Fellow Fool contributor Timothy Green believes that NVIDIA (NASDAQ:NVDA) could score a GPU IP licensing win within Apple's (NASDAQ:AAPL) next-generation iPad. Green lays out a compelling case, claiming that because Apple tends to care a ton about GPU performance, it could very well license NVIDIA's GPU technology and integrate it into its A-series system-on-chip designs.
Unfortunately, as nice as this would be for NVIDIA shareholders from a publicity perspective -- the actual royalties would probably amount to maybe $20-40 million, depending on the royalty rate -- this is exceptionally unlikely.
Apple uses its Imagination
Apple's GPU IP supplier for many years has been U.K.-based Imagination Technologies (LSE:IMG). Over the years, Imagination has gone from a small GPU vendor that was marginalized in the PC graphics wars to the world's leading vendor of GPU IP for all sorts of devices -- in particular, low-power applications such as smartphones and tablets. Since that time, Imagination's designs have been well-known for having great performance in a very small footprint in both power and area.
Apple, which actually owns a roughly 10% stake in the IP company, has frequently been an early adopter of Imagination's PowerVR designs. This has allowed Apple to routinely launch phones and tablets with bleeding-edge graphics performance well before many of its competitors. Further, at Imagination's most recent earnings call, management pointed out that the company would be moving faster in developing new iterations of its GPU IP:
Source: Imagination Technologies
Apple has traditionally used Imagination Tech's GPUs, and its driver teams and iOS-optimization teams have extensive experience with Imagination's GPUs. A move to another third-party architecture, such as NVIDIA's Kepler or upcoming Maxwell, wouldn't be impossible, but it would require some pretty serious incentive to do so that may not be there.
Apple is doing its own GPU, anyway
While some may argue that NVIDIA's advances over time may ultimately push Apple to go with NVIDIA's GPU IP, it's important to note that Apple is actually building its own GPU. This GPU, like Apple's custom SoCs and CPU cores, is likely to be custom-tailored to exactly what Apple is looking for. Given that Apple is already a silicon powerhouse, and also that Apple is also a software and user-experience master, the case for going with a custom GPU is pretty clear.
This means that Imagination is at serious risk of losing the Apple account in the longer term, but also that NVIDIA's chances of finding a home within the iPad are pretty minimal. It's not inconceivable to think that NVIDIA could license its GPU IP to other merchant vendors, although it's likely that NVIDIA's intention is to go after either Apple or Samsung, where its Tegra chips are unlikely to play. But the royalties received per unit would be far lower than the gross profit per Tegra chip.
Foolish bottom line
While the idea of NVIDIA winning the GPU IP slot over at Apple is nice, Apple is doing its own GPU for the long term, and in the near term is likely to stick with Imagination's IP. That said, while Apple is unlikely to license NVIDIA's GPU designs, it very well could license its patent portfolio in order to make life easier when trying to design its own high-performance GPU.
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Ashraf Eassa owns shares of Nvidia and Imagination Technologies. The Motley Fool recommends Apple and Nvidia. The Motley Fool owns shares of Apple and Imagination Technologies. 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.