Nvidia's Tegra weak spot: An assumption Android tablets take off
Nvidia is having a great day. CEO Jen-Hsun Huang is upbeat, Nvidia's outlook for fiscal 2013 looks swell and the company's Tegra chip could be a juggernaut.
So what's the problem? Tegra's potential largely rests with the ability of Android tablets to take off before Qualcomm and Texas Instruments become more competitive in 2012.
If Android tablets---Samsung's Galaxy Tab, Motorola Xoom etc.---garner volume shipments Nvidia can become entrenched. Toss in Windows 8 tablets on deck with Nvidia's Kal-El chip and there's good reason for Huang's optimism.
How optimistic is Huang? Get a load of a few recent quotes.
Huang told CNET News' Roger Cheng that Nvidia's mobile chip business will have revenue of $20 billion by 2015. In fiscal 2013, Nvidia will deliver sales of about $5 billion. Huang added:
We'll be quite a force to contend with...We're the only person actively on the dance floor with Qualcomm.
Speaking at a Citi investment conference, Huang said Android tablets are doing great.
The tablets are doing great, frankly, sold out in a lot of different countries. Galaxy Tab is the one I use. I love it. If you haven't had a chance to try it, you really should. Honeycomb [3.2 has] a huge improvement and this is lighter, thinner, higher resolution, and more powerful than an iPad. This one is more affordable and they've discovered a wonderful business model.
The game for Nvidia is to ride along with the Android tablet army as well as "superphones." Obviously, Nvidia is confident. The company projected revenue between $4.7 billion and $5 billion for fiscal 2013, which starts Jan. 30. Wall Street was looking for $4.45 billion.
But few analysts are going along with Huang's optimism even though investors pushed Nvidia shares up almost 10 percent. Evercore analyst Patrick Wang said in a research note:
Management factors in $1 billion (in sales) from Tegra versus an estimated $425million this year. NVIDIA continues racking up design wins with 53 smartphones and with 13 tablets; however, many have failed to impress, never reaching volumes. Further, the competitive landscape will intensify in 2012 with refreshed offerings in Qualcomm’s Krait and Texas Instruments' OMAP4/5.
Other analysts are also skeptical about Nvidia's Tegra optimism. Macquarie analyst Shawn Webster said:
Given the macro uncertainty and also a Tegra ramp which has been disappointing in recent quarters, we are not changing our estimates.
Deutsche Bank analyst Ross Seymore said that Nvidia's outlook looks aggressive. Barclays analyst C.J. Muse noted that Nvidia is assuming Tegra will have 70 percent of the non-iPad tablet market. "We are a bit surprised Nvidia is so confident today on its outlook 15 months from now," said Muse.
In other words, Huang buys his Tegra and tablet thesis, but many folks remain skeptical.