Intel Corporation (INTC) Won’t Be Hurt Too Much By Google’s Chips

Intel Corporation (INTC) Won’t Be Hurt Too Much By Google’s Chips
By The original uploader was VD64992 at English Wikipedia [Public domain], via Wikimedia Commons

Following the recent newsflow about Google Inc (NASDAQ:GOOG)’s plans to design its own server chips using ARM architecture, analysts at UBS analyze impact of such a move on Intel Corporation (NASDAQ:INTC)’s sales. They estimate Intel’s sales to Google Inc (NASDAQ:GOOG) at 1.5% of its total as Google is a less than 10% customer of Intel Corporation (NASDAQ:INTC)’s Data Center Group which is ~22% of Intel’s sales. Assuming a 50% op margin, analysts estimate Intel’s sales to Google generate $0.05 in EPS.

But Intel already making semi-custom chips for key data center customers

Analysts believe this list of customers includes Google Inc (NASDAQ:GOOG), which owns an estimated 2% of the total installed datacenter capacity globally. Large cloud vendors which run at 90%+ utilization rate continue to look for a low power System-on-Chip (SoC) solution optimized for their custom workloads instead of an off-the-shelf Intel Corporation (NASDAQ:INTC) server chip, which they believe has led to some initial trials of the ARM-based chip. They estimate approximately 5% of Intel Corporation (NASDAQ:INTC)’s total sales in 2013 were to cloud vendors, which they expect to be targeted by the ARM-based server chip companies initially.

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Expect ARM server newsflow to remain high as 28nm chips come to market

Analysts’ checks find that ARM-based server chips using 28nm process technology are expected to be released in 2014 from companies such as Calxeda, Advanced Micro, Cavium and Marvell. While they believe Intel Corporation (NASDAQ:INTC)’s expanded DCG offering including microservers remains strong, they expect some large data center vendors to trial 28nm ARM-based chips until Intel’s 14-nm chips hit the market in 2H14.

Valuation: Neutral rated, 12-month price target is $24

Intel’s PT is based on 11.7x firm’s 2015 EPS estimate of $2.05.

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