1 Surprising Company the iPad Could Save

Make sure to come back to Fool.com this Wednesday, as Fool analysts will be hosting a live chat on Apple's unveiling of the next iPad. You'll not only get our perspective on what it means for Apple as an investment, but you can also ask questions about how the tablet affects its suppliers and Apple competitors. So make sure to check back at fool.com at 1 p.m. ET / 10 a.m. PT to get a chance not only to read about the newest iPad and what it means, but also to chat with our analysts about its impact.

On Wednesday, Apple (Nasdaq: AAPL  ) will take the wraps off the iPad 3. As soon as the device is released sometime later in the month, a host of companies will begin tearing down the device looking for clues to what components made the cut. Those teardowns will be a huge test for a host of chip companies like OmniVision (Nasdaq: OVTI  ) , which lost business in the last iPhone and whose upbeat guidance has led investors to believe it might have regained its image-sensor spot in the upcoming iPad. The day the iPad is gutted, you can be assured of a pretty sizeable move in OmniVision's share price.

However, there's a wrinkle for the company I'm going to highlight as a huge beneficiary or loser of the iPad: I can 100% guarantee you its parts won't make the iPad. It won't see a huge pop or crash the day the iPad is torn apart because it won't be inside. That company is NVIDIA (Nasdaq: NVDA  ) .

Seriously, NVIDIA? Lay off the hooch, Eric!
If you're a longtime tech observer, you'll know that NVIDIA and the iPad aren't directly related. While NVIDIA makes mobile processors, they're targeted at phones running Google's Android operating system. Apple designs its own processors for use in the iPad and iPhone. While NVIDIA has a varying history of supplying graphics cards to Apple's Mac computers, that's where their relationship ends.

On the surface, the iPad's only connection to NVIDIA is dominating the tablet market and ensuring the Android tablets NVIDIA is in don't move off store shelves. However, a deeper look at how Apple is reshaping the technology industry shows that Apple could do NVIDIA a huge favor this Wednesday.

First, a little side story
Marketing has always played a key part in the sales of processors to consumers. Odds are that the only commercial you've seen recently for a big semiconductor company are from Intel (Nasdaq: INTC  ) . The company has always excelled at marketing, with its most prominent victory over the past two decades being the Pentium brand. While semiconductor products normally don't have much in the way of brand cachet, Intel has made its Pentium processor a household name. Not surprisingly, along with that strong name recognition has come nearly two straight decades of Pentium processor dominance in consumer sales.

However, while we might get nostalgic for the days when a quick glance at a processor name and clock speed -- e.g., a 300 MHz Pentium II processor -- could give us a rough proxy for the capability of a processor, advancements like processors with multiple cores added a layer of complexity for consumers trying to analyze how powerful a processor is. Quite frankly, aside for grasping for names like a "Pentium processor," it's very difficult for your average consumer to know how advanced a processor is.

And now, back to Apple and NVIDIA
It's under this dynamic of bewildered consumers that I believe Apple could really help out -- or hurt -- NVIDIA this week. NVIDIA recently released its Tegra 3 processor and was initially extremely optimistic, projecting up to $1 billion in Tegra sales this year. However, the company has had to roll back expectations and is now forecasting Tegra sales as low as $550 million this year. Any way you slice it, that's a troubling turn of events for NVIDIA shareholders.

One of the major selling points for Tegra is that it has four different processing cores. That is, it's a "quad-core" processor. Rivals like Qualcomm (Nasdaq: QCOM  ) and Texas Instruments quickly caught up to NVIDIA during the previous generation by quickly matching the company's dual-core Tegra 2. However, this year they're both content to sit back and keep offering up processors with only two processor cores while NVIDA jumps ahead to four.

From a technical standpoint, they could be right that more processor cores aren't always better. Qualcomm has shown that its dual-core processor can go toe-to-toe with NVIDIA's Tegra 3 that has double the number of processing cores. Throw in the fact that most applications aren't programmed to properly use all the cores on a mobile device, and NVIDIA's Tegra 3 isn't necessarily the performance king of the smartphone world.

However, while geeks across the Internet debate the merits of two versus four cores, their debate is pointless to your average smartphone buyer. Instead, Apple will shape the view on whether two versus four processor cores matters on Wednesday.

Meet Apple, the tech influencer
When Apple unveils its newest iPad on Wednesday, one of the key questions is whether the tablet will have two or four processors. Early leaks from the supply chain from such reputable sources as Bloomberg indicated that Apple will release a quad-core processor like NVIDIA's Tegra 3. However, reports of late seem to suggest that Apple will release an "A-5X" processor that would be dual-core.

While seemingly trivial, this is a very important point for a simple reason: If Apple does, in fact, produce a quad-core processor in the iPad 3, it'll rain superlatives all over how the quad-core processor makes the iPad 3 "the fastest tablet in the world" and generally heap praise upon the idea of four processor cores. The perception Apple will create for the general public is that quad-core processors are freaking speed demons, and rival Android smartphones and tablets will feel the need to go with NVIDIA's Tegra 3 because of the marketing implications of including a quad-core processor. This is the "Keeping up with the Joneses" scenario, and it's very good for NVIDIA.

