Amid a decline in its overall Q1 2012 earnings, Nvidia (NASDAQ:NVDA) registered an increase in its Tegra related sales and posted a 21% increase in revenues from its consumer product portfolio. (See Our Article: Nvidia Q1 Earnings: Tegra3 and Kepler GPU’s Promise a Better 2012) Nvidia started the year aspiring to almost double the shipment of its Tegra3 processors by year end; and the progress so far looks promising. It registered a 50% increase in Tegra3 sales in Q1 2012 and the launch of low-cost Android tablets based on Nvidia’s Kai platform and powered by Tegra3 chipset, increases the chances of continuing the momentum. With the launch of world’s first Windows RT consumer device powered by Tegra3 processors early this week, the company marks yet another milestone in the mobile computing space.
Currently, Nvidia’s Tegra related business contributes close to 7% to our price estimate of $21. However, considering the growing opportunities in the smartphone and tablet market, we feel that Nvidia has the ability to more than double its revenue from this segment, by the end of our forecast period.
Nvidia’s Tegra Chips In World’s First Windows RT Device
Earlier this week, Asus (2357: Taiwan) and Nvidia unveiled world’s first Windows RT tablet powered by Tegra 3 quad-core processors. The tablet provides an intuitive touch experience with PC-class productivity, taking the touch category to a whole new level. The Tegra powered Windows RT device will be thin and light, silent with no fan, and able to deliver great performance with days of battery life. 
The world’s first Tegra 3 phone was launched in February by HTC, and other phone wins around the corner includes- ZTE with the first Tegra plus Icera phones, Fujitsu, LG and K-Touch. With the launch of Windows RT tablet, Nvidia seems to be making inroads in the lucrative smartphone and tablet market. It expects to double its shipment to about 25 million Tegra processors in 2012, which at the current pace looks like an achievable target. 
Tegra3 To Ride High On Growing Smartphone & Tablet Sales
With the exponential growth in sales, smartphones and tablets are expected to replace PCs as the future engines of growth for the semiconductor market. According to research firm Gartner, tablet sales to end users will register a 98% increase totaling close to 120 million units this year. With the growing popularity, tablet sales could cross the 350 million units mark by 2016. 
With Tegra 3 revenues increasing by almost 50% in Q1 2012, the company has been going strong so far in the mobile chip segment. It has ramped up production of Tegra 3, as it expects shipment to almost double in 2012. Tegra3 processors could be a cornerstone in Nvidia’s strategy to expand its presence in the mobile computing space. We believe that it will act as a catalyst and help support the company’s rapidly growing efforts in the mobile business segment. We estimate the revenue from the mobile and game computing division to almost double by the end of our forecast period, outpacing all the other segments in the process. ((See Our Article: Tegra Could Become Nvidia’s Most Valuable Business)
Our price estimate of $20.98 stands at a premium of close to 80% to the current market price.Notes:
- Asus, Nvidia Unveil World’s First Windows RT Consumer Device, Nvidia Blog, June 4, 2012 [↩]
- Estimated Brisk Tegra 3 Sales to Benefit Taiwan’s Contract Suppliers, cens.com December 21, 2011 [↩]
- Gartner Says Worldwide Media Tablet Sales to Reach 119 Million Units in 2012, Gartner Newsroom, April 10, 2012 [↩]