Can Intel Sustain Growth in Server ASP?

January 27th, 2011 by Trefis Team
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Intel (NASDAQ:INTC) competes with AMD (NYSE:AMD) primarily in the microprocessor business and will see greater competition as competitors like Nvidia (NASDAQ:NVDA) enter the fray. The company recently released its Q4 2010 earnings and based on the evident trends we have kept our price estimate approximately same.

One of the key aspects of earnings was the significant gains in server microprocessor revenues driven by both market share gains and an improvement in average selling prices due to customers buying high-end server chips. This was fueled by improvements in IT spending. Intel already has a very high market share in servers, but can it sustain the growth in average selling prices (ASPs)? If it can, servers will become increasingly important part of Intel’s business. Currently we estimate that this segment constitutes close to 26% of Intel’s price estimate of $27.76.

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Data growth will require better servers

Intel mentioned during the earnings call that the total internet traffic in 2010 was estimated to be 245 exabytes and expects this figure to increase four-fold in the next 5 years. [1] 1 exabyte refers to 1 million GBs of data. Thus, 245 exabytes of data would be equivalent to close to 100 billion HD quality movie streams from Netflix (NASDAQ:NFLX). [2]

Additionally the company states that over the course of next 5 years, about 1 billion more people will join the internet and there will be 15 billion new connected devices including PCs, smartphones, tablets, embedded devices and smart TVs. [1] The proliferation of connected devices along with shift of video to online platforms, rise of social networking sites and social networking games will fuel the data growth.

Such dynamics will require high end servers to handle increased data load which can create potential for server microprocessor ASP growth. Additionally Intel has mentioned that it plans to refresh its entire Xeon product line in first half of 2011, which could lead to more advanced and higher priced server microprocessors being introduced. As a result we forecast some ASP gains. Do you think Intel will be able to sustain ASP growth in long-term? You can modify our charts to see how increased ASP for server microprocessors can impact Intel’s price estimate.

You can see the complete $26.21 Trefis price estimate for Intel’s stock here.

Notes:

  1. Intel Q4 2010 earnings transcript [↩] [↩]
  2. Assuming 2.5 GB size of a typical HD movie stream [↩]