Nvidia Taking Aim at Intel in Tablet CPUs: Report

Nvidia Corp., best known for the powerful graphics processors coveted by gamers, may be making a bid to take on Intel in CPUs for tablet devices, according to reports.

Citing "two people familiar with the matter," Bloomberg News said Nvidia (NASDAQ: NVDA) has assigned a team of engineers to develop a chip that could run tablets and give Santa Clara, Calif.-based Nvidia some room to maneuver. According to the report, the company made the decision to pursue tablet processors after a failed effort to create a microprocessor for laptops that would have competed with Intel's (NASDAQ: INTC) Atom chips. Nvidia couldn't make the laptop CPUs cheap enough to compete.

Currently, Nvidia finds itself between Intel -- the 800-pound gorilla in the x86 chip market -- and AMD, Intel's closest competitor, both of which have begun incorporating many graphics features into their CPUs, diminishing the need for the separate graphics cards that are Nvidia's bread and butter. AMD swallowed Nvidia's chief rival, ATI Technologies, in an acquisition in 2006.

With Intel and AMD closing on both sides, Nvidia is seeking to create a CPU so it can continue to compete, according to Jim McGregor, an analyst at In-Stat quoted by Bloomberg News. The once moribund tablet market is now finding new life as a result of the success of the Apple iPad, and rumors abound that Samsung will soon drop an Android-based tablet to compete in that market. Samsung isn't alone either: Dell, Sony and RIM have all made noise about Android-based tablets.

The reason is no secret. Morgan Stanley has said it expects global tablet PC sales to reach 12 million units during 2010, with 10 million of those 12 million being Apple (NASDAQ: AAPL) iPads. Further, it anticipates 45.5 million in tablet sales by calendar year 2012. By then, the competition should heat up and Apple will account for only 20 million of the 45.5 million units sold.

"Given the early success of the iPad, a growing pipeline of tablet launches and strategic OEM actions give us confidence that the tablet opportunity is significant and Apple isn’t the only company investing for growth in the category," Morgan Stanley analyst Katy Huberty wrote in a June report. "Almost all major PC and smartphone OEMs are planning to launch tablet PCs in 2H10 or 2011, we believe ... Intel recently announced the Atom "Oak Trail" that is designed for tablets (along with netbooks) that will be available in early 2011 and compatible with Windows 7, Android and MeeGo operating systems [and] we believe that HP's acquisition of Palm and the WebOS platform suggests that HP views mobile internet devices (including tablets) as a significant long-term opportunity."

If Nvidia can capture a piece of that pie, it may be thankful that its laptop efforts failed. The tablet star seems to be rising as the star of netbooks, dominated by Intel's Atom CPUs, is falling. According to NPD data, netbook sales fell 13 percent year-over-year in April after a 45 percent year-over-year gain for the first quarter.

Morgan Stanley's Huberty believes that phenomenon is related to the advent of the iPad and its success as a content consumption device.

"We now expect tablets to out-ship netbooks by [2012]," she wrote. "We already see signs of cannibalization, mainly in the U.S. netbook market. Netbook units declined [year over year] for the first time in April 2010, the same month Apple launched the iPad. We attribute the slowdown to iPad sales, purchase deferrals in anticipation of future tablet launches and what looks like the saturation of the netbook market at around 10-12 percent of total PC sales. This data point is consistent with our U.S. consumer iPad survey which suggests that 44 percent of iPad sales will cannibalize the notebook/netbook market."

Meanwhile, Nvidia has other troubles to overcome as well. On Thursday it recorded a fiscal second quarter loss of $141 million, bringing it in under Wall Street expectations. Even that may hold a silver lining though. MarketWatch has reported that a number of analysts believe Nvidia has hit bottom and may have put the worst behind it.

Thor Olavsrud is a contributor to InternetNews.com, the news service of Internet.com, the network for technology professionals.