uploads///A_Semiconductors_INTC Q revenue growth by business segment

Which Business Segments Could Drive Intel’s Future Revenue

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Aug. 28 2017, Published 4:38 p.m. ET

Intel focused on long-term growth

Intel (INTC) lost its position as the world’s largest semiconductor company (SMH) by revenue to Samsung (SSNLF) in calendar 2Q17. This loss was not due to Intel reporting weak earnings, but because of Samsung’s very strong earnings, which were driven by high memory prices. Intel sees this as a temporary disruption and hopes to regain first place when the memory market’s up cycle ends.

Intel is focused on its long-term goal of becoming a data-centric company, tapping a total addressable market of $250 billion. Its earnings are starting to reflect efforts.

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Intel’s fast-growing business segments

As shown in the above graph, memory, and the IoT (Internet of Things) are Intel’s fastest growing businesses. The memory market is growing rapidly, as a supply shortage in the industry has boosted prices. On the IoT front, car and factory automation are driving growth in the automotive and industrial markets. However, these two businesses account for only 11% of Intel’s revenue. Due to their small size, strong growth in these businesses did not have a significant effect on Intel’s revenue.

Intel’s largest business segments

Intel’s revenue growth is largely driven by its CCG (Client Computing Group) and DCG (Data Center Group), which account for 85% of its revenue. Intel’s revenue rose 9% YoY (year-over-year) in fiscal 2Q17, of which 6.4% growth came from the CCG and 2.5% growth came from the DCG.

Intel, which dominates the PC (personal computer) and server processor markets, has been unbeatable for several years. However, this scenario is changing with Advanced Micro Devices’ (AMD) entrance into the high-end PC and server processor space with its Ryzen and EPYC processors. Intel could easily beat AMD, either by entering into a price war or by launching next-generation processors as it has in the past.

However, tougher competition is presented by NVIDIA (NVDA) and its advanced GPU (graphics processing unit) technology, which Intel does not have. NVIDIA is leveraging its GPU technology in the AI (artificial intelligence) and autonomous vehicle space, where Intel is lagging.

Intel is catching up through several acquisitions. Over the last two years, it acquired FPGA (field-programmable gate array) maker Altera, AI startups Movidus and Nervana, and ADAS (advanced driver assistance system) company Mobileye to expand in the AI and automotive spaces. In this series, we’ll look at Intel’s business segment and explore the opportunities and challenges it faces in the next few quarters.

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