Nvidia Licenses Its GPU Technology To Accelerate Its Mobile Expansion
Nvidia (NASDAQ:NVDA), a leading Graphics Processing Units (GPUs) developer, made a significant change to its business model yesterday by announcing that it will start licensing its current and future GPU technology as well as rights to its visual computing portfolio to other silicon manufacturers. Nvidia will start by licensing its Kepler architecture which covers a gamut of computing devices from smartphones to supercomputers. Kepler is the platform for currently shipping GeForce, Quadro and Tesla GPUs as well as Nvidia’s next generation Tegra mobile processor (code-named Logan). The company claims that Kepler is its most efficient GPU architecture to date.
With Nvidia entering the licensing model, there are now five major GPU Intellectual Property (IP) licencors – ARM Holdings, Imagination, DMP and Vivante. Nvidia’s strategy to license its technology to third parties is in direct contrast to its competitor AMD which stopped its licensing business by selling its GPU IP group to Qualcomm in 2009.
Here’s a quick take on the possible benefits and drawbacks of Nvidia’s decision.
Advantages
The primary advantage of Nvidia licensing its technology is expansion to a larger number of computing devices. The company derives over 50% of its revenues from PC, and in light of a slowdown in the PC market, it has been focusing on expanding its operation in alternate growth markets such as tablets, smartphones and gaming.
Despite the success of its Tegra 2 and Tegra 3 processors, the company has been unable to score a high profile design win that can accelerate its progress in the mobile computing domain. Nvidia believes that by licensing its industry leading graphics technology it will be better-positioned to address the rapid change in technology by targeting a wider market. Nvidia’s Tegra technology can reach alternate markets and application that are not currently being targeted by the company.
Nvidia’s technology can now also be used by companies that would probably never have used its Tegra chips. Both Apple and Samsung usually use their in-house manufactured chips, but Nvidia can now push these companies to use its GPU technology to outdo each other in the mobile market. Imagination Technologies has licensed its GPU solution to Apple, Intel, Samsung and some other smaller players.
Drawbacks
The most prominent drawback is Nvidia’s increasing vulnerability to competition from other players. Any silicon vendor licensing Nvidia’s GPU technology will compete against its own Tegra processors which can limit its growth potential. However, Nvidia firmly believes that licensing its technology opens a whole new revenue stream. In the past, Nvidia had licensed its CPU core for Sony’s Playstation 3 which earned it $250 million as additional annual revenue.
We have yet to see whether licensing its technology will cannibalize Nvidia’s processor sales. For now we think that opening a new revenue stream is a good strategy for the company’s long-term growth.
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Our price estimate of $17.75 for Nvidia is at a premium of over 20% to the current market price.