Rethink Technology business briefs for April 4, 2017.
Downgrade of Nvidia by Pacific Crest ignores market potential of Xavier
On April 4, Pacific Crest analyst Michael McConnell cut his rating of Nvidia (NASDAQ:NVDA) from sector weight to underweight. Only about 2% of companies rated by Pacific Crest have the underweight rating, which means the company is expected to underperform its peers.
The rationale being used here is much the same as was used to justify Sell ratings or short recommendations on another of Rethink Technology’s favorites, Apple (NASDAQ:AAPL), not too long ago. The company is just so successful, it has nowhere to go but down.
McConnell’s rationale in this case is “signs of desktop [graphics processing unit] market saturation, lower margins from incremental Nintendo Switch revenue and a possible pause in the company’s datacenter business this summer.” All of which may be true, but it completely ignores Nvidia’s key growth engine for next year, the “Xavier” system on chip.
Xavier features a new ARM 64 bit core design combined with next generation Volta architecture GPU. Xavier forms the heart of the Bosch autonomous vehicle processing system and is the heart as well of the next generation Drive PX system. Xavier is apparently powerful enough to replace the Drive PX 2, which contains 2 Parker ARM SOCs and 2 Pascal discrete GPUs.
As a powerful ARM SOC with a superior GPU, Xavier has many other potential applications, including an eventual upgrade for Nintendo’s Switch and Nvidia’s own Shield TV console. In my view, Xavier represents the future of Nvidia in consumer products, not discrete GPUs.
Rethink Technology recommends Nvidia as a buy.
Bosch/Daimler partnership a likely Nvidia win
Daimler (OTCPK:DDAIF) and Bosch (OTC:BSWQY) have announced a partnership to work on fully autonomous vehicles. Noteworthy in the announcement was the lack of any development of processing hardware for autonomous vehicles:
The two companies have entered into a development agreement to bring fully automated (SAE Level 4) and driverless (SAE Level 5) driving to urban roads by the beginning of the next decade. The objective is to develop software and algorithms for an autonomous driving system. The project combines the total vehicle expertise of the world’s leading premium manufacturer with the system and hardware expertise of the world’s biggest supplier. The ensuing synergies should ensure the earliest possible series introduction of the secure technology.
Why there is no mention of hardware should be obvious to those who regularly follow my posts. At CES, Daimler and Nvidia announced a partnership to implement fully autonomous vehicles and promised to start rolling out the technology “in the coming year.’
Then, at Bosch Connected World, Nvidia CEO Jen-Hsun Huang was present for the announcement that Bosch had adopted Xavier for its autonomous vehicle processor. So it doesn’t really require much to connect the dots, does it? Hardware isn’t mentioned because the hardware is already lined up.
The challenge now is software, but of course, Nvidia will be lending a hand there as well with its DriveWorks APIs.
Despite its pivotal role in autonomous vehicles, Nvidia isn’t receiving much attention for its contributions in some quarters. For instance, a recent “leaderboard” chart of companies engaged in autonomous vehicle development doesn’t mention Nvidia at all.
Source: Navigant Research
Apple’s Mac Pro finally gets a little attention
The following is a summary of a longer article published today for Rethink Technology subscribers.
We all know Phil Schiller (SVP of Worldwide Marketing) as the guy who usually gets to introduce new Macs to the world at Apple’s special events. The press meeting today between Apple executives and a few journalists was clearly something that Schiller had instigated, and he did most of the talking.
The meeting was held at Apple’s Product Realization Lab, where Apple builds prototype hardware for future products. In addition to Schiller, there was Craig Federighi, SVP of Software Engineering, and John Ternus VP Hardware Engineering for the Mac. The meeting focused mainly on the long-neglected Mac Pro, and Apple execs admitted that the Pro has some shortcomings. Said Federighi:
I think it’s fair to say, part of why we’re talking today, is that the Mac Pro – the current vintage that we introduced – we wanted to do something bold and different. In retrospect, it didn’t well suit some of the people we were trying to reach. It’s good for some; it’s an amazingly quiet machine, it’s a beautiful machine… But it does not address the full range of customers we wanna reach with Mac Pro.
The overarching question that Apple didn’t really answer in the press meeting was why it took so long to realize that something needed to be done about the Mac Pro. To me, this is symptomatic of the lack of a Product Architect, someone responsible for overall product design, including updating existing designs.
The meeting contained two main departures from the past. The first was the greater transparency regarding product plans. This was necessitated by the neglect of the Mac Pro, but I hope it becomes a normal part of business at Apple for all its products. The second departure was that someone (in this case Schiller) actually seems to be taking charge of an Apple product.
Both of these developments I consider to be extremely positive for Apple. Apple has needed to be more transparent, especially about the Mac and where it fits into the grand scheme of (Apple) things. More importantly, Apple has needed a product architect, or at least a product architect who wasn’t Jony Ive. Investors can only hope that Schiller’s actions successfully break the logjam regarding the Mac Pro, as well as accelerate the development of future products in general.
Rethink Technology recommends Apple as a buy.
Disclosure: I am/we are long NVDA, AAPL.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.