In 2010, Apple (NASDAQ:AAPL) integrated its mobile processors and took chip design in-house starting with the A4 in the iPhone 4. Since the iPhone maker comprises a large chunk of the broader smartphone market, that meant an incremental loss to mobile chip vendors that would have otherwise liked to compete for Apple's business. In addition, Samsung has also been increasingly using its own Exynos processors wherever possible in its smartphone lineup, although it still turns to Qualcomm when it needs to.
Combined, Apple and Samsung represent half of the market, with companies like NVIDIA (NASDAQ:NVDA) competing for mobile CPU design wins in what NVIDIA's Rob Csongor calls the "other half." To the extent that Apple and Samsung can grow their collective share, that will translate into less opportunity for NVIDIA and Qualcomm, among others, to sell their own processors. With NVIDIA's recent news that it would enter the mobile IP licensing business, that opens up a whole new world of opportunity for the graphics specialist.
Apple's A-chip strategy has entailed licensing CPU cores and instruction sets from ARM Holdings that it pairs alongside GPU designs from Imagination Technologies. There's evidence that Apple has even grander ambitions for its A-chips, which in an extreme case could include ditching Intel (NASDAQ:INTC) for its own Mac processors if it can ever reach acceptable performance levels. In addition, the broader computing value chain is favoring high levels of integration nowadays.
All of this translates into the possibility that NVIDIA could theoretically score its GPU IP in future iPhones once its licensing business takes off. There's virtually no chance that Apple would buy a Tegra processor directly for the iPhone, but integrating NVIDIA's graphics technology is a different story altogether.
On the Mac side, NVIDIA already powers the newest Macs with discrete graphics cards, but Apple continues to push toward integration as much as possible. For example, Apple moved away from discrete graphics in its Mac Mini family in favor of Intel's integrated HD 4000 last year. The possibility of licensing and integrating GPU technology from NVIDIA gives Apple a whole new route to consider if it wants to abandon Intel.
It's a smart move for NVIDIA to create a new revenue stream from its strong position in graphics, and the company can now potentially serve up graphics in a future iPhone.