Slow Tegra Adoption Could Mean Trouble for NVIDIA

Netbooks, smartbooks, mobile devices, and tablets were a major focus of Computex earlier this month but the number of Tegra devices on display was surprisingly low, given how much weight NVIDIA CEO Jen-Hsun Huang has thrown behind the company's mobile platform.The Microsoft Zune HD was supposed to be the first of a series of high-profile Tegra devices—rumors that the next-generation Nintendo 3DS would be NVIDIA-powered were dispelled recently when dark horse candidate Digital Media Professionals (DMP) announced that its heretofore unknown Pica200 GPU would provide the handheld's 3D hardware.

There are still Tegra and Tegra 2 devices in the pipeline from various manufacturers (NVIDIA claims 50 design wins at this juncture), but NVIDIA has already quietly reduced its forecasts for Tegra revenue this year from "north of $200 million" late last year to "$25-$75 million over six-to-nine months" (given at the company's analyst day in April.) These reduced expectations are echoed by Linley Gwennap, head of mobile chip research firm the Linley Group, who told the Wall Street Journal that Tegra hasn't made much headway in the mobile market.

The Malata A-1011 is an NVIDIA Tegra-based system that was on display at Computex this year

"Where's the beef?" said Linley Gwennap, head of mobile chip research firm the Linley Group. "We keep hearing about these design wins, but most of the tablets we've been seeing are going with a Qualcomm chip or Intel's Atom. It's just a lot harder to break into these markets than they have expected," he added. "It's hard to break in no matter how good your technology is."

Slow Start Not A Major Problem Yet

The WSG goes on to imply that these delays are having a major impact on NVIDIA's stock price (down 35 percent since the beginning of the year), but this link is dubious at best. Even if the company was on track to earn $200 million from its Tegra business in 2010, that's just 6.25 percent of the $3.2 billion in sales NVIDIA reported last year.

If we had to guess at the reason for the slow ramp, we'd pin it on some overenthusiastic revenue projections from NVIDIA last year and the learning curve that comes with competiting in an entirely different market. When it comes to ARM-based products, NVIDIA is the new kid on the block jockeying for position with the likes of Texas Instruments and Qualcomm, both of which are long-established players.

At this stage of the game, its arguably more important for NVIDIA to secure a handful of high-quality design wins that paint Tegra in a positive light, even if sales don't do much for the company's bottom line. First-generation products rarely become smash successes; when Jen-Hsun talks about Tegra providing 50 percent of NVIDIA's revenue a few years down the road, he's obviously in this for the long haul.