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Nvidia’s Tegra Segment Driven by Automotive Applications

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Tegra Processors have had a hard time gaining traction in smartphone and tablet space

In its 2Q16 earnings release, Nvidia (NVDA) reported that its Tegra Processors segment’s revenues continued to decline. This quarter, revenues fell by 19% on a YoY (year-over-year) basis to $128 million. Quarter-over-quarter, the decline was 12%.

Tegra Processors were originally made for smartphones and tablets, but they’re having difficulty finding acceptance among original equipment manufacturers of these devices. The sale of its Icera modem operations may also be contributing to this slow uptake given that it takes a well integrated modem to get traction in the smartphone space.

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Automotive infotainment systems boost the Tegra division

At least fiscal 2Q16 was another strong quarter for Nvidia’s automotive business. Its revenues rose 76% YoY to $77 million. Design wins from new as well as existing customers kept the momentum going in this segment and boosted revenue growth.

Nvidia says it’s working with over 50 companies to integrate its Nvidia Drive PX with their autonomous driving products. Approximately 8 million cars on the road are equipped with Nvidia technology, and 30 million more are in the pipeline.

Massive growth in this space is attracting other players

According to Strategy Analytics, the market for advanced driver assistance systems is expected to be worth about $15 billion by 2016, growing at a CAGR (compound annual growth rate) of 23%. Nvidia (NVDA) peer Micron Technology (MU) is also expected to benefit from growth in this market, as its memory chips are used extensively in the automobile space. As the car market embraces more digitization, the demand for memory will only grow.

Automotive electronics, expected to be a huge market, are currently going through a transition. Cars with increased computing capability in the drive train as well as the dashboard are more sought after. Nvidia claims that its Tegra X1 chip can deliver the image quality of a Microsoft (MSFT) AMD-based (AMD) Xbox One to a car dashboard. With Drive PX, researchers will have access to a computing platform that allows them to develop algorithms for self-driving cars. Google (GOOG) has already been in this space for the last six years.

If you are bullish about Nvidia, you could invest in the VanEck Vectors Semiconductor ETF (SMH). SMH invests about 1.94% of its holdings in Nvidia.

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