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Is NVIDIA's New Hobby Already Doomed?

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NVIDIA (NASDAQ: NVDA  ) is making the bold and potentially misguided move into portable gaming consoles with its recently announced Project Shield, a small Tegra-4-powered handheld device consisting of a controller and display. The only specifics that the company gave on pricing and availability were that it would be priced competitively and launch in the second quarter.

Project Shield has little to no chance of commercial success for a plethora of reasons.

Same old, same old
One of the most popular disruptive tools that companies typically like to employ is pricing. For example, (NASDAQ: AMZN  ) has had incredible success with its Kindle lineups due to its willingness to undercut rivals and sell devices at breakeven and make up for it with content sales later on. The requisite for that approach is the potential disruptor must operate a content platform, which is why pure hardware OEMs struggle so much to compete.

NVIDIA has no platform, but instead is tapping into its existing TegraZone gaming collection and other titles available on Google (NASDAQ: GOOGL  ) Play. Besides, NVIDIA already said specifically that it intends to profit up-front in an official blog post: "The business model that stems from this means we'll make our money by selling the device to gamers. (And we hope, by the way, that they'll love it.)"

The broader market is in decline
The portable gaming console market has long been in decline. Both the leading incumbents, Nintendo and Sony (NYSE: SNE  ) , are having difficulties selling their own respective 3DS and PlayStation Vita devices, and they're the market leaders. In October, Nintendo reduced full-year guidance in part due to weak 3DS sales. The company dropped full-year 3DS outlook to 17.5 million. In November, Sony similarly toned down PS Vita forecasts to 10 million following a previous reduction.

The going price for those devices is between $200 and $300, which is also the same price for a Kindle Fire or Nexus 7, which can perform infinitely more tasks. The Nexus 7 even sports a Tegra 3 processor from NVIDIA anyway, and presumably the next model will carry a Tegra 4.

The strangest thing is that NVIDIA is making great traction in the tablet market, particularly among gamers, so it should be keenly aware of the potential there relative to the stand-alone portable gaming console market.

Which would you rather have?
If Project Shield retails for $200, consumers get a device that can only be used for gaming. Instead, they could buy a Nexus 7 with a similar processor and if they prefer a hardware controller they could just buy one for $30 at GameStop (NYSE: GME  ) . Even GameStop, a company that's arguably stuck in the past with its heavy reliance on physical media, is trying to capitalize on the shift of gaming away from traditional consoles to tablets.

For a grand total of $230, gamers can get a multi-function device with an even larger display for gaming. The small trade-off would be that the setup is less convenient since there are two separate pieces to lug around, but the benefit of increased functionality dramatically outweighs that cost.

Will the real disruptor please stand up?
Last summer, a Kickstarter project with true disruptive potential emerged: Ouya. The $99 box isn't meant for mobile gaming, but it does similarly tap into Android titles and run on a Tegra 3 processor. Ouya requires developers to offer a free mode to play for all games. This is more of a threat to traditional consoles like Microsoft's (NASDAQ: MSFT  ) Xbox 360, Sony's PlayStation 3, or Nintendo's Wii U, which rely on an outdated licensing model.

While Ouya and Project Shield target different segments (traditional vs. mobile), Ouya contrasts as the offering that actually has disruptive potential. Project Shield is just another traditional entrant into a crowded and shrinking market.

Project Shield looks an awful lot like Panasonic's (NASDAQOTH: PCRFY  ) Jungle experiment that got shuttered less than six months after it was announced. Will Project Shield suffer the same fate?

NVIDIA was ahead of the curve launching its mobile Tegra processor, but investing gains haven't followed as expected, with the company struggling to gain momentum in the smartphone market. The Motley Fool's brand-new premium report examines NVIDIA's stumbling blocks, but also homes in on opportunities that many investors are overlooking. We'll help you sort fact from fiction to determine whether NVIDIA is a buy at today's prices. Simply click here now to unlock your copy of this comprehensive report.


Read/Post Comments (7) | Recommend This Article (3)

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 January 09, 2013, at 7:09 PM, setsuna2000 wrote:

    I have no idea what Nvidia is thinking. I'm a long time supporter of Nvidia. I'm a gamer and I hate this thing. Maybe, they will cut their losses and not release it. If they do, I hope it does not hurt the company too much. They've done so many things right. This one goes into the "wrong" category.

