The last couple of weeks showed certain developments in Intel’s (NASDAQ:INTC) product portfolio that will help it expand its business in the future. The company is considering opening up its manufacturing facilities to other chip designers who can leverage Intel’s advantage in process technology.  Intel has significantly increased its capital expenditures since 2010, and has consequently expanded and enhanced its manufacturing capabilities.
While it has used them so far for the production of its own chips, the future could be different. Intel has an edge over other semiconductor manufacturers as it already as 22nm factories in place and is now building 14nm factories. This will help Intel in diversifying some of its business risk as it faces more competition from AMD (NYSE:AMD) as well as new ARM-based players such as Nvidia (NASDAQ:NVDA) and others in the future.
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- Intel’s Q2’16 Earnings Preview: Focus on Data Center, IoT & Memory To Offset Decline In PCs; Restructuring Initiative To Improve Profitability
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Other developments include the digitization of Wifi radio on chips (this was previously constructed on analog circuits) and developing new chipset for the networking market.   The networking chipset, code-named Crystal Forest, will help Intel offer a complete integrated solution for data centers. It is interesting to note that Intel previously used to offer network processors but sold that division in 2006.  The current move makes sense since server related business currently constitutes about 27% to Intel’s value. As data usage grows, data centers will require more powerful chips to operate and Intel can make significant profits.
Additionally, it may be the case that Intel delays shipments for its next generation APU – Ivy Bridge. ((Report: Intel May Delay Ivy Bridge, Most of 2012 Looking ‘Dark’ for Notebook Industry, PC World Feb 16 2012)) Although this is not confirmed but if it happens, it will give AMD a chance catch up with Intel in terms of launch of new APUs. AMD is scheduled to launch its Trinity chips in Q2 of 2012.
Our price estimate for Intel stands at $30.52, implying close to 15% premium to the market price.Notes: