Nvidia Paid a Fair Price for Icera

May 13th, 2011 by Trefis Team
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Nvidia (NASDAQ:NVDA) recently agreed to acquire Icera, which offers baseband processors for smartphones and tablets. [1] Below we examine the price that Nvidia paid for Icera, and conclude that Nvidia probably paid a fair price for the company. The acquisition gives Nvidia the chance to strengthen its chipset business, and compete against Qualcomm (NASDAQ:QCOM), Broadcom (NASDAQ:BRCM), Marvell (NASDAQ:MRVL), Infineon (now acquired by Intel (NASDAQ:INTC)) and Texas Instruments (NYSE:TXN).

Nvidia Will Need to Lift Mobile Chip Revenues to $1.3 Billion

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Nvidia is paying $367 million for the acquisition and the business is going to impact its revenues for mobile chips. We currently estimate that mobile & game console computing chips constitute close to 15% of Nvidia’s stock value. We expect fast growth in these revenues aided by Nvidia’s Tegra processor series and estimate that these revenues will hit the $1 billion mark by the end of our forecast period. However, to justify the acquisition price of $367 million, Nvidia will need to lift these revenues to at least $1.3 billion instead of $1 billion. Given that the market for baseband is growing fast and is estimated at $15 billion in annual revenues, Nvidia shouldn’t have too much trouble achieving this target. [1] Consequently, we think that Nvidia is paying the right price for Icera.

Our price estimate for Nvidia stands at $21.29, implying a premium to market price.

See our complete analysis for Nvidia’s stock here.

Notes:
  1. NVIDIA to Acquire Baseband and RF Technology Leader Icera, Nvidia Press Release, May 9 2011 [↩] [↩]