Nvidia throws down

February 22, 2012, 11:41 AM UTC

FORTUNE — The battle for the teeny-tiny chips that power cell phones is heating up. Santa Clara, Calif.-based chipmaker Nvidia just announced the ZTE Mimosa X, the first phone that runs on its Tegra 2 processor and an Nvidia-made modem chip (and quite possibly the first phone named after an alcoholic beverage).

Why is this significant? Up until now, Nvidia (NVDA) has focused on just one key mobile component — the applications processor — and left the connectivity component to Qualcomm (QCOM) and other mobile chip players. But last year Nvidia acquired modem chipset maker Icera, and it’s now bundling the chip-making technology it bought with its Tegra processor. That means the Mimosa X is the first phone almost entirely powered by Nvidia. It also means Qualcomm’s dominance (it owns 51% of the smartphone chip market) is under greater threat than before.

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Of course, Nvidia and Qualcomm aren’t the only chipmakers vying for a piece of the increasing mobile pie. With more and more consumers turning to smartphones and tablets instead of PCs, Intel (INTC) is also (finally) making a big push for the mobile market. The world’s largest chipmaker has brought in new leadership to lead its mobile efforts and recently made its own acquisition in the connectivity space, shelling out $1.4 billion for Infineon’s mobile division in 2010. At the Consumer Electronics Show last January, Intel announced that its Medfield processor will power phones made by Motorola (MMI) and Lenovo, and the company is expected to unveil more details about its mobile strategy at next week’s Mobile World Congress in Barcelona. While this isn’t the first time Intel is attempting to crack the mobile market, initial reviews on Medfield have been good. What’s more, Intel has plenty of other tricks up its sleeve — after all, it is a manufacturing powerhouse with plenty of cash. It’s already made a handful of acquisitions that could help it bake location-based technology and security features—not to mention connectivity—into its mobile chipsets.

Mobile phone chips aren’t nearly as lucrative as PC processors. That’s why Intel is betting that selling a complete package with add-on features is the way to differentiate and drive profits. Apparently, that’s also what Nvidia is starting to do, though at a much smaller scale.

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In a call with Fortune shortly after the company’s announcement, Nvidia’s CEO Jen-Hsun Huang said more phones powered by its applications and modem chips are on their way. The company should have plenty more news next week at Mobile World Congress—as will Intel, Qualcomm and every other company hoping to chip away at the fast-growing market for smartphone chips.