It's about time to take an official stance on NVIDIA (Nasdaq: NVDA). I've liked the chipmaker's recent mobile moves, and although it's not quite time for it to make its way into my portfolio, it is time for me to give the company a big green CAPScall on my scorecard, since I think NVIDIA is on track to outperform in the foreseeable future.
Mobile moves
The mobile revolution that's just beginning hardly needs an introduction. The good news is that NVIDIA also doesn't need to be briefed on it. The company is leading the pack in mobile processors with its quad-core Tegra 3, which just landed ahead of fellow ARM Holdings (Nasdaq: ARMH) licensees and mobile processing rivals Qualcomm (Nasdaq: QCOM) and Texas Instruments (NYSE: TXN).
Source: NVIDIA.com.
Tablets running Microsoft (Nasdaq: MSFT) Windows 8 powered with quad-core Snapdragons are set for the second half of 2012. Earlier this year, Texas Instruments had announced its quad-core OMAP 5 mobile platform, which was also expected in the latter half of next year, but the company has recently taken a more conservative stance. TI now intends to focus on its dual-core offerings, since it believes quad-core chips have issues with cost and heat generation.
Apple custom-designs its own mobile CPUs, but the next year's A6 will also presumably have four cores.
NVIDIA's Tegra 2 was also the first dual-core mobile processor when chipmakers crossed that threshold, and the company has bet big on the lineup -- to the tune of $2 billion over the past five years. Tegra also has an aggressive superhero-themed roadmap. The Tegra 3 was codenamed Kal-El and will be followed up with Wayne, Logan, and Stark, representing Superman, Batman, Wolverine, and Iron Man, respectively.
Graphic roots
NVIDIA grew up with graphics and its GPU business sees some threats from Intel (Nasdaq: INTC) and Advanced Micro Devices (NYSE: AMD). Intel's Sandy Bridge architecture offers integrated graphics, which offer sufficient performance for most casual users.
For example, Apple's popular MacBook Air lineup utilizes Intel's integrated solution instead of a discrete GPU from NVIDIA or AMD. Apple's higher-end offerings currently use discrete GPUs from AMD after switching from NVIDIA last year, but Cupertino may be about to go back to its former flame.
NVIDIA had reported healthy design win activity with Intel's Sandy Bridge platform at vendors such as Dell and Hewlett-Packard, but primarily in machines geared toward gamers and pros. For the most part, the GPU business has remained healthy despite the threat of integrated graphics.
The GPU segment showed an 11% rise in revenue last quarter, while the consumer-products business -- which includes Tegra -- reported a stellar 268% revenue jump to $191.1 million. The professional-solutions business, which includes its supercomputer offerings, marched its sales ahead by "only" 10%.
R.I.P. Wintel
Not only is NVIDIA getting a foothold in supercomputers and other high-end niches, but it is also looking to bring its ARM-based processors to the traditionally Intel dominated arena of PCs with Project Denver. The initiative aims to power PCs, data-center servers, and supercomputers with ARM processors while ditching the inefficiency of x86 architecture.
ARM architecture has already showed up in a server offering being tested by HP. Although toppling Intel's dominance is a tall order to fill, it all starts by chipping away at Goliath's armor. NVIDIA has already named ARM as the standard in mobile, and the company hopes to expand its ARM-based horizons accordingly.
Microsoft counts NVIDIA as one of its ARM-based Windows 8 partners, alongside Qualcomm and TI and the requisite x86-based Intel. CEO Jen-Hsun Huang has said that it's "clear that ARM is going to be a large ecosystem," and he's excited at the prospect of "Windows on ARM."
Future mobility
Huang has tied the company's future to mobile computing, especially operating systems like Windows 8 and Google (Nasdaq: GOOG) Android 4.0 Ice Cream Sandwich. He predicts affordable $300 Tegra 3 tablets by next year. By 2015, the company sees $27 billion in market opportunities between GPUs and mobile CPUs alone, with the latter representing $20 billion. Full-year 2013 revenue is expected in the range of $4.7 billion to $5 billion, a healthy range above the $4.4 billion consensus estimate.
My portfolio is full of mobile-sector plays, and the day may soon come when NVIDIA will find a place. Until then, it will remain on My Watchlist and my CAPS page.
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