NVIDIA's Tegra K1 Completely Changes Mobile Gaming

During NVIDIA's CES presentation, the company announced its newest mobile processor, the Tegra K1. The K1 features the same graphics cores as NVIDIA's desktop GPU, allowing PC and console games to be ported to mobile with ease. This gives NVIDIA a huge advantage over Qualcomm and Intel.

Jan 9, 2014 at 1:15PM

NVIDIA (NASDAQ:NVDA) has been struggling to get its Tegra mobile chips into devices, with industry behemoth Qualcomm (NASDAQ:QCOM) largely thwarting its efforts. Intel (NASDAQ:INTC) has been making progress in the mobile space as well with its Bay Trail processors, creating yet another obstacle for NVIDIA. But, one advantage that NVIDIA has is its graphics expertise, and the company's presentation at CES 2014 showed that NVIDIA has big plans for mobile graphics.

The Tegra K1
Changing the naming scheme of its Tegra line, NVIDIA revealed the Tegra K1 mobile processor during its CES presentation. The "K" stands for Kepler, the name of NVIDIA's current desktop GPU architecture. Previous iterations of Tegra were based on a separate GPU architecture, and the K1 is the first time that the same graphics cores used in PC GPUs will show up in a mobile chip.

The Tegra K1 has 192 graphics cores, up from 72 in the Tegra 4, although these numbers aren't really comparable, given the different types of cores. One point NVIDIA touted was that the K1 exceeds both the PlayStation 3 and the Xbox 360 in terms of raw horsepower. It also matches the current generation of consoles, as well as the PC, in terms of graphics features supported since it runs on the same graphics architecture and supports the same standards.

While there are currently no benchmarks, this means that PS3 and Xbox 360-quality games should be able to run on a Tegra K1-powered tablet. Since the K1 is, essentially, just a scaled down PC GPU, it supports all standard graphics technology, like OpenGL 4, DirectX 11, and CUDA 6.0.

This makes porting games to Tegra-powered devices simple. In theory, any PC or console game should be able to run on the Tegra K1 with minimal effort, albeit at a lower graphical quality than on a gaming PC. One demo NVIDIA showed during its presentation was the Unreal Engine 4 from Epic Games, running on the Tegra K1. Unreal Engine 4 has yet to be released, but the previous version was behind such games as Bioshock Infinite, Mass Effect 3, and Borderlands 2. The ability for developers to design games around an engine like Unreal 4 and have that game work on a tablet with minimal effort is truly an enormous step forward for mobile gaming. Here's a look at Unreal Engine 4 running on the Tegra K1:

Source: NVIDIA
Taking it to Qualcomm and Intel
NVIDIA is clearly targeting high-end devices here, a smart move for a company that would have no advantages in the low-end market. The graphics technology behind the Tegra K1 is a big differentiator for NVIDIA and should allow the company to pick up high-end design wins this year.

It's unlikely that Qualcomm or Intel will be able to match the graphical capabilities of NVIDIA's mobile chips, especially once the next iteration hits in 2015. Qualcomm's recently announced Snapdragon 805 processor offers powerful graphics capabilities, but the fact that the Tegra K1 runs on the same architecture as PC graphics cards gives the platform a huge advantage. Building a single game that can run on PCs, game consoles, and Tegra-powered mobile devices is a big selling point.

Qualcomm has benefited from being the go-to chip provider for high-end Android tablets, with devices such as the Kindle Fire HDX, Samsung Galaxy Note 10, and various upcoming tablets announced at CES 2014 all powered by the Snapdragon 800 chip. The lack of options at the high end is part of the reason why Qualcomm enjoys extremely high margins, with an operating margin of nearly 30% in fiscal 2013. The release of the Tegra K1 later this year offers a serious alternative to Qualcomm for high-end tablet manufacturers, and Qualcomm investors should be worried about declining margins as a result.   

Intel is set to release the next iteration of its Atom line of processors, Cherry Trail, in the third quarter of 2014, and while the chip will have improved graphics over Bay Trail, it will be difficult to match the Tegra K1 on that front. One benefit that Intel has is the ability to run Windows, since the Tegra K1's ARM-based processor isn't compatible with full Windows 8. Intel will have much of the Windows tablet market to itself, and although it's much smaller than the Android tablet market, it represents important progress for Intel's mobile business. 

The Tegra division is currently losing money for NVIDIA, with an operating loss of $132 million in the most recent reported quarter. This cut into the $287 million operating profit from the GPU division considerably, leading to a significant decline in earnings year-over-year. But the K1 may prove to be a turning point for NVIDIA. Not only will the chip find its way into tablets, NVIDIA is pushing into the automotive market as well. From in-car displays to driver assistance systems, the Tegra K1 has a lot of potential in the automotive market. A few days ago, Google announced the Open Automotive Alliance, a group of technology and automotive companies looking to put the Android operating system into vehicles. This group includes NVIDIA, along with General Motors, Audi, Hyundai, and Honda.

Once the Tegra division becomes profitable, NVIDIA's earnings should begin to grow again. The heavy investments made over the past few years by NVIDIA look like they're finally paying off with the K1, and 2014 should be the best year for Tegra yet.

The bottom line
NVIDIA has merged its desktop GPU and mobile GPU road maps, putting the Kepler architecture into the mobile Tegra K1 and allowing PS3 and Xbox 360-quality games to be played on mobile devices. This is a huge step forward for NVIDIA, and its Tegra business may finally be reaching the point where it starts to see considerable design wins. The ease of porting PC and console games to the Tegra K1 will give it a huge advantage over the competition, and when the chip launches later this year, mobile gaming should get a lot more exciting.

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Timothy Green owns shares of Nvidia. The Motley Fool recommends Intel and Nvidia. The Motley Fool owns shares of Intel and Qualcomm. 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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