Intel can achieve 8-10% per year top-line growth, according to David Wong of Wells Fargo. Wong outlined in a note how the chip maker can achieve this growth rate. He has not changed the Outperform rating on the stock or his $40-$50 valuation range.
How each segment will contribute to Intel’s growth
Wong stated that there are several factors that may help drive top-line growth for the chip maker. The analyst expects the data center group to grow by the mid-teens percent/year, the client computing group to grow by 0-5% per year, Internet of Things (IoT) to grow by 15-20% per year, and the traditional PLD (programmable logic device) business that the chip maker acquired from Altera to grow 6-8% per year.
Wong expects software and services to show per-year growth of 5-10% and 5-10% per year growth in “Other.” He is primarily referring to 3D-NAND and 3D XPoint under “Other” and expects memory sales to grow as well in 2017. This is because Intel’s internal manufacturing of memory in China has now come online, and Wong expects that at some point in the future, there will be incremental sales from the foundry as well.
For Intel, cloud, technical computing and communications infrastructure are some of the high-growth segments within data centers, and collectively, they accounted for more than half of the segment’s revenues in 2015. The chip maker expects that from 2015 to 2019, each of these segments will show a CAGR of 20% or higher. Non-CPU products contributed 12% to data center segment revenues in 2014, and Intel expects this to grow to 22% by 2019.
Don’t ignore Altera acquisition
Intel got the useful PLD (programmable logic device) technology with the acquisition of Altera and can use it to create customized processors and coprocessors for the data center market. Also it can use it to create integrated PLD/processor/communications products for various IoT markets. Wong expects Intel’s addressable market in smartphones to expand significantly in 2016 because of the availability of 4G soFIA (integrated processor/modem) products.
On Wednesday, Intel shares closed up 1% at $30.86. Year to date, the stock is down by over 10%, while in the last year, it is down by over 7%. In premarket trading, the stock was in the green.
