Nvidia 2011 Review: Key Developments for the Graphics King

2011 has been a year of significant developments for Nvidia (NASDAQ:NVDA), accompanied by some wide swings in its stock price. While the company made some significant announcements on the product development side, it also had to face the aftermath of product advancements from Intel (NASDAQ:INTC) and AMD (NYSE:AMD). This past year Nvidia began its serious push into mobile computing and showed ambitions of becoming much more than a graphics chip maker.

Our price estimate for Nvidia stands at $20.91, implying a premium of about 50% to the market price.

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Nvidia’s Ambitions Expanded Beyond Graphics

Nvidia is primarily known for its GPU technology and its graphics cards are widely used in desktops and notebooks all over the world. However, with the announcement of Project Denver and the launch of the world’s first dual-core mobile application processors Tegra 2 early in 2011, Nvidia made it clear that it has ambitions to expand well beyond graphics.

Project Denver refers to Nvidia’s project under which it will build high-performance ARM architecture based CPU cores that will support regular desktop and notebook PCs as well as servers and super computers (see article Can Project Denver Justify Nvidia’s Stock Run?). These CPUs could be available around 2013.

Nvidia aimed Tegra 2 at the fast growing smartphone and tablet market and recently launched Tegra 3. This launch has accelerated Nvidia’s growth in mobile computing chip revenues. In addition to this, Nvidia bought baseband processor maker Icera, in its quest of further expanding its product portfolio (see article Nvidia Acquires Icera as Baseband Chipset Market Heats Up).

Launch of APUs by Intel and AMD Made Nvidia’s Integrated GPU Business Obsolete

Intel and AMD underwent a very significant transformation in 2011 in their microprocessor business when they began offering Sandy Bridge and Llano APU processors respectively. These processors are a hybrid of a CPU and a GPU, and essentially make the requirement of integrated graphics chips and entry level graphics cards obsolete. As a result, Nvidia’s integrated graphics business began to see rapid declines in 2011, and we expect this business to vanish in a year or two.

Initially there was some concern around whether these new APUs will affect Nvidia’s discrete graphics business as well. However, from the company’s statement in its quarterly earnings release, it was clear that the impact was not significant as discrete GPU attach rates didn’t go down (see article Nvidia Growth Looks Good Despite Sandy Bridge)

While the growth of Android has helped Nvidia in pushing out more of its smartphone chips to compete against Apple (NASDAQ:AAPL), growth in tablets has been a different story. Tablets are cannibalizing PCs and Apple still dominates this segment with its own processors. In 2012, Nvidia will look to gain a greater share in tablet market to offset the potential loss of sales from PC sales slowdown, if it happens.

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