This cost absorption has affected Nvidia's near-term margins and is one of the reasons why the Street continues to have doubts about this company. For instance, although the overall sales numbers look solid, the fact that Tegra revenue declined 22% year over year sticks out like a red thumb. The good news is this strategy has worked as well as can be expected. Not only is Nvidia's Tegra line of chips gaining traction, but the costs to grow market share have not adversely impacted the company's operating margin.
Management understands what's at stake regarding mobile market share. Plus, Nvidia, which is still dependent on PC sales for roughly two-thirds of its revenue, has been working hard to broaden its portfolio. To that end, the Tegra line of mobile processors, which is a system-on-chip (SoC) that integrates many of the features of the ARM architecture into one package, has taken a major focus.
As it stands, outside of the Nvidia investment community, Tegra is not as wildly known as Qualcomm's Snapdradon or Broadcom's line of BCM LTE chips, but Tegra is gaining meaningful ground. Here again, during the conference call, Nvidia's management pulled no punches, saying the company's Tegra 4i "delivers three times higher performance than Qualcomm's S400 solution."
What's more, Nvidia continues to secure business some prominent companies including Microsoft (MSFT) and Google (GOOG) where the Tegra is a key component inside both Surface and Nexus 7 tablets. Device manufacturers are beginning to realize Tegra's features such as low power consumption coupled with high performance makes this series one of the best chips on the market today.