Atom Processor Only 2% of Intel’s Stock

We estimate that Intel (NASDAQ:INTC) owes only about 2% of its stock value to the Atom line of  low-voltage microprocessors for netbooks, nettops (small, low-power desktop computers) and similar devices.

Intel mainly competes with AMD (NYSE:AMD) in the higher-end PC and server processor markets.  The netbook/nettop chip market is far more crowded and has relatively low profit margins, which helps explain the Atom line’s limited contribution to our $24.78 estimate for Intel’s stock price. Our analysis follows below.

Atom prices declining

Atom processors have relatively basic performance requirements and are priced lower than Intel’s desktop, notebook and server processors. We estimate that the average price of an Atom processor in 2009 was around $49.50, compared to an average price of $81 for Intel’s desktop processors, $102 for notebook processors and $443 for server processors.

This is partly a function of manufacturing technology. Intel’s latest notebook, desktop and server processors are based on the 32 nm process technology.  The Atom line still uses the 45 nm process, which offers significant cost benefits and thus helps Intel keep prices low.

We expect Atom prices to continue declining as a result of  competitive pressures.  The Atom line competes in a crowded market that includes AMD’s Athlon and Neo processors, Qualcomm’s Snapdragon (NASDAQ:QCOM), nVidia’s Tegra (NASDAQ:NVDA), and VIA’s Nano processors (TPE:2388), among others. You can drag the trend-line in the chart above to create your own Atom price forecast and see how it impacts Intel’s share value.

Small share, tight margins

Intel dominates the notebook, server and desktop processor markets with a majority share. By contrast, Atom’s market share is only 13%, in part because the line was only introduced in 2008. We expect Atom’s share to increase gradually to 20% by the end of the Trefis forecast period.

Because Atom generates a tiny proportion of Intel’s revenues, the stock is not very sensitive to Atom market share fluctuations. You can drag the trend-line in the chart below to create your own estimate for Atom’s market share and see how it impacts the company’s stock price.

The Atom line is also less profitable than Intel’s more established segments.  Intel’s EBITDA margins for Atom are lower than margins for other divisions like notebook, desktop or server processors. The next interactive chart shows the impact of the Atom line’s profit margins on Intel’s stock price.

You can see the complete $24.78 Trefis price estimate for Intel’s stock here