How NVIDIA Corporation Plans to Grab a Piece of This $12 Billion Market

According to graphics chip-maker NVIDIA (NASDAQ: NVDA  ) , the market for games sold on Google's (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) popular Android platform will be worth $12 billion by the end of 2016. Although NVIDIA doesn't sell games directly to end users, it does hope to capitalize on this booming industry through the sale of performance-oriented mobile processors as well as other gaming-related hardware.

A two-pronged approach
NVIDIA has a long history as a graphics chip designer. It, along with longtime rival Advanced Micro Devices (NYSE: AMD  ) , designs powerful graphics processors that go into consumer PCs, professional workstations, and even supercomputers.

However, in order to capitalize on the smartphone and tablet opportunities from a chip perspective, NVIDIA can't just sell stand-alone graphics processors -- it needs to provide highly integrated processors (known as "systems-on-chip") in order to be successful in the ultra-mobile device market.

Such chips integrate a host of sub-components, which include central processing units, graphics processors, dedicated video and image processors, and, in some cases, even cellular modems. NVIDIA's line of such products is sold under the "Tegra" brand.

In addition to offering mobile processors to third-party device vendors, the company has also been designing and selling its own gaming-oriented mobile computing devices (powered by its Tegra processors). To date, the company has released a handheld gaming device known as Shield Portable and a gaming-oriented tablet known as the Shield Tablet.

There's some interesting stuff going on here, so let's take a closer look.

A focus on performance with Tegra
NVIDIA's strategy with Tegra has evolved over time. Initially, the company appeared very interested in going after a large part of the mobile market, gunning for premium devices (tablets and higher-end phones) with one line of processors and for more mainstream smartphones with another.

However, according to Jen-Hsun Huang in an interview with CNET, NVIDIA's experience with its mainstream-focused Tegra 4i platform taught the company a valuable lesson. 

"I think that for mainstream phones, there's one strategy that really works right now, which is price. That's not our differentiator," Huang said.

So, what exactly is NVIDIA's differentiator?

"[O]ur phone and device strategy is to focus on performance-oriented devices -- devices where performance and differentiation matter" said Nick Stam, senior director of technical marketing for NVIDIA in an email exchange. "[W]e partner with people that are looking for that performance differentiation and coolness factor."

Does Tegra K1 measure up?
NVIDIA's latest mobile processor is known as the Tegra K1, and it has shown up in a couple of performance-focused devices so far: the Xiaomi MiPad and NVIDIA's own Shield Tablet. Does it live up to the company's claims?

According to AnandTech, "the Tegra K1 is easily the fastest in all of [its] GPU benchmarks."

In a follow up piece, AnandTech noted that the Tegra K1 "delivers immense amounts of performance when necessary, but manages to sustain low temperatures and long battery life when it isn't."

Additionally, in my exchange with Stam, I raised the question of whether the Tegra K1 -- which has yet to show up in a commercially available smartphone -- could potentially power smartphones.

"Tegra K1 can deliver the best performance in a superphone power budget," Stam replied, presumably referring to larger-screen devices like the Xiaomi Mi3 (which comes with a 5-inch 1920-by-1080 display).

The second part of the equation: Shield
While NVIDIA still supplies Tegra processors to third-party device vendors, it has also begun to design and sell its own Tegra-powered devices under the "Shield" branding.

Last year, the company released a product known as the Shield Portable -- a handheld, Android-based gaming device. This year, NVIDIA followed that up with an 8-inch tablet known as the Shield Tablet. According to Stam, these Shield-branded products are intended to "leverage Android and build a gaming platform out of it."

While the company doesn't explicitly break out Shield revenue, the original Shield portable didn't do much to stop the 48% year-over-year decline in NVIDIA's Tegra revenue in fiscal 2014. However, the Shield tablet may fare better as it is, in the words of Engadget, "a solid, worthwhile 8-inch Android tablet in its own right, and it happens to have a host of novel features, to boot."

Though the company's Tegra business doing much better this year (up 35% and 200% year-over-year during the first two quarters of fiscal 2015), it's not yet clear how much of the company's Tegra revenue will come from device sales against more traditional chip sales. Nevertheless, if the Shield products turn out to generate material revenue, the company could choose to break out those sales numbers later on.

