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Investment Overview for Intel (NASDAQ:INTC)
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Below are key drivers of Intel's value that present opportunities for upside or downside to the current Trefis price estimate for Intel:
Notebook Processors
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Notebook Processor Average Pricing: Currently we forecast this figure to decline from an estimated $112 in 2012 to around $98 by end of our forecast period resulting from increased competition from AMD & ARM-based players in the future. However, if innovations such as Sandy Bridge can improve the average price for Intel's notebook processors to about $130 by end of our forecast period, there can be more than 10% upside to our price estimate. On the other hand, there could be an over 5% downside if the average price were to dip down to as low as $73 by end of our forecast period.
Server Processors
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Intel's Server Processor Market Share: We estimate that this figure will decline from an estimated 95.6% in 2012 to 85.5% by end of our forecast period. However, if Intel's server processor share goes down to historical levels of 75% seen in 2007, there can be a mild downside. On the other hand, there can be slight upside if Intel can maintain its current market share for the next few years.
For additional details, select a driver above or select a division from the interactive Trefis split for Intel at the top of the page.
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Intel manufactures and markets microprocessors used in servers, desktops and notebooks. Microprocessors are a PC's central processing unit (CPU) or the brain behind the computer. A microprocessor is the single most important component that drives computer's power and performance.
Intel also manufactures chipsets used in desktops, notebooks and wireless devices. A chipset operates as the PC's nervous system, sending data between the microprocessor and input, display and storage devices such as the keyboard, mouse, monitor, hard drive and CD or DVD drive.
Intel has been on acquisition spree recently and has acquired McAfee and Infineon's Wireless Business Solutions unit.
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We believe the Notebook Processors division is the most valuable segment within Intel for the following two reasons:
Growing Notebook Processors Market
We estimate that Intel held an 86% market share in the 180+ million unit notebook market in 2012 compared to 80% market share in the 140+ million unit desktop market. Besides the fact that Intel is simply selling more notebook processors than desktop processors today, the notebook market is estimated to grow rapidly over our forecast period whereas desktop shipments are expected to decline.
Profit per Notebook Processor Higher than Desktops
We estimate that Intel made $61 in profit (EBITDA) on average for each notebook microprocessor sold in 2012, compared to the $49 for each desktop microprocessor sold. Although server processors were the most profitable at an estimated $311 profit per unit sold in 2012, that's about 5 times the profitability of notebook processors. But Intel's notebook processor unit sales for 2012 amounted to more than 8 times the unit sales for server processors.
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On-going server virtualization
Server virtualization is essentially server consolidation that enables running multiple applications on a single server instead of on multiple servers. Server virtualization is driving a mix shift to higher-end servers, which requires multi-core processor servers that tend to be more complex and more expensive than traditional single core processors.
Shift from Desktops to Notebooks
The shift of consumer preference from desktops to laptops will continue as the performance and pricing gap between desktops and laptops narrows. We expect the desktop market to stagnate but forecast notebooks market to witness growth throughout our review period, primarily driven by demand from emerging markets.
Increasing Importance of Smartphone and Tablet Chips
Smartphone shipments increased by 43% in 2012 ($675 million), accounting for 39% of the mobile phone market. Gartner forecast the mobile phone shipments to climb to 2.2 billion units by 2016, and we estimate smartphones to account for 60% of the shipments. Improving mobile network speeds, growing awareness of smartphones, multiple options present in the market and innovation from smartphone manufacturers will continue to drive growth.
IDC estimates the global tablet shipments to have reached 117 million units in 2012, a 65% increase from 2011, and forecast the market to rise to over 260 million units by 2016
Convergence of Graphics & Processing
With the introduction of Intel's Sandy Bridge processors and AMD's Llano processors both companies have moved away from the idea of integrated graphics. These chips pack GPU within the CPU leading to much better graphics performance than one can get from traditional integrated graphics.
Mobile Processing
This remains a key area that is not yet reasonably explored by both Intel and AMD. Intel has gained some ground with few design wins in 2012 and AMD is also looking to push into the market later this year. Smartphone and tablets are likely to remain one of the key focus for Intel in 2013 and beyond.
PC market opening up to ARM
Windows 8 is ARM-compatible which marks the entry of ARM-based processor manufacturers in the PC market, which has traditionally been dominated by x86 processor architecture. This will challenge the dominance of Intel which could lose some market share in the future, on account of increasing competition.
Trefis Forecast Rationale for Notebook Processors EBITDA Margin
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Earnings before interest, taxes, depreciation and amortization (EBITDA) are profits after factoring in typical expenses, such as cost of goods and services sold, SG&A Expenses, and R&D Expenses. EBITDA margin represents divisional EBITDA as a percentage of divisional revenues. We adjust EBITDA figures to exclude non-cash charges such as depreciation, amortization and stock-based compensation expenses.
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Historically, ${forecast} increased from 46.6% in 2007 to 55.2% in 2011, as per our estimate. New improved process technology and higher average selling price helped Intel increase its gross margins.
However, with increase in competition combined with macro headwinds, the gross margins declined marginally in 2012. We expect margins to further decline over our review period.
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Trefis considered the following factors for its forecast:
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- Startup costs related to 14nm product manufacturing could weigh on margins in near term.
- Entrance of ARM-based players in PC microprocessor market is likely to lead to higher price competition and shrinking margins.
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- Average selling price support from higher priced Sandy Bridge chips could continue to aid Intel.
- Intel is eyeing the 14-nm process technology and is in the process of building factories for the same. Once its chips transition to this technology, increased savings would support higher margins.
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
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