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https://seekingalpha.com/article/3281145-nvidia-expands-gameworks-portfolio-through-acquisition-of-transgaming-assets
Nvidia Expands GameWorks Portfolio Through Acquisition Of TransGaming Assets
Jun. 24, 2015 1:58 PM ET
Summary
-NVDA purchased cross-platform portability technology from TransGaming for $3.75 million.
-TransGaming became an Nvidia GRID preferred partner in an effort to advance its GameTree TV service.
-TransGaming owns SwiftShader, a CPU rendering toolkit which may be of interest to NVDA in the future.
-I believe the relationship between NVDA and TransGaming will continue to get closer as NVDA looks to increase its presence on the services and software side of the gaming industry.
Nvidia Corporation (NASDAQ:NVDA) recently announced the purchase of proprietary cross-platform portability technology from TransGaming Inc. (OTCPK:TNSGF) (TNG.V) in order to enrich the company's GameWorks effort. Nvidia GameWorks is middleware which enables developers to make video games with animation that's as detailed and life-like as possible, particularly when used on NVDA's graphics processing unit. With competition from Advanced Micro Devices, Inc. (NASDAQ:AMD) and other GPU makers becoming more intense, NVDA will look to this acquisition as a cheap way to expand the capabilities of GameWorks.
According to TransGaming, NVDA will pay $3.75 million US for a part of its Graphics and Portability Group, including Cider, a technology for developers which allows Windows games to run on Apple's (NASDAQ:AAPL) Mac OS operating system. The Cider product is licensed to game developers on a royalty fee per unit sold basis while a monthly fee per user is charged for Massive Multiplayer Online Games (MMOGs). Based on a TransGaming analyst report, I estimate revenue for this division to be less than $1 million annually so the impact to NVDA's books today is marginal, but the technology acquired will strengthen its position in the gaming industry as the company looks to compete among gaming service providers.
I find it unusual that an $11 billion market cap company like NVDA has interest in a $6 million market cap company like TNSGF without just buying the company in its entirety. The price paid for Cider covers more than half of TNSGF's market cap, while representing just one small piece of the company's technological property and current revenue stream. NVDA has given TransGaming a level of respect by calling it "one of Canada's most innovative game-technology companies" as it expands its operations into Canada, using the TNSGF assets acquired and some staff as a launching pad into the country. It's possible that talks for the purchase of the entire company could have happened, but have just not materialized.
While there's no promise that a buyout will ever happen, I do expect NVDA and TNSGF to share friendly relations going forward and beyond just the deal they struck for Cider. TransGaming's primary focus going forward is to expand its GameTree TV service which delivers interactive games on Smart TVs and other connected consumer electronics devices. Along with the Cider transaction, TransGaming became an Nvidia GRID preferred partner for GameTree TV, leveraging the power of NVDA's GPU and graphics applications. This technology lets multiple users simultaneously share GPUs with ultra-fast streaming display capability that eliminates lag and enables exceptional capture, efficient compression, fast streaming and low-latency display of high-performance games no matter where people are located across the globe. GameTree TV is available on several satellite and cable service providers worldwide as well as in hotels in the Asia-Pacific and Middle East regions so as it grows it will become a bigger client for NVDA.
Another potentially beneficial relationship that may be hatched in the future between the two companies is with respect to TransGaming's SwiftShader technology. GPUs and CPUs have continued to converge and may one day be a single class of processor which sits on various points of a sliding scale in terms of capabilities. SwiftShader is a software rendering toolkit which allows users with old or blacklisted GPUs to view certain 3D graphics features. For instance, Google's web browser Chrome installs SwiftShader in the background when a user's GPU is insufficient to view animation or games on a site they are trying to browse:
Source: Google Chrome support website
While NVDA strives to remain ahead of CPU rendering techniques with its world-leading visual computing through GPU architectures, forging a relationship with TransGaming also could be a defensive play with the rise of software rendering. If Chrome and other major applications are using SwiftShader as a workaround for computer users' old graphics hardware, it provides a disincentive for users to upgrade that hardware. NVDA controlling a key application for CPU rendering like SwiftShader would ensure it gets a piece of this market as well.
This deal signed between Nvidia and TransGaming is beneficial to both parties as they look to achieve market share in various aspects of the gaming services and software industry. Nvidia purchased a division from TransGaming in Cider while TransGaming became a client for Nvidia in order to power GameTree while suddenly becoming quite cash rich relative to its market cap. Sitting in the middle is TransGaming's SwiftShader which may or may not be of interest to Nvidia but is a key component to CPU rendering for web browsing applications. I would recommend that investors interested in NVDA do some research on TransGaming. Nvidia's relationship with an obscure microcap company out of Canada could be a secret weapon for the company's continued pursuit of growth in the gaming industry.
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