Qualcomm to Replace NVIDIA for Google's Next-Gen Nexus 7

According to DigiTimes, Asus (the company that manufactured the original Nexus 7) will replace NVIDIA's (NASDAQ: NVDA) Tegra 3 with an unnamed processor from Qualcomm.

This is surprising news considering the fanfare behind the Tegra 3 in 2012 and the anticipation for its follow-up, the Tegra 4. Numerous tablets incorporated the Tegra 3 last year, including the original Nexus 7, Sony's (NYSE: SNE) Xperia Tablet S and Microsoft's (NASDAQ: MSFT) Surface RT.

While it is not yet known if Sony will release a new tablet in 2013, Microsoft is rumored to switch from NVIDIA to Qualcomm for Surface 2.

Google (NASDAQ: GOOG) has not released any sales data for the original Nexus 7, nor has it revealed how many tablets it expects to sell in 2013. However, upstream supply chain sources told DigiTimes that if NVIDIA fails to secure the Nexus 7 contract, it could lose an order of roughly eight million processors.

NVIDIA reportedly shipped more than 10 million Tegra 3 processors for tablets last year. Sixty percent of them were assigned to the Nexus 7; the rest were supplied to Lenovo, Acer and various white-box players in China.

This is not the first time NVIDIA has taken a backseat to its competitors. Nintendo (OTC: NTDOY) and Sony chose Advanced Micro Devices (NYSE: AMD) to power the next-generation consoles. Microsoft is expected to do the same.

When questioned about a potential contract with Sony, NVIDIA's Tony Tamasi acted as though it was the company's choice to get out of the console manufacturing business.

"I'm sure there was a negotiation that went on," Tamasi, who serves as NVIDIA's Senior VP of Content and Technology, told GameSpot. "And we came to the conclusion that we didn't want to do the business at the price those guys were willing to pay.

"Having been through the original Xbox and PS3, we understand the economics of [console development] and the tradeoffs."

Thus far, very few manufacturers have publicly stated that they will use the Tegra 4 processor. Chinese handset maker ZTE is already signed up, but Hewlett-Packard (NYSE: HPQ) is rumored to be developing a tablet that will also use Tegra 4. However, HP's first Android-based tablet, the Slate 7, is using a processor from ARM Holdings (NASDAQ: ARMH).

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis@benzingapro.com. Follow him @LouisBedigianBZ

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