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Intel May Face Competition in the PC Processor Market in 2017

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Intel’s Client Computing Group

Intel (INTC) is the leader in the PC (personal computer) processor market with more than 80% market share. Advanced Micro Devices (AMD) is the only competitor in this space, but it has been mainly confined to low-end processors.

However, AMD is now making a comeback in the high-end PC processor market with its Ryzen processors due to launch in fiscal 1Q17. In the meantime, Intel is likely to report seasonal growth in its CCG (Client Computing Group) in fiscal 4Q16. The CCG provides chips for desktops, laptops, notebooks, two-in-ones, and smartphones.

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CCG earnings trend

As seen from the above graph, the CCG revenue rose 5% YoY (year-over-year) to $8.9 billion in fiscal 3Q16, but its operating profit rose 57% YoY to $3.3 billion. The profits were largely driven by strong demand from the Enterprise segment and better-than-expected sales in China (FXI).

If the segment replicates the growth figures of fiscal 4Q16, it may report revenue of $9 billion and operating profit of $3.7 billion. While the company may achieve this revenue growth, the profit growth seems unlikely until it secures orders from enterprises.

Competition picks up in the PC processor market 

Lenovo and Hewlett-Packard (HPQ) used AMD’s seventh-generation processors for their business computers. Hewlett-Packard and Lenovo’s PC shipments rose 6.6% and 1.7% YoY, respectively, in 4Q16, according to IDC.

Moreover, Intel has reduced its capital spending on PC to focus on data center and other markets, which has given AMD and Qualcomm (QCOM) a chance to grab market share in the PC space. To date, Microsoft (MSFT) has relied on Intel’s x86 and Atom processors to offer Windows on PCs and tablets. Now, Microsoft is diversifying. In December 2016, it announced a partnership with Qualcomm to provide Windows on ARM.

These are warning signs for Intel that it cannot ignore, as PC still generates a major portion of its earnings and gives it the cash required to invest in future technologies. Thus, Intel has introduced several new products in the computer space. Next, we’ll look at the new computing products the company plans to launch in fiscal 2017.

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