Lower Price Will Help Nvidia Shield Gain Wider Acceptance

| About: NVIDIA Corporation (NVDA)

Last month Nvidia (NASDAQ:NVDA) slashed its Project Shield price from the initial estimate of $349 to $299 as thousands of gamers gave the company the feedback that the device would be more popular if it was better priced. Nvidia Shield’s initial price of $349 was $100 more than the PS Vita and $180 more than the Nintendo 3DS, which could have been a roadblock in its widespread acceptance among gaming enthusiasts [nVidia Shield is most expensive portable gaming gadget on market, Fox News, May 14, 2013].

Introduced at the 2013 Consumer Electronics Show in January, Project Shield is an Android-based portable gaming console that also offers PC game streaming features. What differentiates Shield from other devices is that it is the only device to play Android games with an integrated game pad. Powered by the Tegra 4 processor, Shield is Nvidia’s maiden attempt as a gaming hardware provider, pitching it against console makers like Sony and Microsoft.

In an effort to reduce its exposure to declining PC sales, Nvidia is focusing on expanding its footprint in alternate growth markets. The company has been continuously investing to make a mark in the mobile computing domain and went a step ahead by announcing its own handheld gaming device – Project Shield. The gaming hardware market was worth $23.6 billion in 2012 and the global gaming market is estimated to cross $30 billion by 2015 [PC Gaming Hardware Market to Hit $23.6 Billion in 2012, Jon Peddie Research, May 3, 2012].

Given the intense competition from Qualcomm (NASDAQ:QCOM) and Broadcom (BRCM), among others, in the mobile market, we think that Nvidia’s move to diversify its revenue base is a good long-term strategy. Additionally, gaining a strong foothold in the gaming market will further reduce the company’s exposure to the persistent weakness in the PC market. We feel that Nvidia has a better chance of taking on competition in the gaming market with a more competitive price point for project Shield.

The device offers games spanning Nvidia’s TegraZone, Google Play, and Steam. The company expects Project Shield to attract great games to Tegra Zone, a free application available in the Android market, which can then be played on any Tegra powered device. Tegra Zone has already been downloaded 6 million times until now.

Nvidia Shield’s production was delayed by a month due to some third party mechanical issue. The device will now start shipping by the end of this month.

Our price estimate of $17.75 for Nvidia is at a premium of over 20% to the current market price.

Disclosure: No positions