Competition

At least for now Nvidia is "competing" with Intel in powerpointery wars (see our gallery), while we have note that Intel dies not yet play in the handheld industry yet. That will certainly change soon, but as of now, both companies are just preparing their entry into this market. In a way, Nvidia is going head-to-head with Intel if we look into the MID (mobile Internet devices) category of products, but Tegra has a lot of overlap into other segments.   

If we take a look at Nvidia's 10-K filling from March 21 of this year, Nvidia defines its Tegra competition as follows:

- suppliers of application processors that support PMPs, PDAs, cellular phones or other handheld devices intellectual property such as AMD, Broadcom, Fujitsu Limited, Imagination Technologies Ltd., ARM Holdings plc, Marvell Technology Group Ltd, or Marvell, NEC Corporation, Qualcomm Incorporated, Renesas Technology, Samsung, Seiko-Epson, Texas Instruments Incorporated, and Toshiba America, Inc.

- suppliers of application processors for handheld and embedded devices that incorporate multimedia processing as part of their existing solutions such as Broadcom, Texas Instruments Inc., Qualcomm Inc., Marvell, Freescale Semiconductor Inc., Renesas Technology, Samsung, and ST Microelectronics.

It is obvious that Nvidia is elevating its game and wants to play with the big boys. Tegra is the company’s first advance into a highly competitive market that has a market potential of more than one billion cellphones and more than 200 million smartphones and connected PDAs.


What about Intel’s Atom?

Make no mistake. Intel’s Atom and Nvidia’s Tegra basically aim for the same market segments. But there are differences and each of these products may go after different segments first, building their defenses over the next several months.

The first obvious difference is that Tegra is a SoC and Intel’s Atom comes in two parts (CPU + integrated graphics chipset called System Controller Hub – SCH). While Atom is a marvel of technology, Tegra is significantly smaller when you add up the size of the processor and chipset. Compared to Tegra’s 144 mm2 package, Atom’s package by itself is 182 mm2 and the SCH runs at an additional 484 mm2. The fact that Atom does not include the chipset and graphics functionality, but has to rely on huge chipset is the main reason why Intel can’t compete in the smartphone space at this time – Atom is just too large. Tegra, on the other hand, is one step ahead of Atom and can aim for iPhone-like devices. Intel says that its 2010 Moorestown chip will be small enough for integration in smartphones.      

Another distinct difference is the fact that Tegra has an ARM core while Atom has an x86 core. Atom’s software stack is compatible with Core 2 Duo, which means means that you can install any x86 operating system on an Atom computer. It also means that all those applications that run on your PC today will run on any device with an Atom CPU. Intel believes that this fact will give it an advantage over non-x86 devices (such as ARM), which typically require developers to modify their applications for one specific CPU core. It is unclear how this scenario will play out, but there is no doubt that Nvidia will have to come up with a software strategy for its Tegra processor family.

Where Nvidia has large advantage is the fact that the company developed user interface for Windows Mobile, and for devices such as GPS, Amazon Kindle, and devices where x86 just cannot compete. You can read all the details about Atom in our launch article.


Disadvantage

The obvious downfall of Nvidia is the fact that the company has to take its battles very carefully, since it has only 5000 employees and somewhat limited resources. Most of its new rivals have much larger employee counts. While Nvidia may be more nimble on the execution side, these products relies not only on the number of engineers that will support the product over the course of its life, but also on engineers that developer future products. Nvidia will need several hundred FAE (Field Application Engineers) dedicated to Tegra alone, and the software team has to keep up with more than one operating system, especially since the company is dealing with a non-86 CPU.

Supporting Windows Mobile is great, but not supporting upcoming operating systems such as Google's Android and the dominant player (Symbian) are signs of weakness. Competitors in this field have to support everything that platform vendors want - and we are only talking about cellphones at this point. GPS vendors such as Garmin, Magellan, TomTom might sell millions of Tegras, but Nvidia has to be able to support their specific demands. Pitching Windows Mobile as the platform of choice is not the way to go: At least two out of these three don’t want to hear about Microsoft.

The automotive industry is a different ballgame. In order to qualify as a processing platform for a major car manufacturer, Nvidia needs to dedicate 20-50 engineers for a single project alone. And if Tegra consumes too much of Nvidia’s engineering power, future projects such as PlayStation 4 and NV70 (GT300? GT400?), NV80, NV90 might suffer.

Also, bear in mind that current Detonator drivers (ForceWare, GeForce) exceed 15 million lines of code, or are about the size of Windows NT 4.0. Microsoft has 120,000 employees, Nvidia has just over 5000. We do not imply that Nvidia suddenly needs to double in size. But Nvidia will have to hire a lot of staff to support Tegra. We are hearing numbers that suggest that Nvidia may have to add about 10% to its workforce.  


What does this mean for NVDA?

Given the design of the part, it is obvious that Nvidia wants to capture substantial market share in the mobile space. And we know that the company, just like Intel, isn’t playing to come in second. There is a clear potential to ship more than 150 million Tegra chips within three years. Just the cellphone market could see more than 100 million units, if this new platform is successful. However, if Nvidia just focused to capture Nokia's contract (now that Infineon screwed up with mobile chip), Nvidia could be selling as much as 150 million APX 2500 chips alone (in 2007, Nokia shipped 112 million smartphones, 440M overall).

It is still too early to say what kind of market share can Nvidia take from Texas Instruments, Philips and Infineon, but if the company captures 10% of global cellphone share with its Tegra APX and a decent portion of mobile computing markets, then we are looking at a market opportunity of somewhere between $1 and $2 billion. Add to that a growing GPGPU business and it is not hard to see that Nvidia may be able to double its current annual revenue of about $4.1 billion within the foreseeable future – if everything goes according to plan.

This will be an uphill struggle for both Intel and Nvidia. But Tegra and the aggressive "all-out" chip design is something that should get every single one of its rivals concerned. Tegra is not just aiming for Intel, Tegra is a sign of Nvidia growing up: Tegra is Nvidia’s first product that will directly challenge mobile industry and reveal how strong Nvidia has become. Time will tell if Nvidia is strong enough. Also, time will tell is Intel strong enough.

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