Nvidia (NVDA) today announced its long-awaited "Project Grey." The chip goes by the name "Tegra 4i," it's a quad-core ARM (ARMH) Cortex A9 built on TSMC's (TSM) 28nm process, coupled with 60 GPU cores. Oh, and it comes with an integrated LTE modem. While it was known for quite a while that this part was coming, investors (and tech-geeks, but let's pretend I'm only wearing my investor hat, here) got a number of key pieces of information about the part that allows us to glean the following information:
- How competitive will it be?
- Will the economics of the part be favorable?
- When will it hit the market?
The Tegra 4i is based on a 28nm shrink of the ARM Cortex A9, which was found in the Tegra 3. However, thanks to the die shrink and the newer transistors, the processor cores will be smaller, cheaper and faster (clock speed is bumped up to 2.3GHz from 1.4 - 1.7GHz). Another benefit is that while Nvidia's Tegra 3 had solid CPU performance, it had sub-par graphics performance (a little embarrassing for the world's largest GPU company). The die shrink allowed the engineers to cram 60 of the Tegra 4 GPU cores onto the die, which should yield a very tangible improvement over the previous gen Tegra 3 and allow the chip to be competitive with its Qualcomm (QCOM) Snapdragon S4, the most widely used system-on-chip available on the market today.
Now, while Qualcomm's marketing department likes to talk a big game, per core the latest and greatest Snapdragon S4 Pro is not really faster than a stock ARM Cortex A9, so I can see the Tegra 4i being quite competitive with Qualcomm's best on the CPU side of things. Of course, things such as the efficiency of the memory controller as well as software optimizations play a big role beyond just the actual CPU core, but it seems that in general, Nvidia will be competitive.
On the graphics side, Qualcomm's Adreno 320 in its S4 Pro is about twice as fast as the graphics seen in the Tegra 3, so given that Nvidia has significantly bolstered the resources of the GPU in Tegra 4i and Tegra 4 (5x and 6x the GPU cores, respectively, over Tegra 3), I would expect the next generation Tegra 4 to fare much better competitively than the Tegra 3 did. Interestingly enough, Apple's (AAPL) graphics in their A6/A6X system-on-chip products are still the benchmark to beat. While the company simply licenses technology from Imagination Technologies, it is very aggressive about dedicating a significant amount of the die area to graphics.
That being said, I expect Tegra 4i to be very competitive on both the CPU and GPU side of things, which should, at the very least, position the company strongly into 2H 2013 and 2014.
Economics Look Good
There's only so much performance that the average user needs for Facebook (FB), Twitter and web surfing (although apps will grow in complexity over time), so it makes sense to focus on keeping these chips economical. Tegra 4i comes in at a die size of 60mm^2, which is quite small, and should be pretty cheap to produce. This means decent gross margins (I would guess 50% or so given that in the past, CEO Jensen Huang has noted that Tegra's gross margins were actually above the corporate average) and the ability to win the higher volume, and cheaper designs.
Keep in mind that this small die includes the LTE modem, which should allow Nvidia to bump up ASPs compared to its current Tegra 3 products for tablets and smartphones.
When Does It Hit The Market?
It sounds like the chip will ship to phone vendors in the second half of the year with devices being announced either in very late 2013 or at MWC 2014, about a year from today. It's not an overnight thing, nor should investors in the company expect to see revenues start to really pile in during 2013, but we now have a timeframe for the launch.
A Note Of Concern
Nvidia's i500 modem will work on LTE and HSPA+ networks, but it will not support CDMA. This means that Sprint (S) and Verizon (VZ) may not carry the phones, which could limit the total addressable market in the near term. On the bright side, device vendors that sell Tegra 4i based devices likely won't have to pay the steep royalties to Qualcomm as they do with CDMA devices.
While we all knew it was coming, it was nice to see an official announcement of the Tegra 4i along with some details about the chip. Nvidia marches yet another step closer to becoming one of the few chip vendors standing in the mobile processor race. The stock price likely won't see the effects of this today or tomorrow, but long-term investors should take comfort in the fact that by the end of 2013/early 2014, Nvidia's long-term investment in Tegra might finally start to really pay off, which could mean big things for shareholders in the not too distant future. A breakeven "Tegra" division would add back at least $0.20/share, and a profitable one could drive meaningful longer-term EPS growth.
Additional disclosure: I am short ARMH, and I may go long/short any of the stocks mentioned here at my discretion.