Intel’s (NASDAQ:INTC) Data Center Group segment accounts for 40% of the company’s value, according to Trefis estimates. The segment generated revenues of $23.0 billion in 2018, accounting for 32% of the company’s total revenues, and a growth of 21% over the prior year. This can be attributed to a continued uptick in sales of its Xeon scalable processors. In this note we discuss the expected performance of the company’s Data Center Group in the near to medium run. You can view our interactive dashboard analysis on ~ What’s Driving Our $51 Price Estimate For Intel? ~ for more details on the expected performance of the company. In addition, you can see more of our data for information technology companies here.
Intel’s Data Center Group segment includes revenue from the sales of processors and chipsets designed for the enterprise, cloud, communications infrastructure, and technical computing segments. The company’s share in the global data center total available market was around 33% in 2018. Of late, AMD has been gaining share from Intel in desktops, notebooks, as well as the server markets, led by its Ryzen and EPYC processors. In fact, AMD has managed to gain close to 2% market share (y-o-y) in servers as of Q1 2019. The overall data center market demand slowed in the recent past, primarily in China, and this impacted Intel’s Q1 segment sales. While the company faces near term demand headwinds, the segment could see growth rebound in the medium to long run. In fact, the total available data center market is expected to grow at a CAGR of 6.5% to $90 billion by 2022.
While the company’s Xeon scalable is the market leader, AMD’s EPYC Rome architecture could pose a further threat with its strong performance. Intel cut its Data Center Group revenue forecast for the full year 2019, and it now expects the sales to be down in mid-single-digits, due to weakened demand from China, and inventory absorption. The figure for the full year could be around $21.6 billion, in our view. While the company could see revenue grow in the medium term run to north of $25 billion by 2022, it could translate into a 5% loss of market share to 28% from 33% currently. The market at large will likely benefit from growth in cloud computing, which will result in increased sales of bigger, faster, and higher-end servers at the expense of cheaper ones.
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