What can go wrong for Intel?
So far, we discussed how Intel (INTC) plans to achieve mid-single digit revenue growth in fiscal 2016. For the guidance to hold true, it has to implement some, if not all, of its planned strategies of expansion, new technology implementation, and increased sales. One thing we’re missing is the huge dependence of the growth guidance on the DCG (data center group). Let’s look at the factors that can go wrong for Intel. This could stagnate its growth.
Growth depends on DCG
With an ~29% share, DCG is the second-largest contributor to the company’s revenue after CCG (client computing group). It has an ~58% share. Other high-growth segments—IoT (Internet of Things), memory, and software—only account for ~10% of the revenue. Any growth in this area likely won’t compensate for a fall in DCG and CCG.
Faster execution is the key
Being the first in the industry gives a company an edge over its competitors. It helps it gain market share before the competition picks up. This is true for Intel in the PC and server space. It gained a lion’s share. However, IBM’s (IBM) Power Architecture may challenge Intel’s dominance in the server market in the future.
Intel lost the battle in the mobile segment to Qualcomm (QCOM). Its ARM devices dominate the mobile space. The company’s lack of focus in this space is dimming the possibility of growth. Intel and Microsoft’s (MSFT) Wintel partnership has flat sales. It has little or no probability of growth.
As a result, if the double-digit growth trend in DCG doesn’t continue and growth strategies aren’t implemented early, Intel’s revenue would stagnate in fiscal 2016.
Improvement in global economic conditions may drive Intel’s growth
Even if the conditions aren’t met, there could be an improvement in the global economic conditions. The World Bank expects the global economic growth to improve from 2.5%–2.8% to above 3%–3.3% in 2016. The improved economic growth will increase the need for computing devices with high-powered processors. This will boost Intel’s overall sales.
The company’s growth depends on strong execution or favorable macroeconomic conditions.
The Technology Select Sector SPDR Fund (XLK) has a 3.3% holding in Intel.