NVIDIA’s Mobile Future Isn’t as Rosy as You Might Think

Harsh 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) came to CES 2013 to make a statement, and it did make some bold ones. For starters, it introduced the “fastest mobile processor in the world” in the form of the Tegra 4, and also decided to step into portable gaming with Project Shield. All of this generated the typical hype which one might associate with NVIDIA, considering the company’s history of being a pioneer of graphics processing units (GPUs) that made it a household name a few years back.

The webspace was abuzz with the efficiency of NVIDIA’s latest and greatest Tegra processor. It ticked the right boxes by bumping up power and efficiency and also packed an LTE modem, something the Tegra 3 lacked against Qualcomm’s (NASDAQ: QCOM) SoCs. At the same time, without much surprise, analysts started touting Project Shield as the next disruptive technology in gaming.

But, all of this hasn’t convinced me to flip my Underperform CAPS call on the company to Outperform yet, even though 96% of the players think otherwise, and I have been right so far. NVIDIA is undoubtedly a good company with seemingly bright prospects, solid fundamentals and is valued cheaply, as Fool analyst Steve Heller told us couple of weeks back. However, I have my reservations and I believe there’s still some time before NVIDIA gets to enjoy the fruit of its labor and innovation.

The Dragon Emerges

Putting all the hype around the Tegra 4 aside, we see that it’s undoubtedly a remarkable piece of technological innovation, delivering 3.5x the performance of the Tegra 3 while consuming 45% less power. But, will this really matter as long as NVIDIA doesn’t land some meaty design wins at marquee smartphone makers?

The company placed Tegra 3 processors inside thirty smartphones last year, which seems quite impressive at first sight. But going through the list of OEMs who were behind those smartphones might make a NVIDIA bull feel a bit deflated. Asus, Acer, Toshiba, LG, and HTC were some of the “marquee” companies that decided to use the Tegra 3 last year.

The HTC One X and the Google Nexus 7 were some of the head-turning devices which NVIDIA’s processor powered, but seems like history won’t repeat itself again, at least partially. NVIDIA boasted its HTC One X win with pride, but failed to retain that spot inside the HTC Droid DNA, and might as well miss out on the Taiwanese company’s next flagship, the M7.

But who’s taking the meat away from NVIDIA? None other than mobile chip giant Qualcomm. The company stole NVIDIA’s thunder at CES by unveiling its new family of Snapdragon processors, and they seem monstrous as far as specs are concerned. However, there’s more than just specs and power to Qualcomm’s new processors. The chip behemoth has already landed over fifty design wins for the new Snapdragons, which is highly impressive and indicates that they might have already gobbled up a decent chunk of Tegra 4’s prospects.

Sidelined From the Show?

Qualcomm rules the mobile processor market and has trumped NVIDIA in the past as well, integrating cellular connectivity into the Snapdragons which NVIDIA finally did with the Tegra 4. But Qualcomm isn’t NVIDIA’s only problem. Apple (NASDAQ: AAPL) and Samsung, the two companies that are currently driving the smartphone market do not see the Tegra at the heart of their devices.

The iPhone 5 uses the custom-designed A6 processor, which delivers a snappy performance despite being a dual-core. And it seems unlikely that Apple would use NVIDIA processors since they modify the processor according to their need. Moreover, Samsung uses the Exynos chips for its devices, and just took it to another level with an 8-core chip. As these behemoths perfect their weapons on their own to fight the smartphone war, they also diminish the addressable market of an aspiring Tegra 4 chip as well.

Moreover, it seems NVIDIA won’t find much leeway with Microsoft (NASDAQ: MSFT) either, as Qualcomm seems to have firmly planted itself into the software giant’s good books. Microsoft CEO Steve Ballmer joined Qualcomm’s Paul Jacobs to show off some Windows devices powered by the Snapdragon. Qualcomm has been powering Windows phones for quite some time now and is present inside Nokia’s latest flagship, the Lumia 920 and also HTC’s 8X.

Final Words

NVIDIA will find it difficult to push its Tegra line in the wake of stiff competition from Qualcomm. The company is trying its best to deliver the best, but is handicapped by the lack of a best-selling device in its repertoire. NVIDIA has a number of other positives to look forward to as Steve pointed out in his article and trades at a relatively cheap trailing P/E multiple.

However, the Tegra family of processors will drive its growth in the post-PC era and the way I see it now, NVIDIA needs to land some solid customers to make Tegra a success.

TechJunk13 has no position in any stocks mentioned. The Motley Fool recommends Apple and NVIDIA. The Motley Fool owns shares of Apple, Microsoft, 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!

blog comments powered by Disqus