What are the potential key drivers of Nvidia’s Tegra?



Key application areas driving Tegra revenues

The Tegra processor is a system-on-chip (or SoC) that integrates an entire computer on a single chip. These processors incorporate graphics processing units (or GPUs) and multi-core central processing units (or CPUs) with audio, video, and input or output capabilities. Nvidia’s (NVDA) Tegra saw a 110%, 18%, and 14% increase in its revenues in fiscal 3Q14, 4Q14, and 2Q15, respectively.

However, in the last two quarters, this growth has slowed down. In 4Q15, Tegra sales fell by 15% on a quarter-over-quarter basis, while on a year-over-year basis, the company managed to grow by 45%. Tegra recorded $112 million and $579 million in revenues for 4Q15 and fiscal FY15, respectively.

Nvidia (NVDA) expects Tegra revenue to expand in the future. Smartphones, automobile, and gaming are the three key high development applications that will drive this growth.

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Although mobile computing has been a key focus area and the largest segment for Nvidia’s Tegra business in the past, the company says that it is the automotive and SHIELD that will represent the vast majority of its Tegra revenue. In fiscal 2016, the company expects these two segments to be the biggest growth drivers for its Tegra division.

You can consider investing in the VanEck Vectors Semiconductor ETF (SMH) and the PowerShares QQQ Trust (QQQ) to gain exposure to Nvidia. Nvidia makes up about 1.94% and 0.22% of these ETFs, respectively.

Tegra K1 launched for mobile space

Telecom carriers across the world are replacing their 2G/3G technology with high-speed LTE technology. In the US, about 79% of total data traffic on Verizon (VZ) is carried on its 4G LTE network. As the US and other markets like Korea and China shifted to LTE, Nvidia struggled to provide a compelling reason to use Tegra over Qualcomm’s (QCOM) Snapdragon, as it dominates the LTE space. As a result, in fiscal year 2014, Nvidia launched Tegra K1. Tegra K1 is the first Nvidia mobile chip to unify its mobile and desktop GPU architectures.

The above chart shows the progress of LTE baseband chips and the expected competition in the near future.


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