System Builders Intrigued By Nvidia Tegra 2 Mobile Processors

Nvidia's new Tegra 2 processors, which were featured inside several handheld devices on display at CES 2011, offer a different approach to graphics integration.

Tegra 2 leverages two ARM cores alongside its own GPU, rather than place the GPU and the CPU on a single die as AMD and Intel have with Fusion and Sandy Bridge respectively. This allows Nvidia to focus on the growing embedded device segment -- in particular what it calls "super-phones."

Tegra 2 includes a dual-core ARM Cortex A9 CPU for improved processing performance, an Nvdia GeForce GPU aimed at reducing power consumption, and a 1080 video playback processor for consuming high-definition content. Speaking at CES last week, Nvidia CEO Jen-Hsun Huang said that Tegra 2 will power upcoming superphones, a new product category offering PC-like performance on a handheld device. Huang then demoed LG's Optimus device as an example.

While system builders agree that differentiating traditional PCs from smaller form factor devices in terms of performance is increasingly difficult, some doubt the validity of a distinct superphone category.

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"I think that as phones become more and more powerful, they will take over more of the tasks that we rely on computers for today," said John Tucker, Mobile Product Manager at Portland, Ore.-based system builder CTL. "However, I don't see 'Phoneputers' or 'superphones' fitting into categories of their own. More power and capability is just what people will come to expect from their phones, just as they do already from their computers."

Another channel partner said that while superphones and high-performance GPU technology may be central to Nvidia's strategy, devices in the lower price range offer more opportunities for market share expansion.

"It’s going to be a real tussle-blood bath in the lower-end chip market for lower-end, smaller devices," said Steve Brown, vice president of sales and business development at Blue Hawk Networks, a Campbell, Calif.-based system builder. "I still think there is a lot of territory and opportunity to be 'owned' in the 5-7 inch or so device market--[including] tablets, smart phones, [and] other smart devices--over the next 18 months."

Although Nvidia may enjoy an advantage in terms of GPU performance as a graphics specialist, that may not translate to mainstream success and expansion across different market segments.

"Nvidia is graphics king, whereas Intel is the chip king," Brown said. "Both will share the market, but I suspect that Intel will have a larger market share for more of the 'mainstream' devices in this specific market with above average graphics requirements. Nvidia will likely own most of the chips for the higher-end, premium products in this market due to their extended and integrated, graphics superiority.

"But short to medium term, I would think it’ll remain a niche, costly market for both," Brown said.

Next: The Indirect Role Of Microsoft

Brown said that Nvidia's relationships with software developers that produce graphics-related products will be a major advantage in capturing market share in the mobile device segment, as Intel does not have those kinds of relationships, except with Microsoft.

Even in Microsoft's case, however, Intel may be losing a bit of ground for the first time in a while. At CES last week, Microsoft unveiled a forthcoming version of Windows that runs on both ARM and x86 processors. Not only could this pose a threat to Intel's domination of the traditional PC space since the introduction of Intel Pentium technology in the 1990s, it could aid Nvidia's efforts against Intel in the mobile graphics segment.

Nvidia’s upcoming ARM-based processors, code-named Project Denver, may compete with other integrated CPU and GPU platforms such as Intel’s Sandy Bridge or AMD Fusion, both of which debuted at CES as well.

Brown said it was difficult to forecast how manufacturers and consumers will respond to Tegra 2, but at this time he does not see how Nvidia can compete against Intel and AMD in enterprise product markets, including multi-core Xeon processors. Instead, Nvidia could be threatening its own discrete graphics card business.

"Market share is costly, hard to get, and keep--in any market," Brown said. "Nvidia's ARM-based Denver chips could cannibalize Nvidia’s existing graphics cards and peripheral market-share if Nvidia shifts to integrated graphics processing."

Whether it has the unintended effect of cannibalizing GPUs or successfully allows Nvidia to bolster its current market share, Nvidia's strategy with regard to CPUs is gaining some attention from investors.

"The market sure seems to think that Nvidia and ARM are going to have success against AMD and Intel based on their recent performances," said Todd Swank, vice president of marketing at Burnsville, Minn.-based system builder Nor-Tech.

Swank pointed out that Nvidia's stock value has almost doubled in recent days. In addition, Swank traced the impact of Nvidia's Tegra 2 to comments from AMD's board of directors as to why the board asked for AMD CEO Dirk Meyer’s resignation.

"It certainly seems that they felt not enough is being done for AMD to go after this 'superphone' category." Swank said.

AMD's Meyer resigned unexpectedly on Monday. He is being replaced in the interim by Chief Financial Officer Thomas Seifert while the company seeks a permanent replacement.

However, in reaction to Meyer's departure, AMD's channel partners said a change in leadership does not necessarily translate to AMD achieving its goal of gaining a larger share of the market. System builders said it may be too late for AMD to make the impact it had hoped to in the CPU market.

Meyer's departure came just as AMD launched its first integrated Fusion APUs. But while much of the discussion heading into CES was focused on Fusion and Intel's Sandy Bridge, the partnership between Nvidia and ARM adds even more competition to the new integrated graphics space.