Earlier this week The Wall Street Journal shed some light on a possible partnership between Google (NASDAQ:GOOGL) and Audi that would bring the Android platform to some Audi vehicles next year. Meanwhile, Apple (NASDAQ:AAPL) is already working with several automakers on its iOS in the Car initiative, chipmaker NVIDIA (NASDAQ:NVDA) already provides chips for Tesla's Model S, and Microsoft (NASDAQ:MSFT) helped develop Ford's (NYSE:F) voice-activated infotainment system.
With car companies eager to stay ahead of the tech curve, and tech companies wanting to branch out into new potential revenue opportunities, a mutually beneficial relationship has emerged. So let's take a look at three ways tech companies are changing the auto industry, and which one might hold the most potential for investors.
Forget the living room, it's all about the cabin
Google's forthcoming initiative with Audi will bring a version of the Android platform to the luxury automaker's vehicles, including music, navigation and other Android-specific apps a user chooses. It won't be the first time Android has been used in a car's infotainment system, but it is one of the first times Google is working directly with an automaker to make it happen.
But Apple beat Google to the punch when it introduced Siri integration for autos last year and iOS in the Car at its developer conference this year. So far, the company has BMW, Mercedes-Benz, General Motors, Honda, and a few others on board. The iOS integration has been slow so far, but GM has a few models that can tap into Siri, and Honda is now releasing models that do the same.
The main difference between Google's initiative with Audi and Apple's car-based iOS is that Android will run on a vehicle's internal hardware, while Apple's version requires an iOS device that pairs with the car. But as of right now, both systems are in the very early stages of adoption, and either one -- or both -- could make a strong run in the space.
It's what you don't see that counts
Operating systems often get a lot of attention because they're what users experience on a daily basis, but in-car infotainment systems rely on superior internal hardware to make everything work. NVIDIA has been an early adopter in the space with its Tegra chips for vehicles. Tesla uses the Tegra processor in its Model S vehicles, and NVIDIA's chips can also be found in Aston Martin, Audi, Bentley, BMW, Lamborghini, Rolls-Royce, and Volkswagen vehicles, and are expected to be in more than 30 models within the next few years. It's estimated that about 4 million vehicles on the road have NVIDIA chips in them.
NVIDIA also has a development platform called Jetson that allows automakers to produce systems like driver assistance and collision avoidance. For NVIDIA, the move into the automotive space could eventually bring $1 billion in annual revenue, according to CEO Jen-Hsun Huang.
But NDIVIA isn't without its competition. Intel is currently working with Jaguar Land Rover, Nissan, Toyota and others on infotainment systems, and NXP Semiconductors (NASDAQ: NXPI) is the top semiconductor supplier for automobiles two years running. Revenue from NXP's automotive division hit $261 million in the quarter ending in October, up 9% year over year. As the automotive sector continues to add new technologies, chipmakers may be in the best position to adapt their technology for automotive purposes.
Putting it all in sync
For years, Microsoft has worked with Ford on its SYNC in-car voice and touchscreen technology. Back in 2012, the SYNC system suffered from repeated glitches and Ford had to send a significant update to its users. Consumer Reports even dropped Ford from the No. 5 spot on its automotive report card to No. 11 last year because of the problems.
The SYNC issue also sparked a lawsuit from the Center for Defensive Driving, and both SYNC and touchscreen tech -- called MyFord Touch -- have continually been criticized. The current problems Ford's technology faces is an example of how difficult integrating new technologies into vehicles can be.
Investors should be cautiously optimistic about the potential for more tech companies partnering with the automotive sector over the next few yeasrs. Car companies are only going to want more technology integration, and it makes a lot of sense for them to pursue industry leaders in the tech sector to get the job done.
Although operating systems, touchscreens, and voice-activated systems get the most attention, investors may want to focus their attention more on the hardware side of these new initiatives. Chipmakers will be able to sell their silicon to car companies in a similar way they do to device makers, which could mean a smooth transition into automobile tech. As in-car operating systems become more advanced and demand more critical data processing, chipmakers may be poised to benefit from the advanced tech demand.