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    Intel Strategy to Grow Beyond PC, Server Chips Paying Off: Analyst

    By
    Jeff Burt
    -
    June 25, 2012
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      Intel executives for the past several years have been pushing to expand the company€™s 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 Intel€™s efforts in these noncore areas, noting that they are having an impact on the vendor€™s newest competitors.

      €œAccording 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. €œWhile the vast majority of Intel€™s 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.

      €œWhile some of these gains were driven by acquisition, we believe Intel€™s ability to invest and improve profitability is an undervalued positive for the company and has negative implications for the competition,€ Deutsche Bank€™s Seymore wrote. €œIntel€™s investments in these areas should deliver meaningful growth in revenue and profitability in 2013.€

      Seymore said that revenue in the company€™s Intelligent Systems Group (ISG)€”in the embedded space€”has almost doubled over the past five years and should top $2 billion this year, he wrote. The NAND Solutions Group€™s (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, Intel€™s 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 Intel€™s 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 Intel€™s 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.

      Jeff Burt
      Jeffrey Burt has been with eWEEK since 2000, covering an array of areas that includes servers, networking, PCs, processors, converged infrastructure, unified communications and the Internet of things.

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