The smartphone and tablet markets are different beasts altogether. That fact has pretty important implications from an investing standpoint, since mobile device component plays have virtually become an investing strategy in their own right.
The applications processor spot is perhaps the most critical component, and in this context the smartphone and tablet processor markets are worlds apart. In smartphones, Qualcomm (Nasdaq: QCOM ) is top dog, claiming a 48% revenue share during the first half of the year. The others in the top five were Samsung, MediaTek, Broadcom (Nasdaq: BRCM ) , and Texas Instruments (Nasdaq: TXN ) . Mobile processor up-and-comer NVIDIA (Nasdaq: NVDA ) was noticeably absent from the ranks.
In tablets, there's simply not much to go around. Apple's (Nasdaq: AAPL ) iPad dominates tablet unit volumes by a large margin, and since the iPad maker designs its chips in-house, there's not much room for third-party component design wins. In contrast, Apple is a smaller player in the global smartphone market.
According to recent figures out of researcher IDC, Apple's A-chips that power its iPads accounted for two-thirds of the tablet application processor market. The overall market grew by 61%, driven largely by the third-generation iPad that was launched six months ago. The second quarter saw 17 million iPad units sold, with just 9 million left for everyone else.
As far as the non-Apple segment, NVIDIA is actually a big player here, shipping 2.7 million (up 80%) of its Tegra chips bound for tablets. It's possible that some of these went into Google's (Nasdaq: GOOG ) Nexus 7, which should have been entering production around that time ahead of its July launch. Microsoft's (Nasdaq: MSFT ) Surface tablet also features a quad-core Tegra 3, but those tablets don't launch until later this month, so it remains unclear if that would affect second-quarter figures since production likely hadn't begun yet.
Overall, it was enough to earn the graphics specialist a 30% market share (excluding Apple), a tie with TI, which maintained its spot in Amazon.com's (Nasdaq: AMZN ) Kindle Fire for the e-tailer's second generation of tablets.
Qualcomm was a small fish in tablet processors, with just 4% market share. In smartphones, Qualcomm's competitive strengths in integrated cellular connectivity go a long way. In tablets (most of which are Wi-Fi only), NVIDIA's graphics know-how does it some favors, since gaming is a popular use case for the larger screens.
The times, they are a-changing
Of course, this competitive landscape is poised to shift with TI's recent decision to ditch mobile and focus its OMAP processors in other industrial applications, such as in automobiles. Perhaps NVIDIA can even score the third-generation Kindle Fire now that TI is backing out of the mobile picture. That's a big chunk of the non-Apple segment of the tablet processor market up in the air for the remaining incumbents to fight over, and Raymond James analyst Hans Mosesmann thinks that Qualcomm and NVIDIA will proceed to split this slice.
This is especially true considering that Qualcomm, NVIDIA, and TI were the three chip makers that Microsoft had tapped for the ARM-based (Nasdaq: ARMH ) tablets running Windows RT. TI and Toshiba were set to collaborate on a device, but those plans have since been axed. That leaves Qualcomm and NVIDIA as the two remaining Windows RT chip players.
One of these days
At this rate, NVIDIA is set to be a big tablet winner in the non-Apple segment. The good news is that even though Apple doesn't leave much space in the tablet market for other processor vendors, the market is growing so quickly that the other players can still ride the rising tide.
The Tegra division may not be up to the billion-dollar business that CEO Jen-Hsun Huang was hoping for quite yet, but it might get there soon enough.
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