Does NVIDIA Have the Right Idea?

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With the pervasive rise of smartphones, tablets, and high-def screens, the market for visual computing has grown beyond what NVIDIA (NASDAQ: NVDA  ) could realistically address with its own product lines alone. To keep up with the rapid pace of growth, the company has decided to license its cutting-edge Kepler GPU architecture to device manufacturers.

Not only does this move give device manufacturers an opportunity to leverage NVIDIA's GPU technology, it also gives NVIDIA an opportunity to expand its addressable market and create new revenue streams. In an age where over a billion computing devices are produced yearly, NVIDA's decision seems to be right on the money.

In fact, it almost sounds too good to be true.

A conflicted place
As a result of this development, NVIDIA's business model has transformed somewhere in between ARM Holdings' and Intel's core business model, which isn't necessarily a good thing. Because NVIDIA will be licensing and selling GPU products, it could create a breeding ground for conflicts of interest between potential customers and the company's own interests. What's going to stop NVIDIA from developing a markedly better GPU that it hoards for itself if the company thinks it could make more money that way versus licensing the technology out?

Since ARM only licenses out its technology and doesn't compete with its customers, it gives its customers the peace of mind that they will get ARM's best technology.

Although Intel licenses out its x86 architecture to a handful of semiconductor companies, the company has zero conflicts of interest as far as device manufacturers are concerned. Considering the vast majority of Intel's business relies on relationships with device manufacturers, it's wise to keep any potential conflicts out of the equation.

It's never this simple
Although NVIDIA's announcement opens up a world of opportunities for the company to land high-profile clients like Apple, Samsung, or possibly even Intel, I wouldn't be betting on the chances of it happening anytime soon. It's likely there will be a host of engineering challenges associated with manufacturing NVIDIA's technology on a different foundry process. In other words, if NVIDIA's potential customer isn't already a Taiwan Semiconductor customer like NVIDIA, it may not be worthwhile for that customer to license NVIDIA's tech. Since Apple, Samsung, and Intel aren't currently TSM customers, it likely diminishes the possibility of such a deal being struck with NVIDIA anytime soon.

No matter how great an idea looks on paper, there's always a chance the real world plays out differently.

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  • Report this Comment On June 24, 2013, at 11:33 PM, znajit wrote:

    Nvidia reminds me of the S3, Trident and many other companies that got to the same spot and then clueless on how to re-invent.

    Chasing the Cell phone processor is also a reminder on how Semi companies were chasing there tail in the DVD and the Blue-ray market for the larger share. I never thought going after billion unit market ever made sense as by the time you get there, price erodes and competition heats’-up.

    I only see one solution for NV that is get acquired than to vanish as the company is searching and not found a way out for last 7-10 years

  • Report this Comment On June 25, 2013, at 12:37 AM, jwtrotter wrote:

    I have no idea where the other poster here is coming from . . probably owns AMD or someone else that they see ready to turn things around from a 'cheaper' price. But Nvidia is doing fine and is doing a remarkable job following through with their vision and matching or beating expectations every quarter. They have been VERY clear in their recent decisions that are not intended to eat one side of their revenue with a new stream. I think one of the few groups of semi management teams out there with a clear-minded well thought out strategy is the Nvidia management team and leadership. They know what they have and are not concerned with the naysayers posing as fans that really want them to fail.

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