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NVIDIA Corporation Tries Again

Shield Tablet. Source: NVIDIA.

Let's face it: NVIDIA (NASDAQ: NVDA  ) has failed to make a name for itself in the extremely competitive smartphone processor market. The gaming specialist tried its darndest to give Qualcomm (NASDAQ: QCOM  ) a run for its money, but Qualcomm has a lot more money than NVIDIA. For all intents and purposes, NVIDIA is done with smartphones.

For example, last year's Xiaomi Mi3 had a Tegra 4 variant as well as a Snapdragon 800 flavor. The updated Mi4 that was just announced is purely a Snapdragon affair. The newest Tegra K1 chips that were announced at CES earlier this year has exactly zero design wins in phones that investors know of, and losing a spot at one of the world's fastest growing smartphone makers doesn't exactly inspire confidence.

So, where else can NVIDIA put its newest K1 chips into?

Say hello to Shield Tablet
NVIDIA has announced Shield Tablet alongside a Shield wireless controller. The company is positioning the new device as the "world's most advanced tablet built for gamers." Shield Tablet naturally runs Google Android, which has been NVIDIA's primary choice as a mobile gaming platform for quite some time. NVIDIA is also selling a tablet cover that can be used to prop up the device. Buying all three of these components will cost a total of $400.

This isn't the first time that NVIDIA has launched a first-party tablet. Late last year, NVIDIA launched Tegra Note, a reference platform for OEMs. The company sells Tegra Note 7 devices directly, but also had companies like Hewlett-Packard sell rebranded variants. Shield Tablet is a combination of NVIDIA's previous tablet attempts and its Shield handheld gaming device.

Lacking additional wins at third-party OEMs, Shield Tablet represents NVIDIA's third attempt to sell more Tegra chips by launching its own devices.

What ever happened to "Tegra K1 season"?
On the last conference call, CEO Jen-Hsun Huang said, "It's about to be Tegra K1 season." Yet the K1 is lacking in the design win department. Thus far, there have only been two other devices announced sporting the K1. Xiaomi's MiPad was the first K1 device, so NVIDIA isn't completely out of Xiaomi's product portfolio. The second was Google's Project Tango. Now we can add Shield Tablet to the list.

Of these, the MiPad is likely the most promising in terms of unit volumes. Google's experimental tablet that senses environmental surroundings certainly won't move a lot of units. Given the high price tag and relatively niche market, Shield Tablet unit sales will also likely be modest. Huang knows that NVIDIA is not doing well in smartphones, which is why he wants to target other verticals at this point:

In terms of competition, there's lots of competition out there, but our focus with TK1 is automotive, gaming, and differentiated products, and customers who are looking for differentiated processors that can really bring some excitement to their devices. My expectation is TK1 is going to do great.

The Tegra segment's results have been deteriorating for quite some time, and NVIDIA has little choice but to salvage this business after investing heavily over the years.

The good news
Fortunately, Tegra is not NVIDIA's most important business. The GPU segment remains healthy and highly profitable. Tegra was always a risky proposition to begin with, as NVIDIA wanted to diversify into other markets. It was an expensive bet that didn't pay off financially for investors, but NVIDIA can still try to squeeze out a few more design wins in other market segments.

Eventually though, it might have to give up. Considering the fact that the Tegra operating losses ate through a third of the GPU segment's operating income last fiscal year, that wouldn't be such a bad outcome at this point.

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Read/Post Comments (5) | Recommend This Article (3)

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 July 22, 2014, at 4:46 PM, texasredraider94 wrote:

    Huang will find the high-end niche for Tegra, such as the $2 billion backlog and growing you failed to mention for automotive. You made the Google Tango sound like a flop before it's even introduced, and Google isn't in the business of just throwing out products to flop. You can't imagine the niche markets the Tango and K1 will find themselves in, but you'll see soon enough. And I, like many gamers, will line up now that we have a tablet and separate controller to detach from our PC to play games on, stream movies, surf the net, etc. You made no mention of GRID, Tesla, and so on. They are a lot more than just GeForce, which is all you made it sound like...not surprising since you're a QCOM investor. Nvidia will win-outl

  • Report this Comment On July 22, 2014, at 4:51 PM, texasredraider94 wrote:

    And when the largest carmaker in the world, Volkswagen, along with niche players like Tesla Motors, are choosing're doing something right. It may take more time than some would like, but Huang is creating an ecosphere for Tegra & GeForce...there is soooo much more in store for this company. Wouldn't surprise me in the least if Apple or Samsung are wanting to license some of Nvidia's technology in the future, as these other devices show their worth. QCOM doesn't compete on performance, it's just a matter of whether Nvidia wants to compete on margins.

  • Report this Comment On July 23, 2014, at 11:55 AM, jwtrotter wrote:

    This writer poses as a tech specialist but is really a mouthpiece for Qualcomm. He had to change his tune a 'little' bit by going to conferences to review Nvidia products but anytime there is a QC win, his true colors show. It's been stated for a while that smartphones are no longer a priority and Qualcomm is winning because of the modem component and because most companies making smartphones realize now that they don't need the best graphics chip for the smartphone because they don't need that 'much' GPU for the smaller screens. But they do need it for the tablets, which is why QC doesn't have as many tablets and Nvidia continues to win tablets as well as make their own. This writer also doesn't really understand the gaming market at all.

    BTW, do you see any comments about how QC can take market share partly because they continue to rake in the royalties that mask the lower margins? Funny how that almost never gets mentioned, huh :)?

  • Report this Comment On July 23, 2014, at 2:41 PM, petempop wrote:

    It seem NVIDIA employees are out in force commenting, I wonder if any of those is Jensen in disguised :)

    The author makes good and valid points and it does not take much to see this, I would invite those who are saying otherwise to state the following with facts:

    1. List all NVIDIA Tegra K1 SoC table and/or phone wins

    2. Tegra exited smartphone, why? Answer should be simple

    3. Where else can Tegra compete outside Automotive? Even in Automotive there will be pressure with Qualcomm and Intel also competing in that space with more money to invest than NVIDIA

  • Report this Comment On September 03, 2014, at 1:06 PM, ThriKeen wrote:

    I'm sorry, but to dismiss the Nvidia Shield Tablet as inferior to the iPad Mini is simply, well, foolish.

    For reasons mentioned above by several informed posters, the Shield tablet is a very strong contender, far & away the best value on the market today.

    Have you ever seen this thing fly? I watched a demo at a recent seminar & this thing *shreds* the competition when it comes to 3D graphics.

    Combine that with the *freedom* from Apple's "walled garden", & the ability to output directly to a 4K UHDTV, & I'm sold.

    -and no, I'm not affiliated with Nvidia in any way, Petempop.

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Evan Niu

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at a major discount broker. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.

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