Since its push into mobile computing last year, Nvidia (NASDAQ:NVDA) has been in the limelight for all of the right reasons. The company positioned its standalone dual-core app processor, Tegra 2, well to capture significant non-iPad tablet market share in 2011. With the success of its quad-core Tegra 3 processor, Nvidia is making a deeper foray in the lucrative smartphone and tablet market.
Hitting record sales in Q2 2013, Tegra 3 processors featured in a number of exciting devices – Google’s Nexus 7, the world’s first $199 quad-core 7-inch tablet, Microsoft’s Windows RT Surface tablet, Fujitsu’s ARROWS X, the world’s first quad-core LTE smartphone, and the World’s first RT device by Asus.
Last week, Nvidia scored another big win from HTC’s One X+ smartphone to be sold by AT&T. This announcement makes AT&T the first US carrier to approve Nvidia’s Tegra 3 with 4G LTE for its network. 
Nvidia expects its Tegra processors shipments to almost double in 2012. With the pace of design wins that the company has registered so far, it does not look like a far-fetched target to us.
First Tegra Smartphone With LTE Capability In The US
For its previous One X model, HTC had to use Nvidia’s quad-core chipset for launch in international markets while choosing Qualcomm for the U.S. launch. However, HTC One X+ will be the first Tegra 3 quad-core smartphone with 4G LTE capability in the US. Nvidia claims the new version will be 67% faster than the “HTC One X LTE” powered by Qualcomm’s Snapdragon dual-core processors and offers superior graphics along with an enhanced battery life. 
Levering its acquisition of Icera, Nvidia has been working working toward LTE integration. The company has so far enjoyed a competitive advantage with its quad-core processors against market leader Qualcomm (NASDAQ:QCOM). However, the launch of Qualcomm’s S4 Pro quad-core chipset late last month can be a challenge to Nvidia.
Apart from the the next generation Krait architecture, what had set Qualcomm apart was its leadership in LTE. However, with Tegra 3 processor’s LTE compatibility in the upcoming HTC smartphone, Nvidia might just have served a serious blow to its competitors. Add to this Nvidia’s superior graphic capabilities, and we think Qualcomm has a good enough reason to stand on its toes.
We believe the LTE modem integration coupled with superior graphics could substantially increase Nvidia’s market opportunity in the future.
TI’s Exit Further Opens Up The Market For Nvidia
Having ceased all R&D efforts for cellular baseband in 2008, Texas Instruments (NASDAQ:TXN) recently announced that it will reduce its efforts to further leverage its OMAP processors in the smartphone and tablet market. Though TI had been struggling in the application processor market, with a significant number of design wins – Kindle Fire 1, Kindle Fire HD, Samsung’s Nexus & Galaxy SII Smartphones, Motorola’s Droid Bionic & LG’s Thrill Smartphone – we were of the view that this segment could become a new revenue driver for TI’s wireless division.
TI currently accounts for close to 7% of the application processor and connectivity market, as per our estimate. Its exit from the smartphone and tablet market will further open opportunities for existing players in the market, including Nvidia, Qualcomm, Broadcom (NASDAQ:BRCM) and Intel (NASDAQ:INTC).
Going by the success of its Tegra processor so far and keeping in mind the company’s commitment to expanding its presence in this segment, we think Nvidia is in a strong position to leverage the opportunities in the smartphone and tablet market.
Our price estimate of $21.85 for Nvidia is at a premium of over 60% to the current market price.Notes: