Tegra X1. Image source: NVIDIA.

The mobile chip business just ain't what it used to be. Last week, graphics-chip maker NVIDIA (NASDAQ:NVDA) reported an overall strong quarter, sending shares higher to the tune of 14% on Friday as investors cheered the results. The core graphics business remains remarkably strong in the face of a weak broader PC market, which makes sense because NVIDIA targets only a high-end niche within the broader PC market.

Total revenue increased 5% to $1.15 billion, largely driven by the 9% jump in GPU sales that comprised $959 million of the top line. However, hiding behind the strength in GPU sales was NVIDIA's Tegra business, which continues its slow and steady decline.

Smartphones, tablets, and automobiles
Once upon a time, NVIDIA had high hopes of challenging Qualcomm's (NASDAQ:QCOM) mobile-chip business, but it simply proved too difficult. Qualcomm's advantages in cellular integration are simply unrivaled, leading NVIDIA to expectedly wind down its Icera acquisition as an admission of defeat. Even with that technological lead, it seems that even Qualcomm's chip business isn't unassailable as the two largest smartphone OEMs on the planet continue to bring an increasing number of designs in-house whenever technologically feasible.

As a result, NVIDIA stopped targeting the mobile market quite some time ago. Using the popular terminology when things are going the right way, the company decided to "pivot" toward another market altogether: the automotive market. For a while, NVIDIA's Tegra revenue was quite the roller coaster during this transition, although sales do appear to be stabilizing.

Source: SEC filings. Fiscal quarters shown.

The transition away from smartphones and tablets is still under way. NVIDIA says Tegra revenue was heavily pressured by Tegra OEM smartphones and tablets, leading to the 19% revenue drop. Automotive sales continue to grow, up 76% during the quarter to $71 million, which is helping to offset the declines in mobile wins. To be clear, the automotive market does have a lot of opportunities in the years ahead, even if it's a much smaller market compared with the smartphone market in terms of unit volumes.

NVIDIA says it is now powering 8 million cars on the road and expects 30 million more cars in the near future to be powered by its Tegra platform. Many automakers continue to research and develop driver-assisted and autonomous vehicles, and Tegra can help the vehicles process all of that information coming in from the plethora of necessary sensors like LIDAR, radar, and sonar. Of course, not only is the auto market smaller than the mobile market, but the upgrade cycles are also much longer, so the related auto ramp-up for Tegra will be rather long.

All is not lost
As far as where Tegra goes from here, the overall answer is still probably "down," as NVIDIA continues its ongoing "pivot" away from mobile devices. But all is not lost, as the Tegra business will stabilize to the extent that the company can maintain its current momentum in the automotive market. NVIDIA only recently began breaking out automotive revenue explicitly, which is now at a roughly $280 million run rate.

Once upon a time, NVIDIA CEO Jen-Hsun Huang firmly believed that he could grow Tegra into a $1 billion mobile-chip business. These days, he believes he can grow Tegra into a $1 billion auto chip business. Should investors believe him?