Nvidia Corp.’s intention to license its Kepler graphics technology to other chip developers as this will help it to spread its technologies onto markets and devices that the company simply cannot address, according to Wall Street analysts. Some financial analysts even believe that licensing will let Nvidia to put its technologies inside system-on-chips from companies like Apple, Samsung or even Intel, which will bring huge amounts of money to the company.
“If there was ever a way for Nvidia to get into Apple, the IP licensing angle is likely it. This is particularly true if Apple has ambitions in the datacenter (although nothing has been announced to date). In this case, licensed graphics from Imagination Technology (used by Apple, Samsung Electronics, and Intel in mobile platforms) are not suitable in higher-end computing. This also could limit ARM’s Mali effort, which is just starting to gain traction. Regarding Intel’s licensing agreement with Nvidia, we still believe that Intel will have to pay Nvidia for many years to come. Remember, Intel’s Larrabee project was cancelled years ago and it now has a dual Imagination and internal graphics strategy that is not ideal in our view,” said Hans Mosesmann, an analyst with Raymond James, in a note to clients, reports Tech Trader Daily.
While potentially licensing business opens up doors to new revenue streams, other analysts warn that Nvidia is unlikely to sign any deals shortly. The main reasons are simple: none of the application processors developers have experience with Kepler, in the best case scenario chip designers will only squeeze Nvidia technology into a generation of chips that is at least one generation away from what is being designed now.
“We believe that the licensing model provides the company with an additional revenue stream and the potential to attract new customers. While we do not see any near-term revenue impact, we do see a benefit of moving towards the licensing model for greater reach, similar to ARM’s approach with its mobile processors,” analyst Daniel Amir with Lazard Capital Markets wrote to clients.
It was crucial for Nvidia to start licensing its graphics technologies to third-party developers as smaller SoC designers from China and Taiwan are gaining market share, which represents risks for Nvidia’s Tegra app processor business.
“In our view Nvidia’s move is also a tacit admission that generating a meaningful return on investment is very challenging for fabless ARM SoC vendors. Given fabless vendors do not control their own costs and source key IP from others, there are very few barriers to entry or opportunity to differentiate. A direct illustration of this trend can be seen in Chinese vendors such as Rockchip and Allwinner rapidly gaining share and putting downward pressure on ASPs as they operate on much lower margins than U.S. peers. To this point we view NVDA’s IP licensing strategy as both an astute TAM enhancer and a hedge against the potential deterioration of its Tegra segment,” said Ross Seymore, an analyst with Deutsche Bank.
However, not everyone believes that Nvidia can address Apple, whereas Samsung is a customer that uses IP from loads of different suppliers, thus the financial impact of a potential on Nvidia will not be that significant.
“Management is targeting high-end devices at vertically integrated OEMs looking to differentiate. Regarding the big two, we believe Apple is unlikely to adopt Kepler as our checks indicate significant internal GPU design efforts, perhaps looking to eliminate the royalty expense. Further, Samsung is possible but is cycling through IP vendors and chip suppliers today,” said Patrick Wang with Evercore Partners.