A Small Part Of Intel Could Create Big Value For It

Intel is known for its PC chips, but there is one small (but vital) part of its overall business that could help push its growth going forward. That small part is Internet of Things (IoT), which is made up of regular household gadgets that connect and share data with each other.

IoT aligns well with Intel’s data center business

Presently, the IoT accounts for only 5% of Intel’s overall business. The household gadgets that make up the IoT — washing machines, cars and even drones – generate tons of data. All this data is stored and analyzed by data center chips, a segment where Intel holds an unassailable 95% share.

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With the growth in the IoT, there will be a need for more machines to store and analyze data, thus expanding the overall data center market where the chip maker is witnessing big profits and sharp growth.

Owing to the decline in the PC market, the chip maker has been focusing more on other businesses such as data centers and the IoT to carry forward its growth. For the last quarter, Intel’s CCG group, which includes both the PC and mobile business, reported revenue of $8.5 billion compared to $4.1 billion by the data center group. However, if we look at the first nine months operating profits, DCG made $5.6 billion compared to CCG’s $5.4 billion.

Trefis bullish on Intel

In a note on Monday, investment bank Trefis said that the IoT will push up Intel’s valuation by 20% owing to its integration with the data center business. By 2020, the installed base for IoT devices is expected to hit 30 billion connected devices globally. This will result in an economic impact of $6.2 trillion by 2025, Trefis said.

“The data generated from billions of connected IoT devices will need to be processed and analyzed, which will require greater computing and storage capacity,” Trefis wrote.

Since Intel dominates the server microprocessor market, it is poised well to benefit from the “explosion” in data because of the IoT. Intel also acknowledges this opportunity. Intel’s SVP and head of Data Center Group, Diane Bryant, shared a similar view in an interview to BI.

“All of those connected devices create lots and lots of data that come back into the data center to be computed on, managed, stored, and goes across the network, which is also part of my business.”

On Monday, Intel shares closed up 0.9% at $34.77. Year to date, the stock is down by over 4% while in the last one month, it is up by almost 3%.