NVIDIA Corporation (NVDA) recently completed the acquisition of U.K. based data-modem chip manufacturer Icera Inc. The company shelled out $367.0 million of cash for the acquisition, which was announced in May. Icera will now operate as a wholly owned subsidiary of NVIDIA, but will retain its brand name.
Icera is a renowned producer of baseband processors for 3G and 4G smartphones and tablets. It also produces wireless modems that are used to connect a device to a carrier. Icera’s products will go hand-in-hand with NVIDIA’s Tegra processing chips.
This acquisition is expected to enhance the company’s Tegra product line, and provide the much-needed edge over its prime competitor Qualcomm Inc. (QCOM), which already manufactures both processing and modem chips for portable devices.
Leveraging Icera’s capabilities, NVIDIA will now be able to deliver both application and baseband processors, the only two-in-one option for mobile computing and wireless radio. The Tegra application chip and Icera’s baseband technology will be a power-packed combination for original equipment manufactures to expedite the time to market their products (smartphones and tablets).
NVIDIA believes the acquisition will temporarily impact operating profit in the first half of 2012, but will be accretive in the second half as it strengthens its foothold in the growing mobile computing market. The deal will also open up a $15 billion-a-year baseband market for NVIDIA, which will boost its revenue growth going forward.
NVIDIA remains optimistic about long-term growth given the gradual recovery in demand for graphic chips. The company has rolled out the first quad-core mobile processor. The company also entered into a six-year licensing agreement worth $1.5 billion with Intel Corp. (INTC). However, NVIDIA’s performance may be slightly tempered by the economic slowdown in Europe and increased competition.
Currently, NVIDIA holds a Zacks #3 Rank, implying a short-term Hold rating.
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