Nvidia has had it rough in the past few quarters. As Intel keeps making higher-performance integrated graphics chips that are starting to be “good enough” for most laptop users, Nvidia is being slowly squeezed out of the graphics chips market for laptops. Maybe this wouldn't be a terrible problem if desktop PC's were still on a growth path, but they haven't been for a few years due to the emergence of laptops as the main “PC” for most people.
While AMD has been losing market share to Intel in the past few years, too, at least they get to use their own graphics chips with their own CPUs. Nvidia's only opportunity is to sell their graphics chips alongside Intel CPUs. But as people care less and less about high performance GPUs in laptops, and more about battery efficiency — and Intel keeps improving the performance of its GPUs — Nvidia's market share is starting to decline.
Fortunately for Nvidia, they were able to see this trend early on, and that's why they started working on the Tegra chips, making not just mobile GPUs, but also ARM CPUs. ARM chips are starting to become more and more important because the mobile market keeps growing rapidly, and also because they are starting to undermine Intel's chips with “good enough” performance. This is the same “trick” (or strategy) Intel is using against Nvidia in laptops.
While Intel was busy disrupting Nvidia in the GPU market in laptops, Nvidia also started disrupting Intel in CPUs and GPUs in the ARM mobile market. The future ultimately sounds more promising for Nvidia than for Intel. Intel is disrupting Nvidia in the x86 market, while Nvidia is riding the wave of the whole ARM architecture disrupting x86, and therefore Intel (and AMD). If things keep going the way they have, and ARM chips start to actually threaten Intel in laptops/hybrid devices, Nvidia should be the ultimate winner in this fight.
Nvidia's bet on ARM chips has already started to pay off, as their profits have doubled to $119 million on $1.04 billion revenue from $60.4 million in profit last quarter. The jump in profit happened thanks to Tegra 3 chips, and Nvidia's profit is expected to grow even further now that Nexus 7 has been launched using the same Tegra 3 chip. Other devices using Nvidia's Kai program are expected to launch later this year as well, including both tablets and smartphones.
Although the Nvidia chip is quite competitive in the market right now, it's far from being the best, especially in raw GPU performance. This is surprising coming from Nvidia, one of the best GPU makers on the planet. The main reason for this is that Nvidia did not expect things to be moving this fast in the GPU market, so they only made a small 80mm2 SoC that allocated a lot of space for 5 CPU cores. This left only so much space for the GPU and other components, when other competitors have much larger 120mm2 SoCs.
Now that they know how aggressive other SoC makers are, they must've changed their plans for Tegra 4, which was initially supposed to come out this year. They now want to make a much better SoC with 4 Cortex A15 CPU cores running at 1.8 Ghz, and with 5 times more GPU cores than Tegra 3, that are also supposed to be built on the “Kepler” architecture. Things seem to continue to look promising for Nvidia in 2013, but we'll have to see if they can deliver.