NVIDIA Corporation: The Tegra K1 Chip is a Double-Edged Sword

NVIDIA (NASDAQ: NVDA  ) , the developer of top-notch graphics processors and mobile system-on-chip products, has been quite vocal about its new Tegra K1 processor. This is the first chip from NVIDIA to truly leverage its crown-jewel PC graphics architecture (rather than the fairly underwhelming GeForce ULP that was found in Tegra 4 and earlier chips). 

At this week's Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) I/O conference, Google showed off NVIDIA's latest-generation Tegra K1 rendering some impressive graphics to illustrate Android's nifty support for more advanced graphics technologies. In fact, the folks from Epic Games (makers of the impressive Unreal Engine 4 demonstrated on the K1 hardware) were keen to point out that the gap between PC and mobile graphics is quickly shrinking.

That, if true, is a real problem for NVIDIA.

Remember what they're promoting -- integrated graphics
The big argument made by NVIDIA, Epic Games, and the rest of the companies that promote the robustness of these mobile platforms is that pretty soon all of our mobile platforms, from tablets to smartphones to cars, will have "good enough" graphics to render "PC-quality" games.

That would put the vast majority of NVIDIA's business in jeopardy -- Tegra is a venture that's not yet at scale and likely carries materially lower gross margin than NVIDIA's high-end gaming GeForce chips. Furthermore, if a 4-watt mobile chip can really be "PC-level," then won't integrated graphics from the PC processor vendors (which have north of 15 watts to play with) eventually obviate the need for NVIDIA's bread-and-butter graphics chips?

Fortunately, it only takes a few seconds to realize that the laws of physics run counter to these marketing claims.

You can't get in 4 watts what you get in 300 watts (or for $40 what you get for $400)
The high-end graphics cards from both Advanced Micro Devices (NYSE: AMD  ) and NVIDIA today are absolutely massive (i.e., expensive) and consume anywhere from 200-300 watts. This kind of computational power simply cannot be had in a 4-watt mobile system-on-chip that sells for $20-$40.

While Epic and NVIDIA showed off Unreal Engine 4 running on the Tegra K1, it was a pretty small scene with only a few characters. It's also unclear what resolution that scene was being rendered at. A real-world PC game scene (at high-end discrete-graphics detail levels) with more expansive environments, high levels of interactivity, and many animated characters would likely require more processing power than the K1 (or any other mobile chip) could reasonably provide.

Foolish takeaway
At the end of the day, NVIDIA and its software partners need to market "PC-quality" graphics on these mobile devices. It's a neat buzzword, and it gets people excited about buying NVIDIA-powered mobile devices.

That said, while NVIDIA's K1 is in the strictest sense "PC-class" in that the GPU configuration is roughly comparable to a $70-$80 GeForce GT 630 PC GPU, it's nowhere near the levels of a midrange to high-end discrete graphics card . Though this deflates the marketing claims a bit, it's ultimately good for NVIDIA's business. 

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