Why It’s Important For Intel To Maintain Its Data Center Dominance

by Trefis Team
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Intel (NASDAQ:INTC) has long been a dominant force in the semiconductor industry, and nothing exemplifies this better than its stronghold on the data center market. In 2016, the company shipped an estimated 99% of all server microprocessors. These microprocessors are used by data centers for managing and computing vast amounts of data. However, with the emerging threat from Nvidia’s GPUs, and AMD making a comeback with EPYC server processors, it is important to understand just how critical it is for Intel to maintain its market dominance. Take a look at our interactive breakdown of Intel’s server business which shows how Intel relies heavily on data center business and how it can lose nearly 10% of its value from the emerging competition.

Our price estimate for Intel stands at $41, which is slightly below the current market price.

Intel Relies Heavily On Data Center Business, Which Accounts For 30% Of Revenue And 35% Of EBITDA

 

Intel Brings In Nearly $17 Bil In Data Center Business Due To Its Massive 99% Market Share

Intel’s share in data center processors market increased from nearly 90% in 2009 to 99% in 2016. However, the revenue increased at a higher rate as share gain was accompanied by significant price increases. Intel’s extreme market dominance is expected to bring nearly $18 billion in data center group revenue in 2017.

Intel Risks Losing 10% Of Its Value If Its Data Center Group Revenue Growth Halts

Our price estimate for Intel could see a downside of around 10% if data center group revenue growth halts due to competition from AMD and Nvidia. This can happen if Intel’s market share falls gradually to 80%, which will effectively negate the positive impact of overall market growth. If Intel’s data center group revenue stays at around $17 billion as opposed to our forecast of $23 billion in the next 5 years, it could imply a roughly 10% reduction in EPS over the next few years and 10% valuation downside.

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