At the consumer electronics show, Nvidia, Inc. (NASDAQ:NVDA) provided more details on its Tegra 3 quad-core applications processor, which it believes will support its $800 million to $1 billion Tegra sales goal.
But, it would not be easy for Nvidia to achieve this goal as Apple, Inc. (NASDAQ:AAPL), Qualcomm, Inc. (NASDAQ:QCOM), Samsung and Texas Instruments, Inc. (NASDAQ:TXN) would release their powerful processors in the second half of 2012.
"Given the uncertainty for both Nvidia's Tegra 3 window of opportunity in smartphones and its serviceable market for tablets, we remain skeptical Nvidia can achieve its $0.8-1.0bn Tegra sales goal," UBS analyst Uche Orji wrote in a note to clients.
Qualcomm's MSM8960, Apple's A6, Samsung's Exynos 5250 and possibly TI's OMAP 5, are expected to ramp in the latter half of 2012 and all of these chips could offer equivalent, if not better performance versus Tegra 3 for most applications.
Orji said if Nvidia wants to achieve its goal, it should capture about 15 percent of the smartphone market and achieve about 50 percent penetration of the non-iPad/non-ultra-low-end market.
But, even achieving this goal would especially be a challenge as the smartphone market is moving more towards captive solutions (Apple, Samsung) and integrated merchant solutions (Qualcomm, Broadcom, Marvell, STMicro), leaving a limited number of opportunities for Nvidia.
"We are also concerned that the tablet market is undergoing a fundamental shift as a result of Amazon's Kindle Fire," Orji said.
The price point of Kindle Fire would make it difficult for Nvidia to sell Tegra in line with its corporate average gross margin. In addition, Amazon has taken on a model where heavy lifting requirements for the apps processor are offloaded to the cloud that could obviate the need for a premium processor.
If end-users view a tablet as a low-cost content consumption device then Amazon model would succeed as it subsidizes the tablet and provides a superior experience compared to an unsubsidized tablet at the same price. The shift would reduce the size of the premium non-iPad tablet market, thereby providing only limited opportunities for Nvidia.