What's NVIDIA Protecting with Project Shield?

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

Last Sunday, NVIDIA (NASDAQ: NVDA) confused the world with the launch of its new mobile gaming device, Project Shield. 

While we already knew the chip-maker seemed bent on taking home as much of each dollar as possible after its 2010 move to sell its own NVIDIA-branded graphics cards, the Tegra 4-powered Shield proves just how determined the company is to become a one-stop shop for all things gaming.

Interestingly, most investors didn't see it that way and dragged the stock down nearly 3% by Monday's close.  To be sure, with the surprise announcement, the graphics chip specialist boldly launched itself into the crosshairs of better-established handhelds including Sony's (NYSE: SNE) Playstation Vita and Nintendo's DSi series devices.  Even still, just two days ago, Sony admitted its Playstation Vita sales came in at the lower end of already-reduced 2012 expectations.  Why, investors wondered, would NVIDIA create a device to compete in the already-crowded, shrinking market of dedicated mobile gaming consoles?

Furthermore, considering NVIDIA has already stated it has no plans to make the Amazon-esque move of selling its devices at or below cost, why would consumers want to buy a stand-alone mobile gaming console when they could pay a similar price for a more versatile tablet?  After all, the A6 processor powering Apple's $329 iPad Mini boasts plenty of juice to provide fairly decent gaming performance.  Heck, even Google's $199 Nexus 7 Tablet happens to be powered by NVIDIA's very own Tegra 3, and it's a good bet future Nexus iterations will upgrade to the blazing-fast Tegra 4 in an effort to stay one step ahead of the market.

Can't we all just get along?

As Fool contributor Evan Niu wrote Wednesday, "The strangest thing is that NVIDIA is making great traction in the tablet market, particularly among gamers, so it should be keenly aware of the potential there relative to the stand-alone portable gaming console market."

However, as the company which revolutionized gaming by popularizing discrete graphics processing units in 1999, NVIDIA is right to recognize its core constituency of gaming enthusiasts through Project Shield.  The fact remains NVIDIA has continued to make headway in the mobile market as a whole and, while tablets and phones likely represent the larger opportunity, why shouldn't the company try to serve both markets?

In the end, though, these arguments may be missing the point entirely.  As we dig deeper into NVIDIA's vision for the future, Project Shield looks less like a radical departure from its core business and more like a natural extension of its efforts to create a seamless, open gaming experience.

Taking the "sole" out of consoles

NVIDIA partner and Gaikai CEO David Perry recently asserted, "Could you imagine making a movie and it only working on one specific brand of television?  It's a crazy idea, but it's something we put up with (in the gaming world)."

On one hand, an industry-wide migration away from today's platform-dependent market would add insult to injury for already-struggling retailers like GameStop (NYSE: GME), whose shareholders are eagerly anticipating revenue from the next generation of gaming consoles to keep the company afloat.  After all, excluding Nintendo's recently-launched Wii U console, it's been nearly six years since console-makers have significantly refreshed their core hardware.  When we note GameStop's corresponding 55% decline over the past five years, the importance of new consoles to the company becomes much more apparent.  

On the other hand, such a move would be a boon for more innovative, forward-looking companies like NVIDIA.  Likely the most under-appreciated trend for NVIDIA, then, is its new Kepler-based GeForce GRID technology which aims to bring next-generation games to the cloud, enabling them to be streamed with low latency to any device with an Internet connection and a screen.  Naturally, while Project Shield will be able to play locally-stored games, one of its key features is the ability to access cloud-based games through NVIDIA's GRID service.  In addition, thanks to an HDMI output, the games can also be played on any television in your home.  

Perhaps Shield's most impressive feature, however, is the ability to stream any title from your gaming PC to its screen from anywhere in your home through a wireless network, further expanding what NVIDIA CEO Jen-Hsun Huang has taken to calling "an untethered gaming experience."

Foolish bottom line

When the rubber hits the road, NVIDIA's Project Shield stands out as the first mobile device of its kind which represents an earnest effort to foster a more open gaming environment.  Given its obviously-niche target market, however, it's a safe bet NVIDIA knows Project Shield won't immediately take the world by storm.  

With this in mind, investors shouldn't mistake Shield as a misguided attempt by NVIDIA to increase revenue through additional hardware sales.  To the contrary, think of it as an important incremental step for convincing consumers to accept NVIDIA's novel ideals for platform-free gaming.

When this vision takes shape, investors can rest assured knowing NVIDIA is in the perfect position to seamlessly put the power of the GPU in the hands of billions of mobile users around the world.

Steve Symington owns shares of NVIDIA. The Motley Fool recommends NVIDIA. The Motley Fool owns shares of GameStop. 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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