Icera-chipNVIDIA has just announced the acquisition of a baseband chipmaker called Icera. The company makes the “baseband”, or communications processor that talks to the cell towers. Icera customers include heavyweight Nokia and ZTE.

Other system on a chip (SoC) vendors like Qualcomm have a lot of experience in baseband technology and baseband integration on  their SoC. That gives them an edge, particularly in the mid-range and entry-level smartphones because highly integrated SoCs are cheaper to produce.

For NVIDIA, this could be critically important because although the company has been getting very visible “design wins”  (contracts) for its Tegra 2 product from LG, Motorola and even Samsung, which makes its own SoCs and competes with NVIDIA in some markets. However, without an integrated baseband, NVIDIA can only fight in the high-end market because its slightly more expensive for handset maker to have an external baseband.

Integration might be common wisdom, but NVIDIA still believes in a two-chip solution, we’re told. Today, its Tegra 2 chips are paired with an external baseband chip from another company, and NVIDIA says that it allows them to be flexible in order to meet customer demands (at least for those who want a 2-chip solution). Their customers can build Tegra phones for any network, fairly quickly. The saving from integrating the baseband is not “significant”, says NVIDIA’s Mike Rayfield.

I can also speculate that in the longer-term, NVIDIA will also be able to provide a complete solution (SoC+baseband) with a single software package that is more convenient to handset makers, thus accelerating time to market for their customers.

And while NVIDIA doesn’t rule out integrating the baseband chip into the SoC, NVIDIA CEO Jen-Hsun Huang himself has been saying internally that “this is not the plan” — unless the market tells them otherwise.

In the end, NVIDIA knows that they need to have  control over the baseband to be a major player in the wireless industry, and Icera just seemded like a “perfect” acquisition. Icera makes programmable baseband chips (and NVIDIA *loves* programmable), and this is key to NVIDIA as the company thinks that it is a better way to serve more customers (it is). With non-programmable basebands, NVIDIA would need to create many different baseband processors, and to do that you need more teams working on chip designs.

For NVIDIA, this is also an acquisition that could pay off starting from tomorrow: Icera already has clients, and NVIDIA intends to use the synergy between the two companies to tap into a $15B baseband market worldwide. NVIDIA currently makes about $4B per year in revenues. [Press release]

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