What's Next for NVIDIA's Modems?

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

At NVIDIA's (NASDAQ: NVDA  ) GPU Technology Conference, NVIDIA CEO Jen-Hsun Huang made it quite clear that the company had no further intentions of competing in the highly integrated, cost-sensitive mainstream smartphone applications processor market. With that in mind, an obvious question to ask is whether the company would just go ahead and de-focus its development efforts on the actual cellular modem part of the equation.

Not officially
At the Wells Fargo 4th Annual Tech Transformation Summit, David Wong of Wells Fargo asked Chris Evenden, senior director of investor relations at NVIDIA, the following vis-a-vis NVIDIA's cellular baseband efforts:

David Wong: Chris ... you've exited mainstream smartphones, so where does that leave your baseband capabilities?

Chris Evenden: So we still need the baseband ... if only for automotive. I mean, connectivity is going to become increasingly important in all of those markets. So, we'll keep developing a standalone baseband, voice and data; we're not going to develop an integrated modem/applications processor. That product, you've got one target market in mind, which is mainstream smartphones.

So, we actually get two interesting tidbits of information. First is that NVIDIA does plan to continue developing its own standalone baseband chips (useful for high-end phones, tablets, and -- the star of Tegra's show -- automotive). Next -- and perhaps not surprisingly -- is that the company no longer plans to try to go head-to-head against the remaining players in the integrated apps processor and cellular baseband space.

RIP Tegra 4i
While there had been some encouraging early signs for the company's Tegra 4i (integrated apps processor and baseband), it looks as though the part ultimately failed to gain enough traction to continue developing successors. The problem here, and one that many had feared would ultimately be the case, is that this market is all about bringing in the cheapest, most integrated chip at the lowest possible cost.

NVIDIA's ill-fated Tegra 4i; we barely knew it. Source: NVIDIA. 

Note that while NVIDIA does have its own cellular modem efforts, it doesn't have in-house Wi-Fi, Bluetooth, GPS, and the like to really be able to compete at the integration level with Intel (NASDAQ: INTC  ) , Broadcom, MediaTek, Marvell, and Qualcomm (NASDAQ: QCOM  ) -- all of which do have this connectivity IP. NVIDIA likely could have picked up some connectivity IP with its cash hoard (and I had actually been expecting it), but it didn't happen.

Tegra 4i will apparently be NVIDIA's last integrated modem and applications processor, with no successors on tap. 

The smartphone apps processor market consolidates ... again
With NVIDIA essentially out of phones, the market essentially comes down to the players I mentioned. However, given that MediaTek and Qualcomm essentially own this market, and given that Qualcomm and Intel are dramatically outspending the remaining players in this market, the consolidation isn't over.

ST-Ericsson's NovaThor line of processors was an early casualty in mobile consolidation. Source: Wikipedia. 

Who's next?
MediaTek is currently selling a lot of product but is very vulnerable, as it appears to be significantly behind both Qualcomm and Intel in modem technology (the latter two are preparing to ship category 6 LTE-Advanced modems while MediaTek won't have a shipping category 4 LTE modem until Q2 2014). Broadcom has struggled pretty heavily, as its investment in cellular has largely destroyed the profitability of its connectivity business -- something will need to give soon. Marvell has done well in the low margin/highly competitive low end, but it seems to not be interested in the high end.

While there's the possibility that Qualcomm simply ends up eating up the lion's share of the market, Intel is investing at roughly the same level and can tolerate extreme losses in order to eventually win -- something that the smaller players can't really afford to do. Intel is buoyed (and R&D amortized) by the very profitable PC and server segments that use much of the same IP that is designed for mobile. Qualcomm has its IP licensing business to hold the line on profitability.

Foolish bottom line
The consolidation will be a long, slow, and heartbreaking process for many stockholders and employees, but we have seen this across semiconductors time and again. NVIDIA has gracefully bowed out of the "mainstream smartphone" ring, but it will continue to develop cellular modems for the other Tegra applications. These other Tegra applications likely won't require as bleeding-edge modem technology, so ultimately the investment level NVIDIA will be putting into its modems will shrink, freeing up cash for more profitable ventures.

With smartphone growth slowing, we've found the next big thing!
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts 485 million of them could be sold over the next decade. But you can invest in it right now, for just a fraction of the price of Apple stock. Click here to get the full story in this eye-opening new report.

Read/Post Comments (2) | Recommend This Article (0)

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 April 06, 2014, at 5:34 PM, jwtrotter wrote:

    . . that still includes tablets and the high-end smartphones. It's not a clean break from the phones as you seem to be imply. The quotes you are using still include phones and tablets, just not the cheaper phones.

  • Report this Comment On April 10, 2014, at 1:11 PM, heynow88 wrote:

    Doesn't this now mean that there is no point in comparing Nvidia K1 to the Snapdragon, since who needs the K1 in a phone anymore? Essentially a Snapdragon 800+ is way better...because it will end up in a smartphone whereas the Tegra4i or K1 won't have the modem too. Am I missing something? Seems like a disaster for Nvidia.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2904476, ~/Articles/ArticleHandler.aspx, 8/30/2015 12:25:37 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Ashraf Eassa

Ashraf Eassa is a technology specialist with The Motley Fool. He writes mostly about technology stocks, but is especially interested in anything related to chips -- the semiconductor kind, that is. Follow him on Twitter:

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
NVDA $22.73 Up +0.10 +0.44%
Nvidia CAPS Rating: *****
INTC $28.42 Up +0.70 +2.53%
Intel CAPS Rating: ****
QCOM $57.45 Up +0.09 +0.16%
Qualcomm CAPS Rating: ****