NEW YORK (AP) -- Shares of Nvidia Corp., which makes graphics chips and processors for phones and tablets, climbed Wednesday after it said it would let other chipmakers license the core design of its latest graphics chip.
THE SPARK: Late Tuesday, the Santa Clara, Calif., company announced on its blog that it would license out the design of its Kepler graphics processing unit. It's used in Nvidia's latest chips for PC graphics cards, and the company is planning to build it into its Tegra processors for tablets and smartphones.
Nvidia was prompted to make this move by the explosion of different computing devices, set off by the smartphone and tablet, general counsel David Shannon said in the post.
"It's not practical to build silicon or systems to address every part of the expanding market. Adopting a new business approach will allow us to address the universe of device," Shannon wrote.
He also noted that this is not a completely fresh approach for Nvidia; it has licensed out a GPU design to Sony for the PlayStation 3, for instance.
THE ANALYSIS: Stifel Nicolaus analyst Kevin Cassidy called the announcement a positive surprise, saying it lets Nvidia participate in markets as wide-ranging as digital signage, kiosks, entertainment systems and dashboard displays. Companies that design their own mobile chips, like Apple and Samsung, could become Nvidia customers, he added.
The move puts Nvidia in competition with ARM Holdings PLC and Imagination Technologies Group PLC, and Cassidy noted that these companies have a higher valuation than Nvidia compared to their earnings. Nvidia's new business model could prompt investors to reevaluate the company, he said.
SHARE ACTION: Nvidia shares rose 57 cents, or 3.9 percent, to $14.97 in midday trading. The day's high of $15.48 was the highest for Nvidia shares since April 2012.