NVIDIA's New Tegra Mobile Chip Is a Game-Changer

On Sunday, NVIDIA showed off two new Tegra processors that will dramatically improve its position in the mobile chip market.

Jan 7, 2014 at 4:30PM

At this week's annual Consumer Electronics Show, NVIDIA (NASDAQ:NVDA) showed off not one but two next-generation mobile processors. For these new mobile processors, NVIDIA has wisely focused on applying its graphics expertise to the mobile realm.

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Source: NVIDIA. The new Tegra K1 chip offers console-quality graphics performance.

As a result, these upcoming members of the Tegra lineup should help NVIDIA carve out a niche as the leader for mobile graphics and visual computing. This will encourage OEMs to use Tegra processors in smartphones, tablets, and other devices they want to market to gamers. It will also solidify NVIDIA's strong position as a supplier of embedded processors for the automotive market.

Looking for a rebound in 2014
NVIDIA's Tegra mobile processors were the subject of much fanfare at the 2011 CES, when Android smartphones and tablets sporting Tegra 2 processors were ubiquitous. However, Samsung soon came to dominate the Android smartphone market, and it has increasingly relied on processors designed and built in-house.

Meanwhile, the Android tablet market struggled to take off. By the time it did, NVIDIA had lost some key design wins, due in part to aggressive pricing offered by competitors. This year, the company's Tegra woes have been aggravated by a product (Tegra 4) that was delayed and therefore passed over for some design slots. As a result, NVIDIA has suffered a significant year-over-year drop in Tegra sales in the last two quarters. 

However, delaying the Tegra 4 processor allowed NVIDIA to speed up development of future Tegra chips. First, the Tegra 4i integrated mobile processor (which includes a cellular modem on the same piece of silicon) will be available in the next few months. The addition of cellular capability will vastly improve NVIDIA's competitiveness, especially in smartphones.

Second, the delay of the Tegra 4 allowed NVIDIA to speed up development of the new Tegra K1 chips announced this week. Both will feature graphics based on the Kepler architecture that powers NVIDIA's PC and professional graphics cards.

Creating differentiation
The Tegra K1 is the first NVIDIA mobile chip that really differentiates itself from the pack based on graphics -- which, after all, is the company's strong suit. Both versions of the chip will feature an impressive 192-core Kepler GPU. NVIDIA claims this GPU will be 1.5 times more efficient than other mobile GPUs.

The result is that these new chips will provide solid battery life while offering console-quality gaming performance. Moreover, NVIDIA has put significant effort into making it easy for developers to rewrite PC games to run on Tegra .

The first version of K1 is almost ready and will be found in devices shipping in the first half of 2014. It will feature a 32-bit processor licensed from ARM (NASDAQ:ARMH) using NVIDIA's tried and true 4+1 core arrangement.

The second version will utilize NVIDIA's long-anticipated "Denver" chip, which is a dual-core 64-bit processor designed by NVIDIA and based on the ARM architecture. Apple (NASDAQ:AAPL) shocked the mobile world last fall by upgrading to 64-bit processors for the new iPhones and iPads, and many analysts expect 64-bit chips to become a crucial part of mobile computing. This makes it all the more significant that NVIDIA offered the first demonstration of Android running on a 64-bit processor at its press event on Sunday. 

The graphics prowess of NVIDIA's next-generation Tegra chips will also offer benefits in the automotive market, which has rapidly become a key part of the Tegra business. The Tegra K1 will be able to power digital dashboards, infotainment systems, and advanced driver assistance systems while consuming very little power.

Better times ahead
After suffering through an 18-month Tegra product gap between late 2011 and mid 2013, NVIDIA is well positioned for a return to growth in the Tegra business this year. The new K1 Tegra processors revealed this week will help NVIDIA differentiate its high-end mobile processors from competing products by appealing to gamers with console-quality graphics. Meanwhile, the Tegra 4i will offer a strong value proposition for midrange smartphones and tablets.

As a result, investors should continue to be patient with NVIDIA. By the middle of this year, the company should be delivering rapid sales growth as the newest Tegra chips help it become a serious competitor in the mobile processor market.

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Fool contributor Adam Levine-Weinberg owns shares of Apple and Nvidia. Adam Levine-Weinberg has the following options: long January 2015 $390 calls on Apple and short March 2014 $17 calls on Nvidia. The Motley Fool recommends Apple and Nvidia. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

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