nvidia-again1The next-generation of graphics chips is due to arrive in PCs sometime this year. Both Nvidia and Advanced Micro Devices are  expected to deliver these chips for the personal computer market this year, but no one knows exactly when.

This change is so important that, depending on which way the rumors swing, it’s bound to drive the stock prices of the rivals involved either up or down through the rest of the year. Because the companies haven’t completely tipped their hands, the rumor mill is extremely active.

One of the linchpins to the rumors is that Microsoft’s Windows 7 operating system is scheduled to ship on computers on Oct. 22. Will both Nvidia and AMD be ready with new chips for that day? Past history has shown that it’s still very difficult to ship a brand new generation of graphics chips and adopt a new manufacturing process on a tight schedule.

jensenThe new chips ideally have to be ready in computers on that day. Windows 7 is expected to see better demand out of the gate than Windows Vista, which was slow compared to its predecessor Windows XP. Windows 7 will also have features such as touch-screen control and a new graphics standard, DirectX 11. That latter is important because it delivers new graphics features that leading-edge consumers are likely to want. One feature is GPU Compute, which uses a graphics chip to perform non-graphics applications such as converting video from one format to another.

Neal Robison, director of software developer relations at Sunnyvale, Calif.-based AMD, said Monday that the company is targeting its next generation of graphics chips for the fall, timed to the release of Windows 7. The company has been trumpeting its progress for a while. The plan, he said, is to make sure that AMD can quickly roll out DX11 chips from the top to the bottom of its product line.

Joanne Feeney, an analyst at FTN Equity Capital Markets Group, believes that AMD is ahead of Nvidia and that the latter has fallen behind on finishing its design. She says AMD has working chips and that computer makers are in the process of adopting them for machines that will be available in the late summer.

Nvidia’s graphics chips, meanwhile, are much less visible, Feeney said. Feeney downgraded her price target on Nvidia on June 8 because she believes Nvidia will lose market share in 2009 and 2010, partly because of the timing of the next-generation graphics chip launch schedule.

Jon Peddie, a graphics analyst at Jon Peddie Research, meanwhile, thinks that Nvidia is going to be ready. He considers the transition to DX11 to be relatively easy compared to another big challenge: shipping 40 nanometer chips. Those are chips based on a more advanced manufacturing process. The transition to a new manufacturing process is often as tricky as the shift to new chip designs. Since Nvidia has shifted to 40-nanometer manufacturing, Peddie believes the company will have an easier time launching new chips this fall. AMD has also said it’s shipping 40-nanometer graphics chips.

Jen-Hsun Huang, chief executive of Nvidia, said today at the company’s analyst meeting in Santa Clara, Calif., that he would not comment on his next generation of graphics chips until they are available in computers. But he did say the company is already testing a lot of 40-nanometer chips based on current chip designs. The question is whether it’s a trivial matter to ship DX11 chips that use the 40-nanometer process. [update: Later in the day, David White, chief financial officer, noted that TSMC, the contract manufacturer that makes Nvidia chips, is still struggling to make 40-nanometer chips with high yields. He said the company expects to be shipping a lot of 40-nanometer chips — as much as 70 percent of total shipments — in two to three quarters].

“We are disciplined about not talking about the future,” Huang . “If I don’t have a product to talk about in the present, then I’ll talk about my future. I’ve got a great new architecture coming. When it comes, I’ll tell everybody about it. You don’t hear Apple saying we have great Macs coming. You aren’t supposed to tell your competitors your secrets.”

Another key event is Apple’s launch of the Mac OS X Snow Leopard operating system, which arrives in September. Apple is shipping new laptops with Nvidia chips now, but it is likely that Apple will offer some kind of refresh of the Mac desktop line as well by the time Snow Leopard ships. Snow Leopard also has the feature that allows graphics chips to be used to process non-graphics applications.

Upcoming games are also expected to exploit cool features of graphics chips, including much better physics simulations, which means that physical effects will accompany realistic graphics in games. You will see, for instance, that explosions will take out walls, which might throw up a cloud of smoke as they collapse on top of enemies.

Both AMD and Nvidia hope these new games and Windows 7 will spur a recovery in overall computer sales. That remains to be seen.

Intel is entering the graphics chip market with Larrabee, but that chip isn’t coming until next year. That represents another threat to Nvidia and AMD, but Huang dismissed it as just “a Powerpoint slide” for now.