(Bloomberg ) When Sony Corp. releases the PlayStation 4, Nvidia Corp. (NVDA)'s signature graphics chips won't be on the parts list. Nvidia Chief Executive Officer Jen-Hsun Huang figures that players have already left the living room.
Huang has come up with a hand-held gaming device from Nvidia itself. The executive, who co-founded the chip maker in 1993, has pushed it toward smartphones and tablets as those products demand better graphics for games and videos. Now he's looking to seed a future centered on mobile-game platforms like Google Inc. (GOOG)'s Android, which is free to license, rather than consoles from Sony, Nintendo Co. or Microsoft Corp. (MSFT)
"This is going to be the best way to enjoy games in the future," Huang, 50, said in an interview. "We felt that there's an opportunity for someone to make the open ecosystem more enjoyable."
Nvidia's Shield, unveiled at the Consumer Electronics Show in January, resembles a console's controller with a pop-up screen, and works for games like "Angry Birds" made for portable devices. It can connect to a TV, projecting play onto a big screen without consoles like the Wii U, Xbox 360 or PlayStation 3. It can also link wirelessly to some PCs, giving players access to pricier titles like "Call of Duty."
The company, based in Santa Clara, California, was a pioneer of specialized chips that improved computing graphics and brought lifelike images to screens.
Over time, the market narrowed to a fight between Nvidia and ATI Technologies, now a part of Advanced Micro Devices Inc. (AMD) The rivals leapfrogged each other in performance and market share in both personal computers and game consoles. While Nvidia's current design is rated the best by reviewer sites, consoles coming to market this year had their technical specifications laid out as much as a year ago.
By latching onto the most widely used system in mobile phones, Nvidia is wooing gamers seeking more mobility and flexibility. The company is looking to spur development of more intensive Android games that require graphics power from chips like Nvidia's to create realistic environments.
It's a gamble for Nvidia, which gets more than 60 percent of sales from graphics processors it makes for other companies' PCs, consoles and tablets. The Shield, set to debut in the second quarter, will compete with a new generation of consoles from Nintendo, Sony and Microsoft. The PS4, Sony's next gaming console, was unveiled last week in New York.
U.S. sales data suggest players are embracing mobile platforms like Android at the expense of traditional gear. Revenue from games downloaded to computers and mobile devices rose 16 percent last year to $5.9 billion, according to researcher NPD Group. Revenue from packaged titles, most of which retail for about $60, fell 21 percent to $8.9 billion.
Huang sees opportunity for Nvidia, which has found a way to keep revenue growing as the markets for PCs and the graphics chips used in the machines decline. Nvidia sales grew 7.1 percent last year, in part because Huang branched out into mobile devices. The shares, which fell 12 percent in 2012, rose 1.9 percent to $12.52 on Feb. 22 in New York and are up 2.1 percent this year.
At Sunnyvale, California-based AMD, which will have its products in all three new consoles, revenue declined 17 percent in 2012, while its shares dropped 56 percent.
"Nvidia gets that there's value to be derived from the ability to play games on the big-screen TV at home, on a PC and then on a mobile or portable device," said Lewis Ward, an analyst at researcher IDC. "The cross-platform approach to gaming is something that has potential."
One challenge is to convince Android gamers, who so far have stuck with smartphones, to shell out for a dedicated gaming device. Sales of Sony's $250 Vita and Nintendo's $170 3DS, for example, have missed estimates.
While Nvidia hasn't set a price, a gaming tablet from Los Angeles start-up Wikipad will cost $249 when it hits the market in the next few months. Ouya, a Kickstarter-funded console that has generated buzz with gamers, will cost $99.99 in June. Both play Android titles and, like the Shield, use Nvidia's Tegra chips.
Another question is what resources game developers will dedicate to Android, which is dominated by $5-and-under casual titles. Showing off Shield's capabilities requires play to be tailored for controllers with triggers and joysticks.
Game creators typically limit development resources to platforms that have large built-in markets, said Ward, the IDC analyst. He estimated that fewer than 200 Android-based games can be played with a controller.
Ultimately, Huang sees a world of cloud-based gaming networks that handle the heavy computing. The company has begun selling a line of custom-built server machines called Grid that are based on its graphics processors. Those products would allow broadband providers to stream games directly to TVs and handhelds, with no console. While similar services haven't attracted as many subscribers as were targeted, Nvidia is trying to make it easier to set them up.
"It's the right move, but it's early," said Doug Freedman, an analyst with RBC Capital Markets in San Francisco. There's speculation Nvidia had no choice because its chips weren't included in the Wii U and won't be in coming consoles from Sony and Microsoft, he said.
Sony declined to comment on its PlayStation suppliers, said Dan Race, a spokesman. Hector Marinez, a spokesman for Nvidia, declined to comment on the company's decision process.
Huang said he has set up a dozen trial cloud-gaming services with the Grid, and is expecting more. Partners include Agawi Inc. in the U.S., Israel's Playcast Media Systems and Japan's G-cluster Global Corp.
"We're not expecting much revenue contribution because the trials will take many months," Huang said by telephone this month. The cloud trials are "the most important indicator of future success for me."
Sony, in the meantime, is emulating some of the most popular aspects of mobile gaming, and doing some things smartphone games can't to keep customers using its hardware.
The PS4, planned for release by the holidays, will have a controller with a touchpad feature, and allow players to share content and transfer play across devices, including the Vita, Sony said at a Feb. 20 event. Eventually, the company will offer older titles for streaming through its Gaikai cloud-based service. Also, the PS4 is being built on PC architecture, making it easier to develop games.
Until a cloud-based world develops, the Shield will make use of current technologies. The device resembles Microsoft's Xbox 360 controller, with a flip-up high-definition screen attached to its face. Like consoles, it can also direct play onto TV screens.
To play non-Android titles like Activision Blizzard Inc. (ATVI)'s "Call of Duty" without a console, the Shield connects to the PC. Those machines need to be equipped with an Nvidia graphics card.
The company was smart to join the Android-based Google Play marketplace, said Bernard Kim, senior vice president of the social mobile publishing unit at Redwood City, California-based Electronic Arts Inc. (EA), second to Activision among U.S. game makers. "EA's games for Android will be playable on the Shield," he said.
At a minimum, Nvidia has gotten the attention of Sony. The company is monitoring Shield for any potential impact, Sony CEO Kaz Hirai said at CES in January.
"It takes a little bit of time to digest what's going on here," Hirai said. "It's not an easy business to get into."