Intel’s Ready to Introduce Romley Server Processor

Intel’s (NASDAQ:INTC) dominance in servers has grown in the past few years. Its rival AMD (NYSE:AMD) rapidly gained market share in the early decade when it introduced its Opteron series of processors which were much power efficient compared to what Intel was providing at that time. However, Intel regained much of its lost market share following the introduction of Xeon 5100 in 2006 and since then there has been no stopping its ascent. We estimate that in 2011 Intel’s overall server processor market share amounted to 94.5%. In its efforts to maintain this supremacy, the company will introduce its Romley server platform by the end of Q1 2012, and that’s not only good for Intel but also for networking equipment companies such as Cisco (NASDAQ:CSCO) and Juniper (NYSE:JNPR).

Our price estimate for Intel stands at $30.52, implying a a premium of about 15% to the market price.

See our complete analysis for Intel

Server Market Is Good One To Invest In

We estimate that the server microprocessor & chipset business constitutes about 23% to Intel’s stock. Thus it’s critical that the company maintains its lead in this business. Furthermore, while the traditional PC business may be under some amount of threat due to the proliferation of tablets, the servers market is only going to grow as data usage increases. Thus this business is also a hedge against threat from tablets.

Network Equipment Makers Will Benefit

Romley comes with 10Gbe capability and the advancement is likely to continue to draw attention of buyers to Intel. This will also spur growth of Ethernet switching market as enterprises and service providers upgrade to more advanced 10Gbe network switches to take full advantage of Romley. ^[1] This bodes well for network equipment makers as well. For instance, about 22% of Cisco’s value comes from network switching business, making it the single most important business segment for the company. As the Ethernet switching market refreshes itself, Cisco will make profits. This also presents an opportunity for Juniper to expand further in switches where it holds a small share currently.

The negative side for Intel is that 2012 will see ARM-based players entering the PC and server market, and consequently the company could lose share. Romley may not be enough. But again, this bodes well for network equipment makers as increased competition in the server market will fuel innovation in servers which in turn will fuel growth in network equipment market as companies such as Cisco continuously upgrade their products and push them to the market.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Intel’s 10G ‘Romley’ server to spur Ethernet switch growth, Network World, Feb 13 2012 [↩]