Nvidia’s (NASDAQ:NVDA) Tegra processor revenue climbed by 200% and 30% in 2011 and 2012 respectively, but the company anticipates the same to decline by $200 – $300 million this year. The ramp down of Tegra 3 products and Nvidia’s conscious decision to delay the launch of Tegra 4 by one quarter, in order to pull up the production of Tegra 4i chips by two quarters, negatively impacted its revenue growth in 2013 (fiscal year 2014). Accordingly, Tegra processor revenues declined significantly in the first half of fiscal 2014, but registered 110% quarter-over-quarter growth in Q3 2014.
In an effort to reduce its exposure to declining PC sales, Nvidia is focusing on expanding its footprint in alternative growth markets. Leveraging its Tegra processors to tap growth in mobile computing is a key long term growth strategy for the company. Though we estimate Tegra revenue will shrink by 35% this year, we forecast revenue to grow by nearly 20% next year and cross $1 billion by the end of our review period.
Our price estimate of $16.42 for Nvidia is almost in line with the current market price.
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LTE Capability To Increase Nvidia’s Competitiveness In The Smartphone Market
In February this year, Nvidia introduced Tegra 4i, its first fully integrated 4G LTE mobile processor, to expand its presence in the smartphone market. Offering higher bandwidth and faster data transmission, 4G/LTE is the future of wireless connectivity for mobile devices, especially smartphones. Of the various technologies that are driving the market currently, LTE is seeing the strongest growth as carriers around the world increasingly shift to the new standard for wireless communication.
Nvidia currently has a negligible presence in the smartphone market. We believe that though speeding up the launch of its LTE compatible chips impacted Nvidia’s short-term growth, the move expands the company’s long-term growth potential. The LTE integrated chipset will better equip Nvidia to challenge Qualcomm’s (NASDAQ:QCOM) growing dominance in smartphones. Devices using the Tegra 4i chips are expected to start shipping by early 2014.
The mobile device market and the LTE market are expanding at a rapid pace, and we believe that there is plenty of room for both Nvidia and Qualcomm to sell a higher number of processors in the future. In addition to Qualcomm, Nvidia competes with Broadcom (NASDAQ:BRCM), Marvell and MediaTek and the relatively new entrant Intel (NASDAQ:INTC).
Expanding Tegra 4 Line-up To Accelerate Revenue Growth In 2014
Introduced 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, and consumes 45% less power than the Tegra 3 processor. Since the launch of the first phone (Xiaomi Mi3) using its Tegra 4 processor in September, Nvidia has seen the list of Tegra powered devices grow significantly.
After much speculation, Nvidia finally introduced its Tegra Note, a reference platform for Android based tablets on September 18. A day after that HP (NASDAQ:HPQ launched two new Tegra 4 powered tablets — the Slate 7 Extreme and the Slate 8 Pro. On September 23, Nvidia boasted yet another product win by announcing that Microsoft’s (NASDAQ:MSFT) next-generation Surface 2 tablet will be powered by Nvidia’s Tegra 4 processor. Nvidia has also received Tegra 4 orders for Asustek and Toshiba devices.
Last quarter, Tegra 4 shipped in more than 15 different mobile devices including those manufactured by Xiaomi, HP, Microsoft, Asus, Toshiba, Acer, and others. In addition to tablets and smartphones, the company aims to expand its reach to other large markets where visual computing matters such as auto navigation systems, TV set top boxes and new desktop foreign factors like all-in-one and smart monitors. Tegra 4 also powers Shield, Nvidia’s maiden attempt as a gaming hardware provider which pitches it against console makers like Sony and Microsoft.
Next- Generation Tegra Mobile Processor To Launch Next Year
Nvidia recently announced its next generation Tegra mobile processor, code-named Logan, based on the Kepler architecture. The company promises that the new mobile graphics processor will be more powerful than the PS3. Mobile devices using Nvidia’s new chip are expected to start shipping by mid-2014. Notes:
- Mobiles to advance to console-beating visuals with new ‘Project Logan’ tech, says Nvidia, CVG, July 24, 2013 [↩]