) main product lines include notebook microprocessors, server
microprocessors and desktop microprocessors which contribute about
35%, 28% and 11% to Intel's stock respectively as per our
estimates. While Intel is the dominant PC processor maker with
dominant market share in notebook processors, several trends could
change the landscape for Intel and competitors like AMD (
) and Nvidia (
) in the PC microprocessor and computer graphics market. Some of
these include virtualization, a shift from desktops to mobile
devices like notebook and tablets as well as the growing need for
higher powered mobile device processing chips for smartphones and
Below we look at some key upside and downside scenarios to
our $27.50 price estimate for Intel,
which implies a little under 20% premium to the market price.
Summary of Key Drivers
Intel's Notebook Processor Market Share
: Intel has enjoyed dominant position in notebook market more or
less on consistent basis with market share fluctuating between 88%
in 82% - and currently amounting to a little over 86% in 2010. We
expect Intel to lose some market share going forward.
Global Notebook Shipments
: Global notebook shipments have increased from about 62 million in
2005 to close to 160 million in 2010. Going forward we expect the
growth to continue but at slower pace.
3. Intel's Server Processor Market Share: Following sharp
declines in 2006, Intel has recovered its share in server processor
market and now commands a massive 93%. Going forward, we expect
Intel to lose some market share.
4. Notebook Processor EBITDA Margin: After continuous declines
between 2005 and 2009, these margins recovered significantly in
2010 amounting to 58%. Going forward we expect margins to sustain
5. Server Processor EBITDA Margin: These margins have been
improving since 2006 and now stand at around 63%. Going forward we
expect them to sustain these high levels.
6. Atom's Market Share: This represents share of Intel's Atom
processor in its addressable market which is essentially composed
of devices like smartphones, tablets, netbooks etc. The figure
stands at around 13% and we expect slight gains going forward.
20% upside scenario: $33 Trefis price estimate for Intel
1. Notebooks shipments continue to grow fast (+10%)
We currently forecast notebook shipments to grow more slowly than
in the past. Research firms like Gartner have mentioned that PC
growth has slowed in part due to tablets. However, notebooks
represents one of the biggest businesses for Intel accounting for
around 35% of our estimates, and so the company will do everything
it can to revive this market. One of the ways to do so is focus on
emerging markets and promote ultra-thin light notebooks.
If the above factors can fuel notebook growth such that global
shipments reach to 290 million by end of our forecast period
compared to current forecasts of around 220 million, our price
estimate for Intel can see upside of about 10%.
2. Notebook processor EBITDA margins improve (+5%)
Intel's margins have suffered in the past as a result of price
competition with AMD. However they shot back up in 2010 as a result
of increased focus on factory reuse and efficiency that drove down
the costs. While we think calling for higher margins is aggressive,
it could happen due to higher pricing of new Sandy Bridge chips and
the assumption that the remainder of Intel's business doesn't face
too much pricing pressure.
If margins were to rise back to 2005 levels, this would offer
about 5% to our price estimate.
3. Atom Gains Tremendous Share (+5%)
Intel's foray into the mobile market (netbook, tablets &
smartphones) has not been marked with great success. Its Atom
processors still have much to prove but if Intel can replicate even
a fraction of the success that it has in the PC market and lift its
mobile market share past 30% there can be upside of 5% to our price
30% downside scenario: $20 Trefis price estimate for
1. Notebook shipment growth stumbles (-10%)
If tablets replace notebooks then notebook growth could drop off
meaningfully. Though there is a possibility that tablet demand
might die down and ultrathin notebooks could appeal to consumers,
all mobile device companies are looking at tablets as they they
become increasingly powerful - some new versions even have have
If notebook market growth stumbles, there could be downside of
2. Margins slip faster than expected (-10%)
A part of the margin improvement in 2010 was due to factory reuse.
If Intel is unable to sustain these significant improvement in
EBITDA margins for server and notebook processors in 2010, and if
these margins slip to 50% by end of our forecast period, there
could be a downside of about 10% to our price estimate.
AMD takes some notebook market share (-5%)
AMD's share in the notebook processor market has been improving
after its dip in 2008, and we expect this trend to continue and
there is a strong possibility that given AMD's new Llano chips with
good graphics capability integrated within can help it do just
) is making a significant marketing push for new notebooks powered
by AMD, which could help lift market share.
If AMD takes more share from the notebook segment, it will
likely be at Intel's expense. In a situation where Intel's notebook
processor market share dips to 70%, there could be downside of
about 5% to our price estimate.
4. AMD regains much of the lost share in server processor
AMD made quite a mark in server market back in 2006 but Intel
bounced back strongly with its introduction of Xeon 5100. However,
given that Intel's market share has almost reached as high as it
could practically get, there is a possibility of AMD bouncing
AMD claims that its processors will be better suited in cloud
computing environments where CPU utilization is high. If true, AMD
should gain further market share by relying on its partnerships
with OEMs. If so happens and Intel's share goes down to as low as
70% by end of our forecast period, there could be downside of
roughly 5% to our price estimate.
See our full anlaysis