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Should NVIDIA Investors Be Worried About Qualcomm's Pending Purchase of NXP Semiconductors?

By Chris Neiger – Nov 8, 2016 at 10:13AM

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Qualcomm's about to have a dominant position in the automotive semiconductor space and gain some serious self-driving technology.

Image source: Getty Images.

If you've been following the technology or automotive space over the past couple of weeks, then you probably know that mobile chip designer Qualcomm (QCOM -0.93%) is making a big play in the automotive technology space with its recent $39 billion bid to buy NXP Semiconductors N.V. (NXPI -1.33%).

Should the deal close, Qualcomm would end up owning the leading producer of automotive semiconductors, and also NXP's self-driving technologies. All of which could be just a tad worrying for NVIDIA (NVDA -0.93%) investors. Here's why.

Where Qualcomm would compete

It's worth mentioning right off the bat that Qualcomm and NVIDIA aren't completely comparable companies. Qualcomm primarily makes its money from designing mobile processors and licensing baseband (3G and 4G mostly) technologies to other companies. Meanwhile, NVIDIA makes most of its revenue in gaming, and sells graphics processing units (GPUs) for everything from data centers to driverless cars.

But Qualcomm's purchase could create a massive foe for NVIDIA because NXP released its own driverless car technology over the summer, called BlueBox, that competes with some elements of NVIDIA's Drive PX 2 self-driving tech. 

BlueBox is an all-in-one system of sensors, cameras, software, and NXP chips that's designed specifically for adding semi-autonomous driving features to vehicles. NXP says that BlueBox will help automakers easily bring self-driving features to their vehicles, allowing for near fully autonomous driving cars by 2020.

NVIDIA is already making headway in the self-driving space, of course. It's Drive PX 2 system is already used by 80 automakers and Tier 1 automotive suppliers.

Drive PX gives vehicles situational awareness by using NVIDIA's class-leading GPUs to process visual information and then use algorithms to help semi-autonomous cars understand how to react to what they see. In a recent vote of confidence, Tesla said it'll be using NVIDIA Drive PX platform for its self-driving supercomputer needs.

We're still at the beginning stages of semi-autonomous driving technology, so it's still a bit too early to declare a winner here. But there's no doubt that NXP and NVIDIA have overlapping technology that could lead to automakers choosing one over the other. 

One of the advantages for Qualcomm is that NXP's BlueBox includes all the sensors and cameras that automakers need to bring self-driving features to a car, while NVIDIA's system is more about the GPUs and software.

How Qualcomm could dominate

OK, so Qualcomm will certainly compete with some of NVIDIA's technology. But there are two reasons why Qualcomm could ultimately dominate in the automotive technology space. 

The first is that the company already makes LTE baseband chips for vehicles and it could use the NXP purchase to expand its relationships in the automotive space and sell even more of them. 

That's important when you consider that NXP already has a dominant 14.5% market share in the automotive semiconductor space right now. If Qualcomm snatches up NXP, then it could use those new automotive relationships to sell more LTE connections in cars, while it dominates automotive semiconductors and offers a  strong self-driving technology platform. Bringing all of those together under one roof could make it very easy for automakers to go with Qualcomm's tech over any other company.

Don't worry just yet

If there's one thing I'll leave NVIDIA investors with, it's that they don't need to panic just yet. NVIDIA already has a strong position among automakers and that's not likely to change just because Qualcomm is buying NXP. Qualcomm will still have to efficiently bring NXP's semiconductor manufacturing under its wing and build out driverless car technologies at the same time (and it doesn't have direct experience with either). NVIDIA's already proven that it can design, manufacture and sell great self-driving technology, and now it'll just have to prove it can keep doing the same against a new, larger competitor.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends NVIDIA, NXP Semiconductors, Qualcomm, and Tesla Motors. 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.

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