Intel’s Server Business Lifted by Enterprise Demand & Greater Internet Use

October 21st, 2011 by Trefis Team
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Upside
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Trefis
INTC: Intel logo
INTC
Intel
Global server shipments

Source: Trefis Estimates

Intel (NASDAQ:INTC) has sustained its solid growth in its server business over the last several quarters and Q3 2011 results were no different as the company reported 15% growth in server revenues compared to the same quarter last year. [1] Intel maintains more than a 90% market share in this market giving its rival AMD (NYSE:AMD) a very hard time. As evident from IBM’s (NYSE:IBM) earnings as well, enterprises are still willing to spend on technology and Internet usage is booming, and  both of these factors are helping the server market and adding to Intel’s coffers.

Our price estimate for Intel stands at $29, implying a premium of about 20% to the market price.

See our full analysis of Intel
Enterprises and Internet, Both Helping Server Market Growth

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Enterprises are willing to spend on equipment and technology in order to drive productivity gains. They are utilizing the excess cash sitting on their balance sheets, and preparing for potential economic headwinds in 2012 by improving their technology position. This is not only helping PCs but also high performance servers. Intel has been able to grab a huge chunk of this lucrative pie with over 90% share. The growth in data centers (servers) is also being aided by growth of cloud computing and increased usage of the Internet.

What to Expect In the Future?

In our opinion, Intel’s share in servers has nearly reached its peak. The company does mention that its upcoming server chip, code named Romley, is witnessing quite strong early demand and one can expect rapid early growth. However, given that Intel already has very high share, there isn’t much room for growth in that respect and the key challenge will be to defend position as the industry grows.

We think that AMD will fight hard with its server version of Bulldozer chips, and over time, ARM-based chip-makers are likely to try and make in-roads into this market. Consequently we expect Intel to lose share going forward.

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Notes:
  1. Intel’s Q3 2011 Earnings Transcript, Seeking Alpha, Oct 19 2011 [↩]