent outburst from Linux’s CEO followed by the Chinese government cancelling its order should be a cause of concern for the company. 
Increasing demand from emerging economies like China is expected to fuel the global PC demand in coming years. If Nvidia continues to be rigid in its support for Linux, it faces a risk of losing out to competition from AMD, which is set to leverage its cost competitive GPUs to tap into the vast opportunities in emerging economies.
We have a price estimate of $20.98 for Nvidia, a premium of over 50% to the current market price.Notes:
- Nvidia Loses 10 Million GPU Order Over Awful Linux Support, The Inquisitr, June 29, 2012 [↩]
- Linus Torvalds Calls Nvidia “Worst Company” To Deal With [↩]