Intel enjoys a near monopoly in the data center business (DCG), but a Bernstein analyst believes this may not last long. In a note on Monday, analyst Stacy Rasgon talked of the “cracks” forming around Intel’s data center business.

‘Cracks’ Forming Around Intel Corporation's DCG: Analyst

DCG: a priority for Intel

After the decline in the PC segment, the chip maker has made its data center business a priority in recent years. Last year, the segment generated more than half of its operating income and around $15 billion in revenue.

“The trends we are noting now, albeit early days, suggest that some cracks to Intel’s monopoly position may be forming,” Rasgon stated.

In 2020, the chip maker will start facing competitive threats in the segment, the analyst believes. Within the next three to four years, Intel will see real challenges in the data center segment, making it difficult for it to hit its projected 15% annual growth, Rasgon said.

What are those “cracks”?

In support of his stance, Rasgon gave three reasons. The first is stalling growth for the server hardware market. The analyst notes that over the last two decades, the overall server market has barely improved. Rasgon expects growth to remain “flattish” despite the rising popularity of the cloud.

“All of these make Intel’s 15% growth target appear optimistic even without the prospect of new competitive threats,” the analyst notes.

The second is major architectural changes. Intel’s dominance is challenged by new chip designs and functionalities, and the chip maker has less control over this.

“China is also attempting to build a local ecosystem less dependent on Intel,” says Rasgon.

The third is narrowing competitive gaps. Though Intel’s technology is better than that of rivals such as ARM or Power, the gaps are slowly narrowing, believes Rasgon, who expects the chip giant to face challenges within the next four years.

“2020 isn’t that far away, and the interest from major players in the industry to find and fund alternatives is increasing significantly,” the analyst says.

Is 15% growth in DCG a myth?

Rasgon even argued that the chip maker has only hit the 15% annual growth in its data center business one time in the last five years. Intel will surely object to this. In a recent Bloomberg interview, Intel’s Diane Bryant, head of the Data Center Group, said the business has a bright future owing to the growing popularity of connected devices, which helps in generating massive amounts of data which needs Intel chips to process it.

Giving examples, Bryant told the media outlet that autonomous cars generate 40 gigabytes of data per day, while smartphones, on average, give 30 megabytes of traffic data per day.