Nvidia & Smartphones
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Nvidia’s (NASDAQ: NVDA) recent quarterly results were better than expected and the company’s guidance for the current quarter was raised. This was good news after the devastating floods in Thailand created supply issues for Nvidia, its contract manufacturer Taiwan Semiconductor and others in the industry. Nvidia's CEO also stated that the ongoing manufacturing issues with creating their newest, smallest, 28 nanometer chips have not been completely resolved but should be later this year. This announcement is welcome news as a recent report from Jon Peddia Research indicated that in the last quarter of 2011 Nvidia’s market share of graphic processing units slipped to under 16%, this was due to stiff competition from Intel and AMD in the graphics card market. However Nvidia has an even more important market than traditional graphics processors that they have moved into: mobile chipsets.
Tegra is the brand name of Nvidia’s mobile chipset first announced in 2008. The Tegra line is built on ARM (NASDAQ: ARMH) architecture and is designed for mobile devices; it stresses high performance while using low power consumption. The first generation of Nvidia’s mobile chips were used on devices such as the Microsoft (NASDAQ: MSFT) Zune HD and the first phone to use the Tegra was Microsofts KIN phone, neither of these can be called great successful products, and have both since been retired.
It was the second generation of Tegra chips that really took off, a large number of Android smartphones on the market currently run this second generation Tegra chipset, these chips featured a dual core processor and a mobile version of Nvidia’s graphics processer. The Atrix, Photon, Captivate, Droid X2, Xoom, Optimus 2X Droid Bionic, Galaxy Tab and Transformer Pad are just a few examples of phones or tablets that run a version of Nvidia’s second generation Tegra chipset. At one point in 2011 the Tegra 2 chipset was shipping in 70% of non Ipad tablets, alongside the Tegra 2 chipset a mobile app called Tegra Zone was launched designed to curate apps that show off the new faster chipset. Nvidia reported roughly $360 million in annual revenue from its Tegra 2 chipset last year and they are looking to increase that sales figure by at last 50% with their Tegra 3 chipset.
In 2011 Nvidia released its third generation of Tegra chipset, the first chipset boasting a quad core processor. A number of devices are already using this new quad core chipset. The HTC One X, Asus Transformer Prime run the Tegra 3 among others and the Tegra 3 is in its infancy. Throughout 2012, expect dozens of high profile Android phones and tablets to take advantage of the quad core and added graphics processing capabilities of the Tegra 3. A fifth companion core is also present in the Tegra 3 chipset capable of running more basic entertainment functions of a smartphone without using the main cores, thus saving greatly on battery life. Nvidia’s goal is to generate sales of between $800 million and $1 billion from the Tegra 3.
We have now established that Nvidia makes a credible line of smartphone chipsets and that Nvidia is committed to this market as part of their business. On top of their place in smartphones and tablets, the Tegra chips are finding another lucrative home. Audi has announced that there will be a Terga 3 chip in its entire vehicle line by 2013 to run the cars information system. The coming wave of Google TV's could be powered by the Tegra chipset as well because Intel may not be powering Google TV's as they did with the previous generation. This will help boost the sales of the Tegra 3 greatly and will allow Nvidia to get experience in automotive computing and home entertainment, both growing markets. The Tegra 3 is rolling out on phones on 22 carriers worldwide so far, as well as this Audi deal. Nvidia also announced that their consumer products divisions’ revenues rose 21% in a single quarter and they attributed this largely to the increase in their Tegra chipset line.
Nvidia believes that they will get a boost in Tegra sales from Windows 8 ARM based tablets which will be able to run on a Tegra based chipset instead of an Intel based chipset. Do not expect to see this boost soon as windows 8 has not launched yet but when it does, since it will launch for the first time with an ARM version, Nvidia expects a boost from Windows 8, a non-traditional place for a mobile chipset to get a sales boost.
Nvidia does not have an easy path to success with the Tegra 3. To hit their sales goals for the Tegra 3, one estimate said they would need their chips in 15% of all smartphones sold which is a significant increase over what they have now even with some very popular smartphones running Tegra chips. Some carriers like Verizon are likely to frown upon the Tegra 3 chipsets at the moment because they do not include 4G LTE which may slow their adoption. Third party LTE support is expected this year. Additionally, the Tegra is just one of many chipsets for smartphones built on the ARM architecture and so Nvidia will need to continue working hard to differentiate their chip line. One way they can do this is by selling the mobile graphics processors that Tegra includes which is built on the graphics processors Nvidia uses in computers. On top of their ARM based competitors, Intel is planning on entering the mobile processor market full throttle in 2012 and it is Intel who is one of Nvidia’s toughest competitors in their traditional graphics processor business.
Despite the potential issues in its success, the continued strong growth in smartphones and tablets combined with the fact that Nvidia is now in its third generation of mobile chips, which makes them an established name in the market, will allow their mobile chipset to eventually become a very important and very profitable division of the company. The mobile market is especially important as diversification for Nvidia as the traditional graphics card market gets ever more competitive.
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