The tablet wars are heating up. While Apple (AAPL +0.01%) and Samsung (NASDAQOTH: SSNLF) grapple to the death for "hero device" supremacy, hordes of smaller challengers are bringing the fight to the big boys. Xiaomi -- one of China's top smartphone vendors -- has been aggressively fighting in the handset market and has now turned its attention to the tablet market with its latest Mi Pad -- powered by NVIDIA's (NVDA +0.64%) Tegra K1.
Meet the Xiaomi Mi Pad
The Xiaomi Mi Pad is a 7.9-inch tablet that essentially looks like a fusion of the Apple (NASDAQ: AAPL) iPad mini with Retina Display and the plastic, colorful casing of the Apple iPhone 5c. The interesting thing about this device is that it's pretty jam-packed with the latest hardware capabilities, such as:
- 7.9-inch 2048x1536 display (similar to the one found on the iPad mini with Retina Display)
- 802.11ac Wi-Fi capability
- NVIDIA Tegra K1 system-on-chip
- 2GB of LPDDR3 (the iPad only has 1GB)
Source: Xiaomi.
Most interestingly of all, this device is priced at the equivalent of $240, compared with $399 for the Apple-equivalent. This is a very interesting value proposition for users looking for an iPad mini with Retina Display on a budget (but with better hardware features) that don't mind using the Xiaomi-skinned version of Android that runs on the device.
NVIDIA's Tegra K1 seems to live up to its graphics promises
While it is important to not take a single benchmark (especially one not accompanied by power measurements) or two as the be-all, end-all determinant of chip performance, the Tegra K1 seems to offer pretty stunning graphics performance relative to the already class-leading Apple A7 (powered by Imagination's (LSE: IMG) PowerVR Series 6 GPU):
Source: Xiaomi.
Of course, one could rightly argue that this is a completely unfair comparison in light of the fact that the iPad with the A7 processor launched in September/October in the iPhone 5s/iPad, respectively (so, looking at a time delta of about nine months, since the Mi Pad will be available in June). However, it would be quite the feat for Apple to do 2-3 times the graphics performance that it currently gets using stock Imagination IP (admittedly implemented by one of the best physical design teams on the planet) in the upcoming A8.
At any rate, if NVIDIA can get this kind of real-world performance advantage over its competition (which will probably be the Snapdragon 805, Apple's A8, and potentially Intel's (INTC +2.56%) Cherry Trail) across a number of relevant gaming workloads, then Tegra K1 will have been a resounding success.
How much bacon will this bring home for NVIDIA?
Technology is great, but at the end of the day, businesses exist to make money, and a technology company like NVIDIA develops this technology in order to deliver shareholder value. If we assume NVIDIA is selling a Tegra K1 for about $20 at about 45% gross margin, then depending on how many tablets Xiaomi can sell, NVIDIA could be looking at a number of potential sales/margin outcomes, as shown here:
| Sales |
1 million |
2 million |
3 million |
4 million |
5 million |
|---|---|---|---|---|---|
|
Revenue (in millions) |
$20 |
$40 |
$60 |
$80 |
$100 |
|
Gross profit (in millions) |
$9 |
$18 |
$27 |
$36 |
$45 |
Assuming the Mi Pad sells anywhere between 1 to 5 million units over the next year, NVIDIA could be looking at -- from this design -- anywhere from $20 to $100 million in revenue and between $9 to $45 million in incremental gross profit dollars. Now, NVIDIA's Tegra business seems to be at a $135 million or so quarterly run rate, so a $100 million win (in the case that this sells 5 million units) spread over four quarters would be a pretty material win. However, it's important to keep expectations in check -- this one design isn't going to change NVIDIA's fortunes, but it is likely to be indicative that NVIDIA's Tegra K1 product is competitive and viable, thus leading to other wins in the future.
Foolish bottom line
NVIDIA's Tegra K1 is just now starting to show up in designs. If the performance and power is as competitive as these initial benchmarks suggest, then NVIDIA has really outdone itself with the Tegra K1 and proven just how good of a visual-computing oriented mobile processor a company with GPUs in its DNA can build.
While technology in and of itself isn't enough (remember, stocks are all about the cash flow), as long as NVIDIA can keep winning high-quality sockets, it should keep on building Tegra into a viable long-term business segment in tablets, automotive, and other graphics-intensive use cases.
