Qualcomm’s Foray In PC’s & Data Center: What Does It Mean For Intel

by Trefis Team
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Qualcomm’s (NYSE:QCOM) move into the mobile PC market has been talked about and anticipated for years. The company finally announced ASUS, HP, and Lenovo as the first original equipment manufacturers (OEM) to develop mobile PCs powered by the Snapdragon 835, at Computex last month.(Press Release) Qualcomm has been trying to gain a foothold in alternate growth markets such as PCs and data centers, segments where Intel’s (NASDAQ:INTC) core competency has enabled it to maintain a dominant position for over a decade. While many players have tried to challenge its dominance, Intel has managed to retain its market share of over 70% and 90% in the PC market and data center market, respectively. Qualcomm’s entry into these two segments could be a major threat for Intel.

Our current price estimate of $37 for Intel is marginally higher than the current market price.

See our complete analysis for Intel & Qualcomm

Qualcomm’s Entry In Mobile PCs Can Accelerate The Slowdown In Intel’s PC Business

Qualcomm recently collaborated with Microsoft (NASDAQ:MSFT) to make Windows 10 compatible on its Snapdragon mobile computing platforms, which also offers Gigabit Class LTE connectivity. Snapdragon 835, based on ARM architecture, will be the first time in over a decade that a full version of Windows will run on a non-Intel system. Microsoft has a dominant share in the PC operating system market, but lags behind in the device market. By partnering with Qualcomm, which has a near monopoly in mobile, Microsoft aims to tap the notebook and tablet market and implement Windows on Android and other operating systems.

Though in the last few years, Intel has managed to lower its dependence on PCs, the market still accounts for 55% of the company’s revenue.

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Snapdragon based PCs are likely to generate interest in the market, especially in cases where battery life is of high importance. The Snapdragon chipset delivers a performance that is almost equivalent to comparable chipsets from Intel, within the 2.0-2.5 watt power range. In comparison, Intel’s offerings in this market consume between 3.8 to 7 watts. [1]

PC shipments have been declining continuously since 2013 and the downward trajectory is expected to persist at-least in the near future. However, low-cost PCs and two-in-one laptops are two segments that are still growing and are key areas that Qualcomm is specifically targeting with its ARM processors.

In the past, Intel’s plan to target the smartphone market with its low cost processors did not gain much traction. It remains to be seen whether the company can manage to lower the power consumption of its chips to better compete with Qualcomm. Intel could resort to cutting its chip prices to bring them in line with Qualcomm’s offering, but that could adversely impact the bottom line of its cloud computing business.

Intel Could Lose Market Share Due To The Increasing Competition In The Data Center Business

Unlike the PC business, Intel’s data center business has seen consistent growth in the last few years. The company accounts for a staggering 95% of the server market. Qualcomm is looking to compete with Intel with its first ARM-based server processor, Centriq 2400. This is not the first time when an ARM-based player has tried to enter the server market, but Qualcomm is perhaps best positioned to compete with Intel given its long-standing expertise in designing ARM chips.

The top companies that drive the data center market are encouraging the rise of alternate sources. With the growth in the number of data-centers, there is an increasing requirement to manage the energy consumption from these data centers. Qualcomm can utilize its experience in making power efficient mobile phone chipsets in designing power efficient server chipsets. The company is one among the few of the top-tier ARM licensees that hold both architectural and core licenses from ARM. Qualcomm announced the commercial sampling and the live demonstration of the world’s first 10nm server processors in late 2016. Google was rumored to endorse Qualcomm’s server-chip efforts.

A threat to Intel’s near monopoly in this market can give the data center players a better bargaining position. Not only can Intel lose market share to Qualcomm in the long-term, but a price war between Intel and Qualcomm can put pressure on this high margin business, impacting Intel’s profitability. The company also faces competition from AMD (NASDAQ:AMD), which is in the process of designing ARM technology based processors in addition to its x86 processors for multiple markets, starting with cloud and data center servers. Also, the data center market is witnessing the increasing deployment of Nvidia’s (NASDAQ:NVDA) GPU co-processors. Currently, Nvidia and Intel are competing head-on for co-processor sockets in the HPC segment of the data center market. Whereas Intel is dominant in the microprocessor market at large, Nvidia has successfully identified this co-processor niche where it has garnered significant market share.

The increasing competition in the data center space threatens the near-monopoly that Intel has enjoyed for many years. The company could end up losing some of its market share to the above mentioned players in the long-run.

Note – You can change the forecasts in the graphs above to see the impact on Intel’s valuation from a decline in its market share in the PC and server markets.

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Notes:
  1. Intel Under Threat? Qualcomm Enters The PC Business With Asus, HP & Lenovo, Ultra News []
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