Intel (NASDAQ:INTC), which competes with AMD (NYSE:AMD) in the server processor market, has expanded its lineup of x86 server processors by introducing the Xeon 5600, the first 32nm process technology based processor. If the Xeon 5600 helps Intel to recapture the 8% server processor market share it lost to AMD over the past few years, there could be an upside of about 6% to our $22 Trefis price estimate for Intel’s stock.
Below we explain the significance of Intel’s server processor business and highlight how the Xeon 5600 is superior in comparison to previous generation server processors. We show how an 8% increase in Intel’s server processor market share as a result of the Xeon 5600 could lead to an upside of 6% to Trefis price estimate.
Server Processors 24% of Intel’s Stock
We estimate that Intel’s server processor business constitutes 24% of the $22 Trefis price estimate for Intel’s stock. Server processors are more important for Intel than the desktop PC processors found in many PCs sold today.
Xeon 5600 is Better Than Previous Generation Server Processors
The Xeon 5600 is a six-core computing processor that will be targeted at the servers used in large businesses and corporate data centers. Many businesses will be undergoing IT infrastructure upgrades as the economy recovers and Intel’s timing could prove to be favorable. We believe that next generation processors like the Xeon 5600 will prompt server makers like HP, IBM and Dell upgrade their server offerings despite the higher pricing of the new processors.
Below are two primary factors that make Intel’s Xeon 5600 series attractive to server manufacturers:
1. Better performance with less hardware: Xeon 5600 is designed to deliver 60% greater performance than the previous 45 nm generation of processors. Intel indicates that data centers can replace 15 single-core servers with one Xeon powered server and achieve a return on their investment in as little as five months.
2. Power efficiency: Xeon 5600 offers 30% greater power efficiency for the same performance output as compared to Xeon 5500 series.
Xeon Processor 5600 Can Drive Market Share Gains For Intel
We believe the demand for the next generation Xeon 5600 processors can help Intel slow further market share declines and has the potential to reverse the market share losses to AMD that occurred in recent years. Intel’s server processor market share saw steep declines until 2008 due to strong competition from AMD’s lower priced and energy efficient Opteron processors.
Intel gained slight market share in 2009 by improving its offerings over AMD in the latter half of 2009. We expect Intel’s server processor market share to rise above our current forecast level of 70.5% in 2010. Demand for cloud computing is driving the need for high-performance server processors that offer improved security and power consumption. Intel’s next generation Xeon processor is well positioned to benefit the server processor requirements of businesses.
8% Gain In Server Processor Share Will Lead to 6% Upside for Intel’s Stock
We estimate that a gain in market share of close to 8% in 2010 can lead to 6% upside to the Trefis price estimate for Intel’s stock. You can modify our forecast above to see how Intel’s stock could be impacted if Xeon 5600 processors are successful and lead to an increase in Intel’s server market share.
For additional forecasts and analysis, here is our complete model for Intel’s stock.
