Deutsche Bank's Ross Seymore says that half the expected $4 billion in revenue gains for Intel in 2013 could come from non-core businesses like wireless and flash storage.
Intel executives for the past several years
have been pushing to expand the companys reach beyond its core x86-based PC
and server chips businesses, and according to one analyst, the effort is paying
off.
The giant chip maker stands to grow profits
by as much as $4 billion in 2013, and about half of that could come from
businesses other than PC and server chips, including embedded technology, wireless
chips and NAND flash storage, according to Ross Seymore, research analyst
at Deutsche Bank Equity Research.
In a research report issued June 24, Seymore
touted Intels efforts in these noncore areas, noting that they are having an
impact on the vendors newest competitors.
According to our analysis, within these
markets Intel has dramatically outperformed its competition on revenue growth
and/or profitability from 2008-2012 and is poised to extend these gains in
2013, Seymore said in the report. While the vast majority of Intels revenue
and profits are driven by the core PC and server markets, the company has made
meaningful progress in expanding into new markets such as embedded, NAND flash
and wireless. In many cases the company has grown market share and
profitability while taking market share and negatively impacting competitors.
Some of the competitors Intel has
outperformed are chip maker Texas Instruments, solid-state drive (SSD) vendor
SanDisk and wireless semiconductor company MediaTek, the report read.
Intel executives have dismissed the idea of a
post-PC world, noting that millions of PCs are sold every year. However, sales
have stagnated as consumers in particular have started using alternatives like
smartphones and tablets, and profit margins in both PCs and servers have
narrowed. The company has made an aggressive move into growth areas like mobile
and embedded devices, as well as flash storage. Intel also is pushing hard the
new Ultrabook form factor, very thin and light notebooks that will have some
features that currently are found in tablets such as touch-screens and long
battery life.
The first Intel-based
smartphones are now on the market, and company executives expect at least
100 new Ultrabook designs now that the Ivy Bridge Core chips have begun shipping.
Intel also expects to be a growing player in the tablet space, particularly
when Microsoft releases its Windows 8 operating system, which will be optimized
for tablets.
Intel has done this through a combination of
in-house development and outside acquisitions, including Infineon Technologies
wireless business, security
software maker McAfee, Ethernet chip maker Fulcrum Microsystems, and
software and patents from RealNetworks and Aware.
While some of these gains were driven by
acquisition, we believe Intels ability to invest and improve profitability is
an undervalued positive for the company and has negative implications for the
competition, Deutsche Banks Seymore wrote. Intels investments in these
areas should deliver meaningful growth in revenue and profitability in 2013.
Seymore said that revenue in the companys
Intelligent Systems Group (ISG)in the embedded spacehas almost doubled over
the past five years and should top $2 billion this year, he wrote. The NAND
Solutions Groups (NSG) revenue has tripled since 2008 and has the best margins
in the NAND industry, thanks to Intel focusing exclusively on high-value
segments. In addition, while still relatively young, Intels Mobile
Communications (IMC) unit is a $2 billion business that Intel executives
believe can grow by more than 50 percent next year.
In all, about half of Intels expected $4
billion revenue increase in 2013 will come from these new businesses, while the
other will come from PC and server chips, Seymore wrote.
In 2011, about 66 percent of Intels revenue
came from the PC Group, while another 19 from the Data Center Group, according
to his report. Other Intel Architecture units contributed 9 percent, while NSG
and the Software and Solutions Group contributed 3 percent each. Of the other
Intel Architecture revenues, IMC contributed 42 percent, ISG 36 percent and the
low-power Atom platform 22 percent.
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