Intel’s 2017 In Review

by Trefis Team
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Intel (NASDAQ:INTC) had a strong 2017 despite a few developments that suggest that competition in the microprocessor market may be heating up. The stock gained nearly 30%, thanks to Intel’s continued growth across segments. The third quarter was especially impressive, with the stock jumping nearly 10%, adding $18-19 billion in market value. The quarter saw a 35% jump in earnings per share and nearly 15% growth in operating income. In addition, with 7.4% top line growth in the data center business, Intel alleviated some concerns surrounding this segment. Intel’s data center business was perceived to be under pressure because of AMD’s launch of EPYC processors and Nvidia’s foray into AI applications. Below we take a quick look at other meaningful developments for Intel in 2017.

Our price estimate for Intel stands at $41, which is at a discount to the market price.

Xeon Server Processor Line Refresh To Combat AMD’s EPYC

Intel unveiled its new Xeon server processors targeted at data centers, touting its Xeon scalable platform as the biggest platform advancement in a decade. On the face of it, the improvement in performance that Intel demonstrated over its previous versions was very impressive. The market reacted positively, but the stock’s movement was relatively modest. This was echoed by some analyst opinions as well, which appeared to be somewhat divided. While several analysts who attended the product launch event were happy with Intel’s efforts and expected the company to sustain its dominance in the near term, there were also a few who expressed reservations.

On the other hand, AMD – with the launch of its EPYC server processors – looked set to take back some share from Intel (see Can EPYC Server Processors Boost AMD’s Value By 25%?). Recently, Microsoft Azure became the first cloud provider to deploy AMD’s EPYC processors. It is important for Intel to maintain its data center dominance, as its market dominance is expected to bring nearly $18 billion in data center group revenue in 2017.

Increased Interest In Graphics Became Visible

The head of AMD‘s (NYSE:AMD) graphics business unit, Raja Kudori, joined Intel’s newly formed Core and Visual Computing group, which will focus on developing high-end graphics solutions. This is something that Intel has not focused on traditionally, as it relied on its partnership with AMD to created integrated graphics units for its chipsets. However, this move indicated that Intel is getting serious about the high-end graphics market, which has traditionally been dominated by Nvidia and AMD. Further, it has recognized the growing number of GPU applications, especially in the artificial intelligence market – more specifically, deep learning. Additionally, Intel knows that if it doesn’t act soon, Nvidia could become a threat in the data center market where Intel dominates.

An Unlikely Partnership Developed

Intel and AMD struck an unlikely partnership this year when they announced the building of a new chip which will combine Intel’s CPU with AMD’s Radeon GPU technology. For Intel, we believe this was a defensive move. Global annual PC sales have declined from 350 million in 2012 to 260 million in 2016. We expect the figure to go down further to around 250 million this year. Considering that Intel has a massive 80% share of this market, it stands to lose the most from this decline. So with this new innovative chip, the company is hoping that it will be able to attract more customers to upgrade their PCs/notebooks or simply gain more first time buyers. Assuming a $150 average price per Intel processor, a 1 million incremental increase in global PC sales would translate into additional revenue of $120 million for Intel. That’s roughly 0.2% of its current revenue. However, there would be an additional benefit from sales of chipsets. Currently we forecast PC sales to decline slightly going forward. However, if Intel and AMD’s joint efforts eventually push global PC sales past 300 million, it could lead to a potential 10% jump in Intel’s revenue.

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