While the slowdown in the PC market has impacted many of its competitors such as Intel (NASDAQ:INTC) and AMD (NASDAQ:AMD), we believe Nvidia’s (NASDAQ:NVDA) growing focus and success in the mobile computing space has cushioned the negative impact of lower PC shipments on the company’s growth rate. Non-PC revenue currently accounts for approximately 30% of Nvidia’s overall revenue, compared to 7% three years ago. (Read Our Q4 2012 Earnings Article: Nvidia’s Dominance In GPUs And Higher Tegra Sales Lift Outlook)
Nvidia did well with its standalone dual-core app processor, Tegra 2, to capture significant non-iPad tablet market share in 2011. The launch of Tegra 3, the world’s first quad-core processor, is what gave the company’s mobile computing plan a significant push, by scoring high profile design wins in 2012.
However, tablets remain the most important driver for Nvidia’s success in mobile computing and its progress in the smartphone market remains more or less stable. We believe that the introduction of its next generation Tegra 4 processor and the Tegra 4i, which features built in 3G and 4G/LTE communication technologies, will help Nvidia make a deeper foray in the smartphone market.
4G/LTE is the future of wireless connectivity for mobile devices, especially smartphones. The LTE integrated chipset better equips Nvidia to challenge Qualcomm’s (NASDAQ:QCOM) growing dominance in smartphones.
Tegra 4 Family To Help Expand Nvidia’s Mobile Footprint
Nvidia’s Tegra 4 family includes Tegra 4, which the company claims to be the fastest mobile processor, and Tegra 4i, its first fully integrated 4G LTE processor.
Tegra 4 – Nvidia launched Tegra 4 at the 2013 Consumer Electronic Show in January. Tegra 4 is the world’s first quad-core processor based on Cortex A15, ARM’s most advanced CPU core. The chip delivers a more realistic gaming experience, new camera capabilities through computational photography, faster web browsing and higher resolution displays. With an optional chipset, Tegra 4 also offers worldwide 4G LTE voice and data support. In addition, Nvidia claims that Tegra 4 consumes 45% less power than the Tegra 3 processor. Tegra 4 chips will target new tablets and high-end smartphones designs.
In its Q4 2012 earnings call, Nvidia highlighted that it has already scored more design wins for Tegra 4 compared to the total design wins for Tegra 3. In addition to mobile devices, Tegra 4 is gaining popularity for use in embedded devices such as cars and gaming devices.
Tegra 4i – Nvidia introduced its first fully integrated 4G LTE mobile processor on February 19 and also showcased its reference smartphone platform, code-named Phoenix, running on the Tegra 4i processor. According to the company, Tegra 4i is the highest performance CPU core and is only half the size of its nearest competitor, Qualcomm’s Snapdragon 800. Tegra 4 is a single integrated processor that offers solid computing power, a longer battery life and powers all major functions of a smartphone. Tegra 4i focuses on bringing the super phone experience to the more affordable mobile market.
4G/LTE is the future of wireless connectivity for mobile devices, especially smartphones, and a dominance in the production of LTE chips has enabled Qualcomm to lead the smartphone market so far. We believe that Nvidia’s upcoming Tegra LTE chipset integrated into Tegra processors will help the company increase its penetration in the smartphone market. Additionally, the upgraded Tegra processors could help it score additional design wins, as manufacturers continue to roll out new tablets designs in the coming year.
Nvidia’s Tegra revenues increased from $591 million in 2011 to $765 in 2012, and we expect the figure to reach $2 billion by the end of 2019.
Potential Threat From Qualcomm’s New Processors
Dominating the production of LTE chipsets, Qualcomm continues to lead the smartphone market. The LTE leadership has allowed Qualcomm to command majority of the smartphone market so far. It came out with its own quad-core chipsets, which reduces Nvidia’s advantage of offering the world’s first quad-core processor. While Nvidia expected to ship around 30 million Tegra processors in 2012, Qualcomm shipped 141 million chipsets in its fiscal Q4 2012 alone. 
Though the LTE compatibility will fuel Nvidia’s growth in the smartphone market, the introduction of new Snapdragon processors by Qualcomm will step up competition for the company. Qualcomm claims to have already bagged a significant number of design wins for mid-range and high end smartphones and tablets, powered by its Snapdragon 800 and Snapdragon 600 processors. The new Snapdragon lineup, which will be available in commercial devices by mid-2013, are estimated to deliver as high as 40% improved performance compared to Qualcomm’s S4 Pro processor.
In addition to Qualcomm, Marvell, MediaTek (which recently unveiled its first quad-core chipset) and the relatively new entrant Intel (NASDAQ:INTC), Nvidia also faces competition from leading handset manufacturers – Apple and Samsung – who design their own chips in-house and could end up selling them to other device manufacturers in the future.
Our price estimate of $18.68 for Nvidia is at a significant premium to the current market price.Notes:
- Nvidia still has a lot to prove in the mobile market, CNET, November 9, 2012 [↩]