If Apple goes with an older "A-5X" processor with two cores, it'll instead praise dual-cores as sufficient to meet any mobile computing needs and explain why two cores was the superior decision. Simply put, Apple will heap loads of praise on whatever processor it ends up using. However, if Apple chooses a dual-core processor, it'll lend credence to Qualcomm's and Texas Instruments' assertion that dual-core processors are sufficient for the mobile computing needs of today.

NVIDIA, Apple's quad-core cheerleader
So there you have it. For simple marketing reasons, NVIDIA could have more at stake this Wednesday than just about any other chip company. A quad-core processor from Apple could mean a series of added design wins for Tegra 3 that would push it back closer to its billion-dollar goal this year, and a dual-core design would play into Qualcomm's and Texas Instruments' hands. If you're an NVIDIA investor, you'd be unwise to take lightly Apple's decision on what kind of processor to use. Invest accordingly.

Find more plays inside the iPad
If you're a technology investor looking for a way to play Apple's amazing growth, you shouldn't limit yourself to just buying Apple, or even NVIDIA. Instead, we've prepared a free report, "3 Hidden Winners of the iPhone, iPad, and Android Revolution," which details three great ideas that are inside the iPad and iPhone and are riding Apple's growth. To get your own copy of the report, just click here now -- it's free!

Eric Bleeker owns shares of NVIDIA. The Motley Fool owns shares of Qualcomm, Apple, and Intel. Motley Fool newsletter services have recommended buying shares of NVIDIA, Apple, and Intel, creating a bull call spread position in Apple, and writing puts on NVIDIA. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 05, 2012, at 11:52 PM, jwtrotter wrote:

    Fool says be respectful with your comments yet are you guys applying the same rules to the companies you write about?

    I know you used to support Nvidia more before and apparently it's just because of 'one' line in the last ER CC that you are changing your tune. Jen simply has taken a strategy from the Jobs playbook and is trying to be more conservative than aggressive in his outlook. Instead of saying as much as 1 billion, he's saying as low as 550 million and his reasons aren't focused solely on the relationship with Samsung either.

    Also, why are you ignoring all the design wins, including something with Samsung yet to be confirmed? It's SO obvious that Tegra 3 will be all over the new android smart phones and will still be present in the tablets. Why are you intentionally ignoring that? Also, your argument has no real foundation since you could easily flip every position on the psychological marketing ploys you espouse. If Apple says 2-core, who's not to say all the people that want to try the quad core somewhere would not be more intrigued that Nvidia is the only one out there with quad-core in the current market, including Apple?

    I think what consumers care about is whether the phone (or tablet) is better for them period. And if they prefer Android, they'll buy whatever phone is better at the time period. BTW, there is a sizeable pool of users (including myself) that are looking for tablets like the Prime because the iPad simply is too limited without an option for separate keyboard at times. So with several, I mean AT LEAST three, top tier smartphones coming out within this quarter with Tegra 3, you don't consumers will notice that Nvidia is the best option for their smartphone and perhaps even a tablet that is more versatile than a nice reader or photo op?

    Please try to write something that really is painting a more accurate picture. I don't think Nvidia needs Apple to 'save' them.

  • Report this Comment On March 06, 2012, at 3:22 AM, winklerf wrote:

    Many people don't need a quad core processor for their computer, yet nVidia is producing quad core processors for mobile. The extra two cores are pretty much dead weight that will drink some power, even if not being used, and increase the price of the processor. The supposedly diverse ARM ecosystem is nothing of the sort. Most producers use stock ARM IP on either TSMC or Samsung/IBM process technology. Adding more cores that do little for real world performance in this environment is a recipe for disaster when you have little to differentiate you in architecture or process technology.

    I would not count on better sales if Apple markets quad-core, because the customer will not only see no benefit from nVidia if they do a comparison, but they will in fact see an inferior experience from vanilla ARM cores against Qualcomm's better engineered cores or reduced battery life against vanilla ARM dual core solutions. Most importantly, Android customers by and large ignore or hate Apple. They don't secretly want an Apple product. If anything, Apple going quad might harm nVidia, though I don't think it will matter at the end of the day.

    The thinking behind nVidia getting into mobile was that there was no difference between ARM cores and they could use their graphics expertise to differentiate themselves in the market. Unfortunately, it turns out their melt your motherboard GPU experience isn't translating so well and Imagination's PowerVR is at least as good and is used by most of their competitors. Then, nVidia commits to quad core when their more savvy competitors recognize that multiprocessing software is hard to do and two cores can handle most any mobile workload as well as four. I sure hope nVidia's partners have a really good marketing campaign, because they are going to sell less for more and have the customer like it.

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