Getting vertical – what Nvidia’s acquisition of Icera means

Posted: 05.09.11

Nvidia announced the acquisition of UK-based maker of baseband chips for 3G and 4G handsets, Icrea for $367 million in cash. This is a really big deal – not for the purchase price but for the impact it’s going to have on the industry.

Now the playing field in mobile devices is shaping up to a big three (or four) players, a normal consolidation in a broadly fragmented market. With Nvidia’s acquisition of Icera, Nvidia now has a total processor stack like Qualcomm, and Intel. Qualcomm and Nvidia are going to be head-to-head competitors. Icrea products already compete directly and quite successfully with Qualcomm. Qualcomm and Nvidia are the only suppliers with their own graphics and video processors (Intel, TI, Reneas, STMico, Marvell, all bought graphics IP from Imagination Technology, ARM, or Vivanti).

As the graphics board market growth flattens due to the impact of integrated processors, and even though Nvidia enjoys high ASPs and margins in that space, it’s not enough—even with CUDA—to make the company grow at the rate it once did.

Also, now there’s no obstacle to Nvidia is selling a total solution for smartphones and tablets. Icera’s programmable radio technology (spanning from 2G to 4G in one very small chip) is best in class in terms of programmability, range, and the physical size of the chip. The deal represents a real coup for Nvidia and it is surprising there wasn’t a bidding war for the company. Also surprising is the price Nvidia paid, just $367 million—in cash. This is possibly the deal of the decade, and you have to admire Nvidia for pulling it off and keeping it quiet. We analysts think we’re so smart—no one had a hint of this.

Icera is the company Intel should have bought, instead of the Infineon technology it did buy in 2010. And, I suspect a lot of other firms are having that same thought about now.

The possibility of building a super chip, the dream chip we’ve all spoken about and a few companies have even tried with apps processor, multimedia processor, and baseband (radio) processor all integrated, is now really possible. Icera chips are built at TSMC in the same process as Nvidia’s Tegra. The common wisdom in the past has been that modem technology, due to regulations and tower build-out doesn’t move very fast, whereas the application and multimedia processors change every year, and so it doesn’t make sense to integrate. Something is always out of sync. That thinking just got tossed out the window, and now if a handset manufacturer wants a competitive advantage of a totally integrated part, he knows where to go.

The industry just shifted a little bit, and this is going to cause a tsunami for some folks.