Apple's iPhone and the Future of Nvidia

I have spent many years in the semiconductor eco-system and one of the first thoughts I had when Apple's (AAPL) iPod bonanza started was, “Someone must be making a killing off this on the chip side!”

Today, of course, it is a well-known fact that a whole company got built because the iPod took off the way it did: PortalPlayer. They supplied the original iPod chips for a while, until they were booted out of the iPod Nano in favor of Samsung. But PortalPlayer does still remain seated in the production of the fifth-generation video iPod.

Meanwhile, Nvidia (NVDA) acquired PortalPlayer for $357 Million, most certainly hoping to capitalize on its success with Apple. So what’s the story with the iPhone? Do they have a chip in there? If the iPhone takes off the same way the iPod did, will Nvidia fly as well?

EE Times reported back in November that PortalPlayer, the media processor company that famously lost a key socket in the next-generation iPod nano earlier this year, has secured an applications processor design win in the forthcoming iPhone from Apple. At the time, the iPhone was not yet announced.

Analyst firm FBR expects combined Nvidia-PortalPlayer music player revenue of $280 million in 2007, following the close of the acquisition, “with the potential for further revenue from an enhanced Apple relationship in the future,” according to the note.

FBR believes that Nvidia plans to develop an integrated processor containing the applications processor, audio decoder and video decoder, with the goal of having it designed into a next-generation iPod for 2008, according to the note. Saying that the design win is not a certainty, FBR said it believes Apple has agreed to work with Nvidia on the concept and that it was a factor in Nvidia’s decision to acquire PortalPlayer.

The projected $280 million in combined Nvidia-PortalPlayer music player includes $150 million from the iPhone, $100 million from the new video iPod, and $30 million from non-Apple MP3 players, FBR said.

Apple certainly has designs against Microsoft's (MSFT) Xbox in the future, based on its experiments with Nvidia, Apple-TV, etc. and in the iPod, vPod, and iPhone, the Nvidia relationship will simply get tested, strengthened and, hopefully, broadened over the next three years. It will also educate Nvidia, and their attempt at the combined CPU+GPU chip could become a formidable piece of innovation, although I’m not sure if they know enough about low power design to pull this off.

Meanwhile, other analysts are predicting that neither Nvidia nor Broadcom (BRCM) has any chip in the iPhone, and that Samsung has the main processor. Rebecca Runkle of Morgan Stanley offers a list of initial component suppliers:

Manufactuer: Foxconn

Application/Media processor: Samsung

Camera Module: Foxconn

Case: Foxconn

Baseband: Infineon (IFX)

RF Transceiver: Infineon

Bluetooth: CSR

Wi-Fi: Marvell (MRVL)

Memory: Samsung primary; Toshiba secondary supplier

Battery: Sony (SNE), others

O/S: Apple. Duh.

Display: Sharp (SCHAY.PK), others.

It’s amazing to me how Apple manages to keep this stuff secret!