Here’s What Will Drive Intel’s Near Term Revenue Growth

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Intel (NASDAQ:INTC) generates its revenues from its Client Computing Group, Data Center Group, Internet of Things, and Other segments. Intel has seen solid growth in its Data Center Group of late, primarily led by Xeon Scalable. Client Computing Group hasn’t seen much growth over the past few years due to the trends in overall PC TAM (total available market). We expect these trends to continue in the near term. We have created an interactive dashboard ~ What Are Intel’s Key Sources of Revenue. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate.

Expect Data Center Group To Drive Near Term Growth

Data Center Group refers to processors and chipsets designed for the enterprise, cloud, communications infrastructure, and technical computing segments. Data Center Group accounted for 30% of Intel’s total revenues in 2017. We forecast the contribution to increase to 36% by the end of our forecast period. The segment is benefiting from its cloud business, as well as high performance products, primarily Xeon Scalable. The company is seeing growth in all verticals, Cloud, Enterprise & Government, and Communications. Cloud in particular is seeing strong growth and saw over a 40% jump in Q2 revenues. The overall segment saw volume growth in  low teens while the pricing also grew in high single digits in the first half of 2018. The overall public cloud computing market is expected to grow in low 20s (percent) to $186 billion in 2018, according to a research by Gartner. Growth in cloud computing will result in higher demand for faster and high performance servers, and this will bode well for Intel.

Client Computing Group Will Likely See Mid Single Digit Growth

Client Computing Group includes processors and platform products designed for use in notebooks, desktops, tablets, phones and other mobile communication products. The segment revenues have increased in low single digits over the last couple of years. However, we expect the growth to accelerate in the coming years. This can be attributed to an expected modest increase in PC TAM after 6 years of decline. However, any significant growth for Intel in this segment is unlikely. In fact, Intel has lost some of the market share to AMD, and this trend may continue in the near term. AMD is seeing strong demand for its Ryzen processors, and several OEMs (original equipment manufacturers) are launching new notebooks using AMD’s processor. It should be noted that AMD’s market share in the notebooks is negligible, while it has managed to grow its desktop CPU share to 12% by the end of 2017. Intel is currently working on 10nm chips while AMD plans to ship its 7nm chips in 2019. It will be interesting to see the changes in market share over the next few quarters, and how that shapes up for Intel.

Among Other Revenue Sources, Internet of Things Will Likely See Strong Growth

The Internet of Things includes all other computing devices apart from PCs, tablets, and smartphones. Intel’s offering in this segment includes platforms designed for embedded applications for medical, automotive, industrial, retail, and other market segments. Internet of Things is considered to be the next big driver for the semiconductor industry. The segment revenues on an average have grown in mid-teens over the last 5 years, and we forecast the growth to accelerate in the coming years. As of now, it is a small segment for Intel with revenue contribution of 5%. However, we forecast the contribution to increase in the coming years, led by an overall expansion of the market. The Internet of Things market size is expected to grow at a CAGR of 27% to $561 billion in 2022. Intel’s market share will likely be 1%-1.5% by 2022, in our view.

 

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