Can This Chipmaker Win the Smartphone Race!

Anindya is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

NVIDIA (NASDAQ: NVDA) launched its first fully integrated 4G LTE mobile processor on Feb. 19, and also showcased its reference smartphone platform, code-named Phoenix, running on the Tegra 4i processor.

The company introduced Tegra 4 at the 2013 Consumer Electronics Show in January. In its fourth-quarter earnings call, NVIDIA highlighted that it has already scored more design wins for Tegra 4 compared to the total design wins for Tegra 3. In addition to mobile devices, Tegra 4 is gaining popularity for use in embedded devices, such as cars and gaming devices.

NVIDIA’s fiscal fourth-quarter profit jumped a bigger-than-expected 50% as the chip maker reported stronger sales and wider profit margins. The company’s growing focus and success in the mobile computing space has cushioned the negative impact of lower PC shipments on its growth rate. Non-PC revenue currently accounts for approximately 30% of NVIDIA’s overall revenue, compared with 7% three years ago.

NVIDIA’s Tegra revenues increased from $591 million in 2011 to $765 million in 2012, and analysts expect the figure to reach $2 billion by the end of 2019. In this post, I will address how the launch of Tegra 4 family of processors could benefit NVIDIA’s shareholders amid fierce competition.

Tegra 4 Family to Boost NVIDIA’s Mobile Revenue

Tegra 4 is the world’s first quad-core processor based on Cortex A15, ARM’s most advanced CPU core. This is a single integrated processor that offers a longer battery life and powers all major functions of a smartphone. The chip delivers a more realistic gaming experience, new camera capabilities through computational photography, faster web browsing, and higher resolution displays. With an optional chipset, Tegra 4 also offers worldwide 4G LTE voice and data support. In addition, NVIDIA claims that Tegra 4 consumes 45% less power than the Tegra 3 processor. Tegra 4 chips will target new tablets and high-end smartphones designs.

Tegra 4i is based on a 28nm shrink of the ARM Cortex A9, also used in Tegra 3. Tegra 4i is the highest performance CPU core and is only half the size of its nearest competitor, Qualcomm’s (NASDAQ: QCOM) Snapdragon 800. Tegra 4i focuses on bringing the super phone experience to the more affordable mobile market.

Tegra 4 will face Steep Competition from Qualcomm

Due to newer transistors and die shrink, the processor cores of Tegra 4i will be smaller, cheaper and faster (clock speed will rise up to 2.3GHz from 1.4 - 1.7GHz). Qualcomm's Snapdragon S4 Pro is not really faster than a stock ARM Cortex A9, so the Tegra 4i can be quite competitive with Qualcomm's latest Snapdragon line of processors.

Qualcomm's Adreno 320 in its S4 Pro is about twice as fast as the graphics seen in the Tegra 3. But NVIDIA has significantly improved its GPU (graphics processing unit) speed and performance in both Tegra 4i and Tegra 4 (5x and 6x the GPU cores, respectively, over Tegra 3).

Potential Threat from Intel’s New Processors

In addition to Qualcomm, NVIDIA also faces competition from relatively new entrant Intel (NASDAQ: INTC). Intel released its very first ultra-low power Atom system-on-chip products for smartphones and tablets. Intel's Clover Trail+ is the evolution of Medfield processors for high-end Android phones. The company said that it would feature two cores and support hyperthreading. This will result in a doubling of processor power when it launches later this year.

Intel’s Lexington, its new generation of Atom processors, is aimed at emerging markets. Acer, Safaricom and Lava have all signed on to build using the new platform. The company recently announced the release of Bay Trail, the next-generation Atom aimed exclusively at tablets. Set to launch during the 2013 holiday season, the 22-nm, quad-core processors are targeting both Windows 8 and Android software platforms.

Tegra 4 Processors could Outperform Competitors

Apart from Qualcomm and Intel, NVIDIA also faces competition from leading handset manufacturers -- Apple and Samsung -- who design their own chips in-house and could end up selling them to other device manufacturers in the future. But NVIDIA’s emphasis on 4G LTE with Tegra could have an edge over nearest competitors.

For the high-end smartphones supporting LTE, Qualcomm’s Snapdragon dual-core processors helped the company capturing a significant chunk in market share. For example, Samsung’s Galaxy S III and HTC’s One X series had to be launched in the U.S. with a Snapdragon core, since rival chipsets did not play well with Qualcomm’s LTE basebands.

But NVIDIA’s upcoming Tegra LTE chipset integrated into Tegra processors could pose serious threat for Qualcomm. Additionally, the upgraded Tegra processors could help NVIDIA score additional design wins, as manufacturers continue to roll out new tablets designs in the coming year.

The Bottom Line

With the launch of Tegra 4 line of processors, NVIDIA has made it clear that the company wants to become a leading player in the mobile processor race. While NVIDIA’s stock price isn’t expected to witness any spike in the near-term, in the long-term the stock will undoubtedly trade in a higher trajectory.

Anindya7 has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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