  • Report this Comment On January 09, 2013, at 11:51 PM, Nomadder wrote:

    As far as the 3DS goes, I'd just like to point out that selling less than expectations is a different thing from selling poorly (or having difficulty selling).

    17.5 million is nothing to sneeze at. Was that for 2012 or 2013?

    If Nintendo sells that many in '13 they'll be well past the 40 million mark for units sold.

    I can't quite make myself see that as all that bad.

    Sony, on the other hand, has created a large part of their own problem.

    Perhaps tablets are eating into sales, somewhat, but by keeping the Vita's price so high and then charging outrageous prices for small proprietary (and necessary) memory cards on top of it, Sony do themselves no favors.

    I'm not sure there isn't a market for a new handheld, priced under or around 200.

    Is Nvidia the company to do it? Maybe, and maybe not.

    In any case, I think there are far too many people looking to announce the death of this particular market.

    Show me a reasonably priced handheld with good features and I'll show you a(nother) competitor (besides the actually successful 3DS).

  • Report this Comment On January 09, 2013, at 11:54 PM, Nomadder wrote:

    I've been reading too many tech articles...

    The final sentence should be "good games", not "good features".

  • Report this Comment On January 10, 2013, at 8:27 AM, rsinj wrote:

    Everyone spoke similarly when Apple released the first iPod. Then again when they announced the iPad.

    What makes you think that Nvidia can't do the same in the gaming space? Jen stated it's a $68 billion market. If Nvidia captures 5% of it, that's over $3 billion. And you're comparing some piddly kickstarter nonsense to the heft and expertise of an $8 billion corporation that has been the leader in graphics/performance for the past decade? Wow! Only 8AM and I've had my laugh of the day.

    And, at this time, since we don't know the pricing, most of the assumption made (in this article) aren't worth much, just a bunch of suppositions.

    I'm inclined to wait until I can get my hands on a retail/production version of this thing before passing judgment. Logic would have it that authors of articles like this do the same - but then that doesn't capture eyeballs like the title of this one, does it?

    Nvidia has done well over the years in spite of all the negativity in the market regarding every single thing they do. Barely 2 years ago people were all over them about the mobile market and how they were doomed to fail because Qualcomm owned it. Now look at how many phones and tablets are powered by Nvidia.

    The problem with authors and articles like this is that 6 months from now, they will have fallen off the site and all but forgotten. The authors count on it so they won't have any accountability down the road.

    I remember when both Merrill and Goldman came out saying iPod/iTunes could/would not succeed because so many other MP3 players had already crowded the market.

    The day of/after Steve Jobs' big presentation of the iPad folks were writing similar articles with similar titles to this one.

    My gut tells me everyone is going to be pleasantly surprised when this is available through Amazon, Best Buy, Target, etc. Time will tell.

  • Report this Comment On January 10, 2013, at 8:30 AM, rsinj wrote:

    CES is only in its second day but awards are streaming in for Project SHIELD, the show’s runaway hit, as well as our NVIDIA Tegra 4 mobile processor.

    Project SHIELD has been named the show’s best product by several important publications, while a number of other outlets won’t announce theirs until Thursday.

    The jury verdict so far for Project SHIELD:

    Ubergizmo and TechnoBuffalo: “Best of CES” awards

    CNET: “Best of CES” award finalist (award out Thursday)

    Popular Science: “Product of the Future” award

    LAPTOP Magazine: “Best of CES” finalist

    Stuff magazine: “Hot Stuff” award.

  • Report this Comment On January 10, 2013, at 8:37 AM, BMFPitt wrote:

    They might as well announce a new line of typewriters.

  • Report this Comment On January 10, 2013, at 9:55 AM, CluckChicken wrote:

    I would just like to point out that tablets, consoles, portal gaming systems and PCs are not one in the same in terms of gaming like you guys continue to write. They all have strong points and they all have flaws.

    Tablets have great overall versatility but without additional hardware they lack the user control you can get with a gaming device. Also I think the limitation of viewable screen due to hands not being transparent will impact overall game play.

    Gaming devises lack the overall versatility of tablets as they are purpose built and tend to cost just as much as the tablets.

    Consoles lack the versatility, performance and gaming control that one gets with a PC.

    High performance gaming PCs tend to be pricey.

    In the end the success of the gaming market though comes down to the where the quantity of quality games are.

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