Has NVIDIA Made A Huge Mistake?

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

At the Consumer Electronics Show earlier this month NVIDIA (NASDAQ: NVDA) unveiled a few major new products. The new Tegra 4 mobile processor offers six-times the graphics processing power of its predecessor, Tegra 3, and is 2.6 times faster for common tasks like web browsing. This increase in processing power makes the Tegra 4 faster, at least on paper, than Apple's most recent mobile processor.

As impressive as the Tegra 4 was, the real news-maker was Project Shield, a mobile gaming system using the new Tegra 4 processor.

Shield runs the latest version of Google's Android operating system, meaning that the system can run any of the hundreds-of-thousands of apps available in the Android app store. The advanced Tegra 4 processor also allows the system to play advanced games built specifically for the powerful processor and not available for low-end Android devices.

A big feature being touted is the Shield's ability to stream PC games over Wi-Fi. A PC with certain NVIDIA graphics cards can stream any PC game to the Shield, allowing for the game to be played directly on the device.

Who Is This For?

As exciting as this sounds, who exactly is this device for? As a mobile gaming system Shield will be in competition with every smart phone and tablet. The only benefit right now is the Tegra 4, but other Android devices will presumably start incorporating the processor as well. Does anyone who already owns a smart phone have any reason to buy a Shield? Unless they really prefer having a game pad I don't think so.

Shield will also be directly competing with Sony's (NYSE: SNE) PlayStation Vita and Nintendo's 3DS . The Vita has built a global install base of 4 million units in less than a year of being on the market, while the 3DS has sold 27.7 million units in about two years. The advantage that Shield has over these devices is that many games on the Android platform are free or only a few dollars, while Vita and 3DS games cost as much as $40. Of course, these games are much more involved than a free Android game, so it's safe to say that Shield isn't going to pry any serious hand-held gamers away from their current platforms.

As a hand-held gaming device the Shield appears to be trying to fill a void which doesn't exist. The ability to stream PC games to the device could be a redeeming factor for some, but it seems like this feature will only be useful to a very small number of people. I've never thought to myself as I was playing a PC game "man, I wish I could play this game on a tiny screen." It's an odd feature that, while technically impressive, offers very little benefit to anyone.

Can Shield Succeed?

I think the only chance of Shield succeeding is if it's incredibly cheap. Many low-end Android phones are free with a data plan, and the fact that these phones do almost everything that Shield does and more makes Shield a very tough sell. I've written about NVIDIA and think the stock is extremely cheap, but this gives me a little pause. My guess is that NVIDIA will try to sell Shield for at least a few hundred dollars, comparable to the price of the PS Vita and more expensive than any smart phone purchased with a plan. At that price point I don't see a clear market for this thing. What's worse, traditionally makers of game systems sell the system at a loss and then recoup the cost from game licensing fees. This allows the system cost to be fairly low. This is not possible with the Shield.

Hopefully, NVIDIA built Project Shield to simply showcase the power of the Tegra 4 processor and doesn't expect it to go mainstream. Otherwise, I think this is a pretty serious misstep.

 


TheBargainBin has no position in any stocks mentioned. The Motley Fool recommends Google and NVIDIA. The Motley Fool owns shares of Google. The Motley Fool is short Sony (ADR). 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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