Pivot in Company Strategy – the Nvidia Example

After making chips and graphics chips for personal computers for most of the almost-20 years it has been in business, Nvidia has plunged headlong into a new market; that of the mobile chip, the chip that powers tablets and mobile phones.

Why has Nvidia changed its product strategy, and therefore its market strategy, and therefore its company strategy?

Well, because it feels it has to, that’s why. It’s current market is not only slowing dramatically because computer sales are down, it is beset by competitors like AMD and Intel who now include very adequate graphic processors in their standard setup, thereby effectively cutting Nvidia out of the picture in terms of selling an add-on graphic processor to the target PC manufacturer. Nvidia, and more specifically, Nvidia’s CEO, Jen-Hsun Huang, has made a tough decision that staying in their current market will lead to slow, but certain death, and is now striking out for the frontier of mobile chips.

The writing is certainly on the wall. As noted, Nvidia’s graphics chip business is taking some hits, and so is the segment they supply. Meanwhile, the obverse side of the coin has the Android operating system, which Nvidia has built its chip for, forecast to comprise over half the smartphone and tablet market within three years. Android is such a strong newcomer that most credible market analysts in the mobile industry believe that tablets with the Android operating system will outsell the current market champion iPad by over 50 million units by 2015. As a sidebar to this forecast, it certainly doesn’t bode well for the just-introduced Blackberry Tablet, but let’s focus on the matter at hand for today.

Okay, it’s one thing to make the decision, another thing to make a product, and then yet one more thing to actually sell a whole lot of whatever you make. There is little doubt that Nvidia has made the right strategic decision for their business, but can they execute on their new strategy?

Nvidia has a new chip called the Tegra 2, which is already in the new Samsung Galaxy Tab 10.1 and the new Droid X2 smartphone, the new Motorola Droid Bionic, the new Atrix 4G, and others and has gotten good reviews.

Nvidia also has an even newer quad-core processing chip called Kal-El (yes, that was Superman’s real name from his parents on Krypton) that is still not yet on the market that promises to make some serious waves. Nvidia has released a video of a homegrown game called Glowball that shows off the new (and obviously expensive) processor’s capabilities, and those capabilities are very impressive. The company says the new chip will be in Android-powered smartphones and tablets by September of this year.

If you’re wondering what the main competitive thrust is with improving the Android platform as it compares to the iPad, it’s mostly all about the ability to get movies and music on the device, and play that media back without crashing the device. The iPad is better than Android-powered devices at doing those things right now, but the new processors developed for Android by companies like Nvidia are closing that gap very quickly.

The Achilles heel in all of this is battery life. Nothing is free, and those processors suck up a lot of juice.

Which brings us full circle back to whether Nvidia can execute on their change in strategic direction. In fact, it is probably giving this scenario short shrift to describe what Nvidia is doing as a change in strategic direction; it is much more accurate to call it a reinvention of the company.

My personal opinion is that Nvidia has a very good chance of executing this massive reinvention. They read the tea leaves of where the market was going, and acted early. Huge kudos to them for their alertness in this regard. This, folks, is how you’re supposed to look out for your company’s future. But, praise aside, I think they’re doing everything they can to be successful in their new market. The next few years will be the test.

Brendan Moore is a Principal Consultant with Cedar Point Consulting, a management consulting practice based in the Washington, DC area, where he advises businesses in marketing, sales, front-end operations, and strategy. Cedar Point Consulting can be found at http://www.cedarpointconsulting.comm.

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