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Nvidia: The Mobile Company

January 11, 2012 4:17 am
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Nvidia: The Mobile Company

While investors focus on Apple (NASDAQ: AAPL), Google (NASDAQ: GOOG), Nokia (NYSE: NOK), Samsung, and HTC for trends and directions on the mobile market, they often overlook the semiconductor companies which enable the functioning of mobile devices.

The semiconductor company that got most of the attention for the mobile market, without a doubt, is ARM Holdings (NASDAQ: ARMH), which provides the core IP for processors that run most mobile devices. In fact, almost all Android phones or tablets use some variety of processors based on ARM, which fueled the growth of the company in recent years.

One of the companies that uses ARM to build mobile processors is Nvidia (NYSE: NVDA), much better known as a graphics chip company. In fact, it was the strongest survivor in the high-end graphics chip market, a hard core technology-driven sector in the semiconductor industry, where many companies have came and gone.

With ATI acquired by AMD, and Intel trailing behind, Nvidia basically shares the market with AMD now. However, unlike AMD, which had not made much headway in the fast growing mobile market, Nvidia has rolled out its Tegra processors with great reviews and design wins.

Aside from the iPad from Apple, or the Kindle Fire from Amazon (NASDAQ: AMZN), one of hottest tablets with the highest demand is ASUS’s Transformer Prime, which uses Nvidia’s Tegra 3 processor, the first quad-core processor for a tablet computer. In fact, there’s a fifth core in Tegra 3, used mainly in battery conservation states, which helps to prolong battery life.

ASUS received rave reviews for the Transformer Prime, and is dubbed one the few tablets which can truly rival the iPad2.  Unfortunately, there was some delay in ASUS release of the tablet, so most people who ordered it did not get it for Christmas, dampening the sales figures for the tablet.

Besides ASUS, Acer and Lenovo had announced tablets utilizing Tegra 3, and we can expect more companies will follow suit because of its superior design. The delayed shipping of the Transformer Prime in Christmas definitely did not help Nvidia to get much business in the last quarter, but we should see guidance on Tegra 3 sales significantly increase for the coming quarters. Even though it still represents a small percentage of sales compared with its graphics chip business, it represents the best growth opportunity for the company, and we believe investors will take
notice very soon.

While investors can just buy Nvidia's shares right away, the conservative minded can consider selling Mar $11 put or Jun $10 put, so they commit the buy only at a lower price. For those who truly believe and are more adventurous, they can consider the Jun $20 call, or the Jan 13 $20 call.

In any case, even for investors who are bearish on Nvidia, notice that tech investors are all over mobile stories now – so do not overplay the bearishness.

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