Factors That Can Drive Growth For Nvidia’s Tegra Products Business Going Forward

Nvidia’s (NASDAQ:NVDA) revenues from Tegra processors business constituted only 11% of its total revenues in 2015, declining by around 3% year over year. This decrease was driven by a decline in the sales of Tegra products for OEM smartphones and tablets. The company shut-down its Icera modem operations in the second quarter of fiscal year 2016, which has further impacted its topline growth in the segment. In this analysis we look at the factors that can revamp the growth for Nvidia’s Tegra products going ahead:

1. Demand for Tegra processors in the automotive segment: Nvidia has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth. Nvidia has shipped  5-to-6 million devices for cars (with its Advanced Driver Assistance Systems) and has an additional 20-to-25 million such devices to ship in its pipeline. In addition to its infotainment cockpit business, Nvidia is working with a number of companies that are developing self-driving car technologies, using NVIDIA DRIVE PX. These include car manufacturers, Tier 1 OEMs, start-ups and research institutions. Thus, the company’s automotive platforms remain on a sharp upward trajectory and is likely to be a major growth driver of Nvidia’s Tegra business going ahead.
2. Integration of Pascal architecture in Tegra SoC: In March 2016, Nvidia introduced its Pascal GPU architecture (built on 16 nm process technology), which has massive performance and power efficiency improvement over its predecessor. If the Pascal architecture integrates well in Nvidia’s Tegra SoC designs, it can help the company enable its leadership across its DRIVE and SHIELD platforms.
3. Nintendo NX console rumors: Recently it has been rumored that Nintendo’s upcoming NX console will feature NVIDIA’s Tegra platform. This is a significant win for Nvidia because until now it had failed to gain a spot for its Tegra processor in any leading gaming console. Major gaming console companies such as Microsoft and Sony use AMD’s GPU to power their Xbox One and PlayStation 4, respectively. Even Nintendo uses an AMD GPU for its current gaming console – the Wii U. If the rumors about Nintendo switching to Nvidia’s Tegra processor were to be true, we can expect more design wins for Nvidia going forward.
4. Success of Nvidia’s Shield platform:  Nvidia claims that the mobile gaming market is a $70 billion market and is growing rapidly internationally. According to Nvidia, SHIELD helps to create the platform that allows mobile cloud to bring gaming to a lot more people. The company believes that its gaming business is really strong, and promises to bring out some exciting new things to the market in the near future. Nvidia should be able to leverage the capability and expertise it has developed in the PC industry in the last 15 to 20 years to grab a major spot in the Android gaming market too. Last month, Nvidia and Plex announced that the next update to the SHIELD firmware will include a built-in Plex media server. This could further help drive Nvidia Shield sales
5. Tapping other nascent markets: To market its Tegra SoC designs, the company is also eyeing other nascent markets such as robots that respond to voice and gesture commands, drones that process enormous amounts of visual-based data, and smart monitors powered by Android that make PC optional. These areas can be important drivers for the company’s Tegra processor business going ahead.

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