What Does Nvidia's Shield Bring To The 'Game'?

| About: NVIDIA Corporation (NVDA)

Nvidia's (NASDAQ:NVDA) Shield looks intriguing, and has several innovative features that could make for a great gaming experience. The Shield is an Android device based on the Tegra 4 CPU from Nvidia. However, from an investment standpoint, I will explain why I would not look at the Shield to generate significant revenue for Nvidia.

The Shield

Taken From Nvidia Website

The first issue I see with the Shield is the $349 price tag. Although aimed at different audiences than consoles, at $349 the Shield will be just below the rumors I have seen for the PS4 (I did not see any rumors I trusted on Xbox pricing), and will cost $50 more than a WiFi/3G PS Vita (or $100 more for WiFi only PS Vita). This puts it above alternatives, and closer to being in competition with the new consoles. Also, in my mind this price gears the Shield toward serious PC gamers vs. younger consumers. There are probably better ways to put $349 to work toward PC upgrades than the Shield. Official prices for next gen consoles are expected to be announced at this year's E3 gaming convention, according to analyst Michael Pachter.

The second issue is brought to light in the article I link to above that reviews the Shield on The Verge. Notice the placement of the touch screen? Android games are traditionally designed for the touch screen - imagine if your phone were hinged to an Xbox controller, and you were trying to play a few quick rounds of Angry Birds. Screen placement is less than ideal for the type of games users will most likely be playing.

Lastly, the Shield does have the capability to stream AAA titles from the PC to the Shield, provided your PC is equipped with a GTX 650 or higher. But when the shield is released, this will most likely be deemed a beta feature, so technically it is still under development.

Now let's look at hand held gaming sales. The column on the far is the one to pay attention to; it represents a running total of world wide sales for the Nintendo handhelds:

Nintendo DS Sales, Taken from Wikipedia:

2011-03-31[26] 32.76 55.13 58.53 146.42
2011-06-30[27] 32.87 55.69 59.3 147.86
2011-09-30[28] 32.92 56.19 59.90 149.00
2011-12-31[29] 32.96 57.48 60.61 151.06
2012-03-31[30] 32.98 57.76 60.78 151.52
2012-06-30[31] 32.99 58.15 60.91 152.05
2012-09-30[32] 32.99 58.54 60.97 152.50
2012-12-31[33] 32.99 59.68 61.00 153.67
2013-03-31[34] 32.99 59.87 61.01 153.87

Nintendo 3DS sales, taken from Wikipedia:

Date Japan America Other Total
2011-03-31[163] 1.06 1.32 1.23 3.61
2011-06-30[164] 1.27 1.43 1.63 4.32
2011-09-30[165] 2.13 2.13 2.42 6.68
2011-12-31[166] 4.66 5.47 4.91 15.03
2012-03-31[167] 5.85 5.99 5.30 17.13
2012-06-30[168] 6.76 6.41 5.82 19.00
2012-09-30[81] 7.94 7.38 6.88 22.19
2012-12-31[82] 10.88 9.97 8.99 29.84
2013-03-31[9] 11.54 10.26 9.29 31.09

Notice from March 2011 to March 2012, approximately 22 million combined units were sold. From March 2012 to March 2013 however, the number was approximately 16 million.

The PS Vita, which launched in late 2011, has about 4.7 million total sales, according to VGChartz. Compare this to Nintendo DS sales of roughly 14 million units during it's first year of sales in 2004-2005. Lastly, the PSP has sold roughly 76 million units since its launch in 2004, according to Wikipedia. But, according to Escapist Magazine, in 2012 Sony dropped its guidance for handheld consoles sales from 16 million to 10 million units (this number includes both the Vita and PSP). I see these as indications of a weakening market for these handheld devices, which I attribute to the rise in the number of smart phones and tablets.

To be fair, Nvidia's R&D budget for the Shield was only roughly $10 million due to being developed in conjunction with the Tegra 4, so Nvidia does not have to move many units to make up for the price. Even assuming 40% margins and a price of $349, you can quickly see how Nvidia could make a little profit on the devices.


The signs mentioned above point to a weak demand for handheld consoles. The Nintendo and Sony consoles have exclusive titles; think Pokemon or Ratchet and Clank for their respective devices. Users have specific reasons to purchase either a Nintendo or Sony handheld. Nvidia does have the Tegrazone, which has games optimized for Nvidia hardware. The Nvidia Shield will sport the Tegra 4 CPU, which looks promising, but so will a slew of other devices. Therefore the Nvidia Shield will be in direct competition with other devices powered by Tegra 4 SoCs. The Shield is targeted at Android games, which will be awkward to play based on touch screen placement. Also, I am pretty sure Candy Crush will still frustrate me, even on a lesser device. Meaning, the hardware would be wasted on the vast majority of games that Android users play. Lastly, the unique features for the Shield, while innovative, are somewhat impractical. To connect the Shield to an HDTV, one must use an HDMI cable. Compare being tethered to the TV via an HDMI cable versus having a wireless controller. Second, while being able to Stream AAA titles from your PC to a handheld device is pretty awesome, it provides little benefit. Gamers that spend money on the required GPU (GTX 650 or higher) probably spent a lot of money on other peripheral accessories. Think monitor, sound card, speakers/headphones, etc. I highly doubt any gamer would prefer the Shield to the hardware they've collected and pride themselves on. Not to mention, an extra $350 spent on a computer instead of the Shield could lead to a pretty significant upgrade; meaning gamers on limited budgets have better ways to spend their money.

I could always be wrong, and there are always those that adopt technology early. I will not be surprised if the Shield moves a lot of units initially, but I am waiting until the newness wears off and I see numbers from Nvidia at the end of the year before I get my hopes up for the Shield, unless Nvidia pulls some strings and is able to get a few titles developed specifically for its device.

I wrote this article to try and open a discussion among the target audience and investors to get a feel for how well this product will be received, highlighting other issues I have read elsewhere and the hesitation I have with the device. Feedback from other SA members is greatly appreciated and welcomed.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.