Shortly before the market opened this morning, NVIDIA (Nasdaq: NVDA) announced a $367 million acquisition of British wireless chip expert Icera. If you're wondering what NVIDIA -- a company traditionally known for its graphic card expertise -- is doing buying up a company that specializes in baseband and radio frequency  technology, it can all be summed up in one word: integration.

Connecting to profits, please hold
As a little background, Icera's specialty -- baseband processors --  take in wireless signals and convert them to something the central processor can handle. This is a market that was previously commoditized enough that a central player like Texas Instruments (NYSE: TXN) decided to exit the field. However, the direction of smartphone designs has pushed baseband design back into favor.

First of all, the proliferation of multiple complex wireless standards -- like LTE and varying 3G flavors -- has increased the challenge of designing baseband processors and concurrently allowed for greater profits within the industry. Take a look at Apple's (Nasdaq: AAPL) iPhone. The company has been reticent to add an LTE modem, despite the faster download speeds it allows, because early LTE-capable baseband processors are both too bulky and consume too much power for Cupertino's taste. In many ways, connectivity components like baseband and RF filters and amplifiers have become key differentiators in the mobile world.

The all-in-one future
Yet the biggest change in connectivity boils down to integration. Smartphones place a particular emphasis on a couple key features: low power consumption and a very small package. By integrating all the wireless components like a baseband processor onto a single chip with the central processor, chip companies can offer space and power savings to their end handset customers. Qualcomm (Nasdaq: QCOM) was the first company to push into this in a big way with its Snapdragon processor, and the result has been a borderline monopoly on key Android smartphone wins. 

Other companies picked up on Qualcomm's success and have also pushed further into baseband processors. Intel (Nasdaq: INTC) purchased Infineon's wireless unit last August for $1.4 billion. Looking to beef up its LTE and WiMAX capabilities, Broadcom (Nasdaq: BRCM) shelled out $316 million to purchase Beceem in October.

Now NVIDIA's seeing the light. The company has been very successful scoring a host of high-profile design wins in tablets but has been less successful in smartphones. The reasoning for this is pretty simple: Tablets are more geared for horsepower, which Tegra has ample amounts of. On the smartphone side, space is constrained, power is of the utmost importance, and companies have been far more receptive to Qualcomm's integrated approach.

Don't expect huge leaps in smartphones initially, though. In an interview with Barron's, Mike Rayfield, the general manager in charge of Tegra, indicated that Icera's specialty is on data-only devices. That would point to NVIDIA using Icera to fortify its position in tablets, with future ambitions potentially pointed toward an integrated platform on smartphones.

Final thoughts
While the acquisition is a little late behind its peers, NVIDIA's purchase of Icera is probably necessary if the company wants to maintain its smartphone ambitions. I've long been critical of NVIDIA's ability to make meaningful advancements in smartphones if Tegra continued as a stand-alone applications processor.

So, while I wish NVIDIA would have been a little more aggressive about this last year, and it appears to be focusing on tablets initially, I do believe the acquisition makes sense. More to the point, NVIDIA's near-term focus should be keeping the pedal to the metal with beating key rivals Qualcomm and Texas Instruments to the next-generation of application processors. If the company had rushed with integrating baseband and RF capabilities, it could have caused a loss of focus and endangered that slim but critical lead in time to market.

As I learned from my own short-sighted calls  on NVIDIA to show more Tegra results last August, right before it started seeing traction on tablets, the mobile market has long periods of handset companies sampling and testing designs before using them in their next great product. So while this is a bold move onto Qualcomm's turf that might not pay off in the end, give it plenty of time before passing judgment.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.