Nvidia enters the game console market
In the previous part of this series, we saw that Nvidia (NVDA) reported the highest growth in GPU (graphics processing units) shipments and gained market share from Intel (INTC) and Advanced Micro Device (AMD) during 3Q16.
There is a huge R&D (research and development) gap between AMD and Nvidia. In the September 2016 quarter, AMD spent $259 million in R&D across its vast portfolio of GPUs, CPUs (central processing units), and APUs (application processing units). On the other hand, Nvidia spent $373 million only on GPUs. This gives Nvidia an edge over AMD in the GPU market.
One area where AMD overpowered Nvidia was the game console market. However, this is about to change as Nvidia makes its entry into the game console market with Tegra processors.
Tegra in game consoles
Nvidia (NVDA) has won an order from Nintendo to power its next game console, NX Switch, which is expected to launch in March 2017. Until now, AMD powered Sony’s (SNE) PlayStation4, Microsoft’s (MSFT) Xbox One, and Nintendo’s current game console. However, Nvidia has won the order from Nintendo, which will be powered by Nvidia’s Tegra processor.
Tegra in the automotive sector
In the past, Nvidia used its Tegra processors to power tablets. However, it withdrew from the smartphone and tablet sector due to strong competition from Qualcomm. Nvidia has been looking at new applications for its Tegra processor and started using it in its automotive platform, DRIVE PX 2, in fiscal 4Q16.
In October 2016, Tesla Motors (TSLA) announced that it would feature Tegra-powered Nvidia DRIVE PX 2 in its Model S, Model X, and the upcoming Model 3. Nvidia has started full production of the DRIVE PX 2 platform to meet the large order volume coming from Tesla. This saw Nvidia’s Tegra processor revenue increase 87% YoY (year-over-year) to $241 million in fiscal 3Q17.
The order volume for Tegra is expected to increase further in fiscal 2018, when Tesla launches its Model 3 car. This would enable Tegra to see higher revenue.
Next, we’ll look at Nvidia’s four end markets and the factors driving growth in each of these markets.