Investors surprised by Nvidia Kindle Fire snub

Amazon.com's decision to use a processor made by Texas Instruments for its newest Kindle Fire tablets has surprised some investors who thought Nvidia's Tegra 3 chip would be tapped for the high-profile device.

At an event in Santa Monica, California yesterday, Amazon chief executive Jeff Bezos said TI's OMAP 4470 chip is being used in the new, higher-end Kindle Fire.

Most people assumed Tegra 3 would be the processor in the new device.

He showed reporters graphs suggesting the OMAP chip has better bandwidth and computing power than Nvidia's top mobile component.

"This is a huge surprise," said Evercore analyst Patrick Wang. "Most people assumed Tegra 3 would be the processor in the new device."

Shares of Nvidia trimmed gains after Amazon announced the tablets. The stock was still up 2.85 percent at $13.70, in line with broad gains in tech stocks. TI's shares were up 3.65 percent at $29.56.

The first Kindle Fire, launched last year, also used a TI processor, giving TI a foot in the door with Amazon. But Nvidia's mobile chips have attracted attention from investors recently, stoking expectations of more design wins.

The company won a victory in July when its Tegra 3 chip appeared in Google's Nexus 7 tablet, which has seen brisk sales. And Nvidia has also said its processors would be used in upcoming Surface tablets made by Microsoft.

Wang said Amazon's decision not to use Tegra 3 for its new tablet underscores the cut-throat competition Nvidia faces as it expands from its core PC graphics-chip business to a mobile market crowded with larger players like TI and Qualcomm.

Patrick Moorhead, of Moor Insights & Strategy, was among the experts who had expected the Tegra chip to appear in the new Kindle Fire. He said game enthusiasts may be turned off by the decision not to use Tegra chips, which Nvidia bills as superior in graphics.

"They probably should have gone with Tegra but they (Amazon) have a history with TI," Moorhead said.