Nvidia’s LTE Chips Validated By AT&T, Challenges Qualcomm’s LTE Dominance

Being a dominant player in a high-growth market may have its own perks, but one constantly has to be wary of emerging competitors. RIM has learned this the hard way. Qualcomm (NASDAQ:QCOM), on the other hand, is learning to negotiate the treacherous path as a number of competitors such as Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC) and Broadcom (NASDAQ:BRCM) have emerged recently to challenge its dominance in what is promising to be a highly rewarding but hotly contested mobile space.

Nvidia recently made two key announcements that we believe underscores the huge importance that the rapidly growing mobile market has for these rivals. First, its LTE baseband chipset (developed by Icera which it acquired last year) has been validated on AT&T’s 4G network. ^[1] Second, Nvidia introduced a new reference design for tablets called Kai that it hopes will make it possible for manufacturers to launch low-cost tablets without impacting their margins. In this piece, we will take a look at how Nvidia’s new LTE chipset may impact Qualcomm.

See our complete analysis for Qualcomm stock here

Growing demand for LTE and Qualcomm’s dominance

Strong demand for smartphones is resulting in impressive growth rates for the cellular baseband market. Last year, the baseband market grew by 15% and Qualcomm retained its #1 position with 45% market share backed by its strong portfolio of CDMA, WCDMA and LTE chipsets. ^[2] Of these various technologies (all of which are based on Qualcomm’s CDMA technology), LTE is seeing the strongest growth as the carriers around the world shift to the new gold standard for wireless communication.

Qualcomm has done very well so far to ride the LTE revolution by coming to market with the first LTE radio integrated with its Snapdragon app processors. (see Qualcomm Gives The Wireless Industry A Reason To Celebrate) Nvidia, on the other hand, has had LTE compatibility issues with its Tegra processors. This forced HTC to partner with Qualcomm for the LTE version of its flagship One X smartphone launched in the U.S. while using Nvidia’s quad-core Tegra 3 for other markets. HTC is now going global with the LTE-capable HTC One X and using Qualcomm’s parts for these launches as well.

Even the latest Samsung Galaxy S III will be launched in the same way in the U.S. while globally being launched in a Samsung Exynos quad-core variant. Clearly, Qualcomm’s Snapdragon is the obvious choice when it comes to LTE compatibility.

Nvidia adds LTE lure to quad-core capabilities

Nvidia’s announcement of LTE radio comes at a right time and also allays some of its 4G woes. It not only allows Nvidia to challenge Qualcomm’s dominance in the LTE baseband market, but also paves the way for its first LTE-capable Tegra smartphone or tablet. However, Nvidia doesn’t have the LTE radio integrated with its Tegra 3 on a single silicon chip as Qualcomm’s does. This is a major shortcoming for mobile devices, and even more so for LTE devices that are notorious for their battery life issues, as an integrated solution allows for sleeker designs and reduces power consumption. Nvidia doesn’t plan to have an integrated solution ready until next year.

Nonetheless, Nvidia will still be able to use its newly acquired LTE capabilities as well as partner with third-party chip providers (GCT and Renesas) to win deals for its Tegra 3 app processors using quad-core capabilities of the latter as bait. But Qualcomm’s new dual-core Krait processors are not that far behind in terms of performance. (see Qualcomm To Showcase Dual-Core Krait Processors At Mobile World Congress) Moreover, Qualcomm plans to introduce a quad-core Krait in the second half of 2012, which will negate Nvidia’s competitive advantage.

Nvidia will therefore try to launch an integrated LTE solution soon (its roadmap says 2013) to challenge Qualcomm’s  dominance. Qualcomm’s LTE market share advantage has so far held it in good stead, especially when manufacturers wanted a LTE handset since Nvidia’s app processors did not work well with Qualcomm’s LTE radios. However, a growing acceptance for Nvidia’s Tegra solutions (30 Tegra-powered smartphones to be launched this year, up from 15 in 2011) and their compatibility with LTE will see Nvidia shape up into a formidable rival to Qualcomm in the coming time.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. AT&T validates NVIDIA Icera 410 LTE modem for use on its network, Engadget, May 24th, 2012 [↩]
2. Strategy Analytics: Qualcomm Maintains Lead with 45 Percent Share of Cellular Baseband Market, MarketWatch, April 25th, 2012 [↩]