Where Is NVIDIA Heading?

Yasir 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) has been a leader in graphics for many years, adding graphics and performance to some of the best PCs. However, as the PC market is declining -- or growing, if you include tablets -- NVIDIA has shifted focus towards tablets, smartphones, and handheld gaming.

Jen-Hsun Huang, NVIDIA's CEO, recently stated that NVIDIA believes it can easily switch to the tablets or "cheap PCs," and that Windows RT is the future of classic Windows PCs and notebooks. CES 2013 saw some brilliant upcoming gadgets, but one of the headlines was NVIDIA's Tegra 4 chip and its newest handheld gaming device, Project Shield. 

NVIDIA posted record revenue of around $1.2 billion, which showed a growth of 7.3% compared to last year. NVIDIA's latest earnings report is due mid-February, with doubts arising over NVIDIA's future and its plan going forward with the Tegra 4 chip and the Project Shield.

Current Position And Tegra 3

The Tegra 3 chip has gained a lot of popularity, especially because it was featured in two of the most-awaited tablets of 2012, the Microsoft Surface and Google's Nexus 7. With the Nexus 7 doing very well at the moment, NVIDIA's upcoming earnings report should show growth from Tegra 3 sales, which currently contribute 30% of NVIDIA's total revenue. While Tegra 3 remains a really good processor chip for the latest mobile phones and tablets, the real question is whether the Tegra 4 will get as much recognition.

Future in Tablets and Smartphones

The Tegra 3 processor has been excellent so far in terms of performance and graphics. Google (NASDAQ: GOOG) sold over 3 million Nexus 7 tablets, which featured Tegra 3 chips, by the end of last year, with Nexus 7 being one of the best tablets in the market, in terms of what you get for the price tag.

Qualcomm (NASDAQ: QCOM) is possibly one of the biggest competitors for NVIDIA at the moment, even though Sony and Nintendo have their own handheld consoles. NVIDIA's biggest growth opportunity lies in the tablets and smartphones market, but it looks like NVIDIA is slowly losing out to Qualcomm.

Rumors are already circulating that Google will partner with Qualcomm, rather than NVIDIA in developing a successor tablet of the Nexus 7, which is expected to release sometime this year. If this goes through, NVIDIA will receive a major blow in the industry.

While NVIDIA's chips are known as the best in terms of graphics, there are certain points where Qualcomm is seen as a better option. While NVIDIA solely focuses on performance and graphics, Qualcomm-based devices feature a balance of performance, battery consumption, and connectivity. It is obvious that users don't want top-notch graphics for gaming if it comes at the expense of battery life and connectivity. This is where Qualcomm fits in.

Even though Qualcomm might just get the edge over NVIDIA in the upcoming tablets and smartphones, the Tegra 4 is a brilliant processor with up to 6 times more power than the Tegra 3. Best of all, it is compatible with 4G LTE, which the previous Tegra lacked.

Growth In Other Areas

If NVIDIA does miss out some ground in the Android tablets/smartphones market, Chromebooks might be another opportunity for growth. Reports suggest that NVIDIA is planning to get into the growing Chromebooks market with its Tegra 4 processor, with HP seen as a possible partner. Aside from that, NVIDIA's entry into the market for navigation systems for cars signals that the company is heading for growth in the business sector as well.

NVIDIA's Project Shield

A lot of gadgets were released at CES 2013, including prototypes. However, the Project Shield console made some of the more prominent headlines, receiving mixed reviews. While some users believe that the new Tegra 4-based console is a brilliant idea, others believe that the concept is useless and might be dead in the water.

There is no doubt that the Project Shield is one of the most powerful handheld consoles, and it features some incredible features. Not only can users play graphically rich HD games, but the console also lets users stream  games, videos, and audio from their PCs. Also, the device takes advantage of Android's Google Play Store apps, which means that Project Shield is capable of doing a lot more than just gaming.

On the downside, ithe target audience for the device remains unclear. Handheld gaming is dominated by Sony and Nintendo, with Nintendo's 3DS ruling the market against Sony's Play Station Vita. If the target audience is hardcore handheld gamers, then it would be tough to move users away from their current handheld devices. 

The Project Shield might be competing with casual mobile gaming, which means that it would compete with all the Android smartphones and tablets. Only the upside, in this case, would be the new Tegra 4 processor, which eventually should be implemented in some upcoming Android smartphones and tablets. If you think that the Project Shield would be a good way to play PC games while sitting on your couch, then you can also do the same thing with an Xbox wireless controller.

Final Verdict

It is still too early to write off NVIDIA's Project Shield, but it does pose some serioues questions. If the device competes with modern-day Android tablets/smartphones, then NVIDIA will need to provide users with exclusive content and games for the project shield, similar to the Xperia Play smartphone for Sony. Even though chances are slim of NVIDIA beating Nintendo and Sony in handheld gaming, customers might be attracted if NVIDIA manages to provide cheap "Android-priced" $5 to $15 games compared to Vita's expensive game library.

The Tegra 4 processor, on the other hand, has the potential to grow in several areas, especially because it is compatible with LTE technology. Not only will the improve NVIDIA's position against Qualcomm, but this will also give customers better connectivity options along with superior power. 2013 is an important year for NVIDIA and we'll have to wait and see if it captures more of the current tablets/smartphones market and/or grows in other areas, including Windows RT and Chromebooks.


yasirrfc has no position in any stocks mentioned. The Motley Fool recommends Google and NVIDIA. The Motley Fool owns shares of Google 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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