Nvidia’s Mobile & Gaming Chips Could Lift Outlook

Nvidia’s (NASDAQ:NVDA) revenues from mobile computing chips like Tegra and GoForce have started to rise, and we expect this trend to continue at a faster pace led by growing adoption of smartphones, PDAs, portable media players, gaming consoles and tablet PCs. Nvidia earns income from chip sales as well as royalty from chips used in mobile computing devices.

Nvidia competes with Qualcomm (NASDAQ:QCOM), Texas Instruments (NYSE:TXN), Infineon, and Broadcom (NASDAQ:BRCM) in the mobile computing processor market.

While we estimate Nvidia’s revenues from mobile computing devices to reach $531 million by 2016, Trefis members expect a higher level of $713 million, corresponding to a 4% upside to our price estimate for NVDA stock.

We currently have a Trefis price estimate of $13.43 for nVIDIA’s stock, about 7% below the current market price of $14.38.

Mobile Computing Devices to Drive Graphics Processors Use

We believe that rising smartphone adoption will lead to more graphics usage from mobile gaming, mobile video, and mobile Internet. Apart from smartphones, Nvidia’s Tegra chips are present in Microsoft’s Zune portable media player as well as Sony’s PlayStation gaming console. Demand for graphics cards that can handle higher higher capacity of audio and high-definition video is growing rapidly, and Nvidia plans to meet this demand by rolling out new versions of Tegra chips every year. ^[1]

Another segment where use of Nvidia chips is increasing is tablet PCs, which includes netbooks as well as e-readers. We expect to see significant traction in this particular segment.

Diversity in Product Use to Offset Declines

Since Nvidia chips are used in a number of mobile computing devices as mentioned above, declining sales in one particular product segment will be compensated by growth in other products. We expect demand for smartphones and tablet PCs will continue to increase use of graphics processors. Additionally, revenues in the form of royalty will also help Nvidia withstand declining sales of mobile computing devices.

Member Forecast

The Trefis community projects that Nvidia’s mobile & game console computing chips revenue will increase from $274 million in 2010 to $713 million by 2016, compared to the baseline Trefis estimate of an increase from around $175 million to $531 million during the same period. The member estimates imply an upside of 4% to the Trefis price estimate for Nvidia’s stock.

Our complete analysis for nVIDIA’s stock is here.

1. NVIDIA CEO: Tegra 3 almost done, Tegra 4 on the way, expect a new Tegra annually [↩]