Nvidia eyeing a bigger footprint in the smartphone

Nvidia (NASDAQ:NVDA) is buying wireless modem maker Icera for $367 million, propelling the graphics card and smart-device applications processor maker further into the hardware stack of the phone. Nvidia expects the deal to close in 30 days, after which it will be able to sell the core connectivity silicon for phones and tablets as well as the processors that run their graphics and apps.

“This is a key step in NVIDIA's plans to be a major player in the mobile computing revolution," Nvidia president and CEO Jen-Hsun Huang said in a statement. “Adding Icera's technology to Tegra gives us an outstanding platform to support the industry's best phones and tablets. Icera is a perfect fit for NVIDIA. Our businesses are complementary.”

In its announcement, Nvidia said the acquisition approximately doubles the revenue opportunity in every device embedded with an Nvidia chip. But potentially the opportunity could be far bigger because it allows Nvidia to scale down from the high-end smartphones and tablets it currently powers into the mid-range devices powered by integrated silicon.

In a short time Nvidia has had a huge impact in the mobile device industry using its expertise in applications and graphics processing to create its Tegra line of apps processors for mobile device. Its Tegra chips have stayed on the cutting edge of the industry (Unfiltered: Nvidia completes quad-fecta of new smartphone processors), and has one key design wins for some of the industry’s most powerful phones and tablets.

But unlike processor competitors like Qualcomm (NASDAQ:QCOM), Texas Instruments (NYSE:TXN) and ST-Ericsson, Nvidia has focused primarily on the high-end devices where the heftier price tags and hardware requirements allow device vendors to source the various hardware components separately. For mid-to low-end smartphones and feature phones, though, vendors often use integrated solutions, embedding the baseband and application processing functions on a single platform, which Qualcomm, TI ST-Ericsson and other modem makers can supply in volume. By gaining access to a baseband portfolio, Nvidia can not only sell both primary processors to device makers, it could greatly expand the pool of devices it could support—if it integrates Tegra or some lesser processor with the baseband.

Nvidia said it would continue its collaboration with its existing baseband partners and would respect device manufacturers’ preferences if they want to combine Tegra with other baseband suppliers’ solutions. But it’s probably only a matter of time before Nvidia hits the market with a mid-range solution of its own, promising a cheaper integrated platform coupled with many of the graphics and power bells and whistles that made Tegra an instant success.

That point may be three or four years in the future, though. In a research note, Strategy Analytics analysts Sravan Kundojjala & Christopher Taylor pointed out that Icera is a bit of a one trick horse. Its soft modem basebands target primarily embedded laptop and USB mobile broadband platforms, a small but growing part of the overall mobile connectivity market. Its first voice-supported 3G silicon won’t ship until in the fourth quarter, meaning Nvidia won’t be able to start selling modems to smartphone makers until later this year or early next.

Strategy Analytics also said that Nvidia and Icera will have to fill some critical holes in their connectivity portfolios. Neither vendor supports Wi-Fi, Bluetooth, near-field communications (NFC), or GPS—all key connectivity solutions in an integrated communications chip. Vendors like Broadcom and TI are already integrating all of those radios onto single platforms and tossing ZigBee and FM Radio to boot.

Still, Icera is one of the few baseband vendors to have an integrated long-term evolution (LTE)/high-speed packet access (HSPA) modem ready, making it a prime candidate to supply the first generation of LTE tablets and smartphones for GSM operators. As those devices will likely be high-end hardware-driven gadgets, both Nvidia likely will be one of the key suppliers of their applications processors.