Nvidia's 'System on a Chip' Offers Whopping Growth Potential

NEW YORK (TheStreet) -- Although known primarily for its graphics, Nvidia's (NVDA) Tegra microprocessors, or "systems on a chip," offer huge growth potential in the processor field.

After the success of Tegra 3 in 2011 and 2012 but poor growth last year, Nvidia is looking to revive its fortunes with the introduction of Tegra 4.

Tegra is a microprocessor that includes a CPU, a graphics processor and memory controller in one very compact unit. Today, they are predominantly used in mobile devices like smartphones or e-readers, but Nvidia is seeking to expand the market into the automotive sector.

Nvidia shares closed at $18.45 a share on Monday and is up more than 15% in 2014.

The company is an established player in graphics, a more mature market than the processor market, where Nvidia doesn't have much presence and is ripe for expansion. Targeting the automotive segment will expand Nvidia's market for Tegra as well. 

Nvidia's Tegra business reported a 37% year-over-year revenue decline in the fourth quarter of fiscal-year 2014, while it grew 18% year over year. Year-over-year revenue decline resulted from lower Tegra 3 sales in fiscal-year 2014 and the late launch of Tegra 4.

But Nvidia has built strong base for its Tegra 4, with design wins for Xiaomi's Mi3 smartphone, Microsoft's (MSFT) Surface RT 2, HP's (HPQ) SlateBook X2, ASUS's Transformer Pad and Toshiba (TOSBF:OTC) Excite Pro.

Tegra is also being used to power in-vehicle infotainment systems. The company has a $2 billion business pipeline in the automotive business, while it has laid a foundation of the next generation of in-car electronics and advanced driver assistance, revealed at Consumer Electronics Show (CES) 2014. Its partners for the automotive business include Audi, BMW, and Tesla (TSLA).

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