Last year marked incredible success for NVIDIA Corporation (NASDAQ:NVDA) in the tablet market. The graphics specialist scored two of the highest-profile tablet launches throughout 2012: Google Inc (NASDAQ:GOOG)‘s Nexus 7 and Microsoft Corporation (NASDAQ:MSFT)‘s Surface RT.
Those were some serious wins that showed that the Tegra 3 was a worthy contender in the market for tablet application processors, while QUALCOMM, Inc. (NASDAQ:QCOM) was able to hold down most of the smartphone fort with its connectivity advantages. With cellular-enabled tablets gaining popularity to get things done on the go, it seems that Qualcomm may be about to score one of NVIDIA’s juiciest spots from last year.
Earlier this week, Pacific Crest analyst Michael McConnell reiterated his “sector perform” rating on NVIDIA while reducing his estimates, because he believes that that the company has lost the spot in the next version of the Nexus 7 to Qualcomm.
The first-generation model of Big G’s flagship tablet probably sold close to 3 million units last quarter, assuming it comprises the majority of Asus’ tablet shipments. Pacific Crest’s analysts believe that Google will ship up to 10 million units over the next year or so. At an average selling price of $20 to $25 per Tegra chip, that would translate into lost revenue of $200 million to $250 million.
In McConnell’s view, based on “supply chain conversations,” the two primary reasons for the switch would be pricing factors, and the desire to source the application processor and 3G/4G baseband modem from a single supplier to streamline logistics. Specifically, he believes that Qualcomm’s Snapdragon APQ8064 chip will be featured in the next Nexus 7 instead of NVIDIA’s new Tegra 4.
The sniff test
There are a number of potential holes in this reasoning, though.
First off, if Google were interested in using a single supplier (which is entirely reasonable), why wouldn’t it simply utilize one of Qualcomm’s chips that offer integrated cellular connectivity in the first place, like the MSM8960, instead of using a stand-alone applications processor combined with a discrete baseband modem? The newest Tegra 4 can also serve up LTE when coupled with one of NVIDIA’s Icera i500 discrete modems, so Google could still achieve a single-source supplier with NVIDIA.
The only explanation I can think of for using separate chips is that it could provide flexibility to accommodate for LTE frequency fragmentation. In doing so, Google could keep the same applications processor while swapping out the baseband, depending on what country and LTE frequency is needed. The tricky part here is that Google wasn’t even willing to do this with its flagship Nexus 4, which lacks LTE, because Google only wanted to make one single model with broad compatibility. This strategic goal precluded the inclusion of LTE in its newest smartphone. Would it be willing to change its tune for an LTE-equipped tablet?
Furthermore, the APQ8064 is a previous-generation Snapdragon S4 Pro that was found in numerous high-end Android devices last year. At CES last month, Qualcomm announced its next generation of Snapdragons, the 600 series and 800 series that they are currently sampling, and devices carrying these chips should make their way to market by as early as the second quarter for the 600 series.
