The Risks Facing NVIDIA


NVIDIA has managed to make moves with its Tegra processor, especially in tablets. Yet, the mobile processor space is extremely competitive, and it will only intensify this year as Intel continues its push into the space.That's not to say there aren't opportunities ahead of Tegra, but balancing those opportunities against risks is important for every investor.

Below is an excerpt from our premium research report on NVIDIA, addressing the risks NVIDIA faces. We hope you enjoy it.

While Tegra continues to show healthy signs of growth (particularly last quarter with record Tegra sales), making the product family profitable and recouping those development dollars will take time. A while back, NVIDIA had previously predicted Tegra would become a billion-dollar business by this fiscal year — a sales threshold that CEO Jen-Hsun Huang felt was necessary to be competitive.

NVIDIA has since changed its tone and Huang recently confirmed Tegra guidance this year in the ballpark of $540 million. A year ago, Huang said he had already invested $2 billion in Tegra and that total has certainly climbed higher by now. This is how the broader CPB segment has performed over the past couple years.

NVIDIA needs to continue executing with Tegra growth if it hopes to make it a profitable business. Meanwhile, the mobile chip space is intensely competitive. Texas Instruments recently decided to exit the sector, and Intel is jumping in with its Atom chips. TI's exit will largely be positive for NVIDIA and Qualcomm as ARM-based rivals, but it goes to show just how tough the sector is.

As a fabless semiconductor company, NVIDIA relies on third-party manufacturers for supply. This proved problematic this year, as primary supplier Taiwan Semiconductor Manufacturing has been faced with shortages related to its 28-nanometer manufacturing process. Those constraints held back sales of NVIDIA's newest Kepler architecture GPUs. Fortunately, its Tegra family was unaffected as those chips remain on the 40-nanometer node, while Tegra 4 will be based on 28-nanometer manufacturing. As the industry progresses toward smaller and more difficult manufacturing processes, missteps by manufacturing partners could significantly harm NVIDIA.

CPUs with integrated graphics continue to represent an increasing threat to NVIDIA as they render a discrete GPU unnecessary for everyday tasks. The market for discrete GPUs may see some pressure as a portion of gamers shift to mobile platforms and integrated solutions offer compelling alternatives at a fraction of the cost.

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Fool contributor Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool recommends Intel and NVIDIA. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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