The Birth of the Gaming Tablet

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After NVIDIA Corporation (NASDAQ:NVDA) dove head-first into the handheld gaming market with Shield, rumors emerged that the company would soon release a tablet of its own. On Sept. 18, the company officially announced the Tegra Note, a complete tablet platform powered by the Tegra 4 mobile processor. NVIDIA won’t be manufacturing the device, however. The Tegra Note is a reference design which will be manufactured by partners such as EVGA and PNY Technologies, the same companies which build NVIDIA’s GPUs.


A quick look
The Tegra Note will be powered by the Tegra 4 processor and have a 7-inch 1,280-by-800 LCD display. NVIDIA is claiming that the device will be the world’s fastest 7-inch tablet, while still able to achieve 10-plus hours of battery life while playing HD video. NVIDIA’s DirectStylus technology is included, which uses Tegra’s image-processing power to analyze touch input and differentiate between different types of strokes. An example is using one end of a stylus for drawing and the other end as an eraser.

A front-facing and back-facing camera are included, again using the Tegra’s processing power to enhance image taking. Easy access to TegraZone, offering Tegra-optimized games, gives the Tegra Note a gaming edge over non-Tegra tablets. And over-the-air software updates directly from NVIDIA will ensure that the tablet will always be able to handle the newest graphically intensive games.

The Tegra Note will start at $199, although higher-end versions which cost more may also be offered by the various partners.

An improved strategy
Up until this point, NVIDIA has been largely relying on OEMs to use the Tegra processors in their various tablet offerings. Microsoft used a Tegra 3 in the Surface RT and will use a Tegra 4 in the second iteration of that tablet. Google used the Tegra 3 in the Nexus 7, and companies ranging from Asus to Lenovo made various other Tegra-based devices.

But the only thing differentiating these tablets from the rest was an entry on the spec sheet. The Tegra Note aims to change that, creating a platform with unique features and a compelling value proposition. At the same time, NVIDIA is avoiding the costs of manufacturing the hardware, much like in its GPU business, likely leading to a lower break-even point in terms of unit sales.

The goal for NVIDIA is to get the Tegra processor into as many devices as possible, and by providing a reference design, NVIDIA allows its partners to avoid having to design a tablet from scratch. I think that this is the best strategy for NVIDIA going forward, and I expect Tegra sales to pick up toward the end of this year.

Avoiding failure
The reason for passing off the actual manufacture of hardware to partners can be explained by the story of Barnes & Noble, Inc. (NYSE:BKS)‘s ill-fated foray into tablets. After the reasonable success of its line of e-readers, the bookseller decided to heavily push its Nook tablets, essentially betting the company on its success. While the hardware was solid, the problem was competition.

Low-end tablets are quickly becoming a commodity, with prices continuously falling. What this means is that companies which manufacture low-end tablets, much like PC manufacturers before them, have seen and will continue to see their margins contract. High-end manufacturers like Apple and Samsung do well, but cheap Android tablets are a dime a dozen.

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