Back in June, graphics chip designer NVIDIA (NVDA +1.13%) announced that it would begin licensing its current graphics architecture, Kepler, as well as all future graphics architectures. NVIDIA's failure to break into the mobile market in a significant way was part of the reason for the move, with the company's Tegra division still losing money and acting as a drain on the company's profits.
At the time of the announcement, Kepler was only used in PC and high-performance discrete graphics cards, with the Tegra 4 built around a different architecture. Winning smartphone and tablet customers like Apple (AAPL +0.33%) or Samsung would require Kepler to be shrunk down into a mobile chip. That's exactly what NVIDIA did with the Tegra K1, announced at this year's CES. The Tegra K1 is a mobile chip built around the Kepler architecture, supporting all of the standards and technologies currently available for desktop GPUs, and it opens up a world of possibilities for NVIDIA.
A powerful chip
While the Tegra K1 won't be available in devices until later this year, early performance benchmarks have popped up showing that the chip greatly outperforms competition from Qualcomm and Apple, both in CPU and GPU performance. The benchmarks are from a 28-inch all-in-one from Lenovo powered by the Tegra K1, and the results are encouraging for NVIDIA.
In terms of CPU performance, the K1 outperforms the Snapdragon 800 from Qualcomm by about 15%. In one benchmark, it nearly doubled the Apple A7, the custom chip that powers Apple's newest devices. Graphics is where the K1 really shines, though, destroying the competition by a significant margin.
While questions about power efficiency and heat dissipation -- the device used was an all-in-one desktop and not a mobile device -- have yet to be answered, it's clear that NVIDIA has designed an incredibly powerful mobile chip.
Licensing potential
The Tegra K1 proves that Kepler can be brought to mobile devices, and that its performance beats everything else available by a wide margin. This puts NVIDIA in the position of being able to license the most powerful mobile graphics technology available to companies that would likely never use NVIDIA's Tegra chips.
Apple licenses from Imagination Technologies (NASDAQOTH: IGNMF) for the A7 processor that powers the iPhone and iPad, and Apple owns a significant stake in the company. But Imagination's graphics technology can't compete with NVIDIA, according to the benchmarks, and the next iteration likely won't be available until late 2015. With the Tegra K1 launching this year, and a second version with custom CPU cores set to release toward the end of this year, Imagination is at risk of falling far behind NVIDIA.
This leads to the possibility of Apple integrating NVIDIA's technology into its next mobile chip instead of using Imagination's technology. NVIDIA is set to launch its newest GPU architecture, Maxwell, in the coming months, and with the desktop and mobile roadmaps now merged, NVIDIA's lead in mobile graphics could quickly become insurmountable. Apple doesn't ship sub-par products, especially if the Android competition starts including NVIDIA's more powerful graphics technology, so it may be only a matter of time before NVIDIA finds its way into Apple's products.
Apple would have never included NVIDIA's Tegra chips into its devices, given that it's taken the time and effort to design its own chips. By licensing to Apple, NVIDIA's not losing any business at all. In fact, it would likely spur high-end Android tablet makers to include NVIDIA's technology in order to compete, and possibly buy Tegra chips directly from NVIDIA. Licensing is attractive because it shifts the actual design and manufacture off to the licensees, leaving the company owning the technology with a stream of high-margin revenue. While NVIDIA would make more money if it managed to get its Tegra chips into tens of millions or hundreds of millions of devices directly, that strategy also comes with a lot more risk.
The bottom line
The Tegra K1 is a compelling product, but the real potential lies in the licensing of the underlying technology. Now that NVIDIA has moved its desktop graphics architecture to the mobile world, there's little stopping chip designers from integrating NVIDIA's superior graphics technology into their products. As NVIDIA's lead over Imagination Technologies widens, it seems likely that companies like Apple will begin opting for NVIDIA's technology over the competition.