Foolish bottom line
Though NVIDIA's strategy to address the mobile gaming market has evolved markedly over time, it's clear that the goal is to try to compete in markets where its experience in developing gaming-oriented products will be valuable.

If there really is a market for, as Stam puts it, for "gamers that also want a tablet," NVIDIA seems well-positioned to capitalize on that demand with Tegra and Shield. Investors will likely get a much better picture of what this opportunity could ultimately amount to as the next 12-18 months play out. 

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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 September 04, 2014, at 11:48 AM, romeras wrote:

    But.....There is a great problema!!!!!!

    Fake Nvidia GeForce GTX 660 cards sold by German retailers

    It has been discovered (translation) that "many retailers" in Germany are selling Nvidia GeForce GT 440 graphics cards in GeForce GTX 660 clothing. As well as the obvious packaging and presentation deception the VGA BIOS misreports the spec of the fake cards, however other tools on your PC will be able to see through that digital deceit.

    These 'bargain' graphics cards have been benchmarked and offered up about a quarter of the performance of a real GTX 660. That tallies with the GT 440's much reduced shader count, and use of slower DDR3 memory, among other poorer specs of the Fermi generation GF106.

    http://hexus.net/business/news/retailers/73853-fake-nvidia-g...

  • Report this Comment On September 04, 2014, at 11:50 AM, romeras wrote:

    From GeForce GT 440 to GTX 660 - Fake Nvidia cards in German Retail

    by Hilbert Hagedoorn on: 08/29/2014 08:54 AM | Source | 4 comment(s) ]

    Every so often you hear news that fake graphics cards are being sold somewhere. Often these products are sold for a more expensive model, yet have a cheaper GPU. This round in Germany have found GeForce GTX 660 and 650 4GB graphics cards that in fact are equipped with a GeForce GT 440 GPU. The BIOS of these graphics cards have been re-flashed with a new Device ID making it seem like they are a 600 series product in your control panel.

    However if you benchmark them, you'll notice there's a difference real fast. The fake cards entered the German channel via distributor Kosatec. And a rather intricate detail is that they purchased the batch from the Dutch based Point of View.

    Point of View on their end deny any wrongdoing as they obtained the products from from Chinese manufacturers. The parties involved and NVIDIA are investigating the issue and are planning a recall to ensure anyone who bought one of the fake cards will be able to get a refund.

    http://www.guru3d.com/news-story/from-geforce-gtx-geforce-gt...

  • Report this Comment On September 04, 2014, at 11:59 AM, romeras wrote:

    Nvidia do not have an easy life :

    NVIDIA GeForce GTX 770 Receives 15% Price-Cut To Tackle Radeon R9 285 – Now Available For $275 US

    Read more: http://wccftech.com/nvidia-geforce-gtx-770-receives-15-price...

    Radeon R9 285

    The GeForce GTX 770 is based on the GK104-425 core architecture which is a revised version of the GK104 core introduced on the GeForce GTX 680. The GeForce GTX 770 and GeForce GTX 760 are the only remaining cards that utilized the GK104 architecture in the GeForce 700 series lineup while other cards include the majority of GK110 variants and two GM107 variants. The GeForce GTX 770 was the first card to introduce and feature 7 GHz memory chip while majority of the specifications included 1536 cuda cores, 128 texture mapping units, 32 raster operators and 3.5 billion transistors. The GeForce GTX 770 also featured faster core clock of 1046 MHz core and 1085 MHz boost. The graphic card was available in both 2 GB and 4 GB VRAM variants which ran along a 256-bit wide interface. The overall specifications did result in a TDP increase from 195W to 230 (GeForce GTX 680 vs GeForce GTX 770) but it meant better performance and overclocking potential since the card did make use of a better reference PCB.

    NVIDIA is now aiming to give the GeForce GTX 770 an official price cut of 15% which brings the price down to $275 US. The Radeon R9 285 retails at $249 US so the card is still $25 US more expensive than the AMD card but the performance gap is little between the both. The custom variants of the GeForce GTX 770 and Radeon R9 285 will be similar in pricing since they both come in 2 GB and 4 GB flavors. The Radeon R9 285 is based on a new ASIC while the GeForce GTX 770 utilizes the revised GK114 chip. Both graphics cards are suitable for 1080P and 1440P gaming so its up to users to decide if they want to go with the green team or red

    Read more: http://wccftech.com/nvidia-geforce-gtx-770-receives-15-price...

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