Intel’s Tailwinds Come with Their Own Headwinds



Intel’s tailwinds

Intel (INTC), a chip giant that has ruled the PC and server processor market for a very long time, has been undergoing a multiyear transition from being a PC-centric business to being a data-centric business.

The company’s strategy has been to increase its TAM (total addressable market) beyond PCs and servers to AI, autonomous cars, and 5G technology.

In order to expand its TAM, Intel has broadened its product portfolio beyond its traditional PCs and server CPUs (central processing unit) to memory, modems, field programmable gate arrays, and visual processing units. The company is leveraging these products across various applications, which is expected to increase its TAM to $300 billion by 2021.

Intel has also increased the share of its data centric-business from 30% in 2015 to over 45% in 2018, but the road to this transition has been rocky.

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Intel’s road has been rocky in 2018

This year, Intel has faced manufacturing and management issues amid the US-China trade war, which sent the stock down 27% between June and October. In June, the company announced the abrupt resignation of CEO Brian Krzanich. It then announced delays in its 10 nm (nanometer) products. Moreover, the company wrongly predicted PC and server demand growth and started transitioning to 10 nm, because of which it’s facing supply constraints in the current holiday season.

All these factors made investors skeptical about Intel. However, optimism built when the company announced record third-quarter earnings results and guidance at a time when almost all other semiconductor companies were reporting weakness. Intel benefited from stronger-than-expected demand in the data center and PC markets. It also benefited from the Qualcomm-Apple (AAPL) dispute, because of which Apple chose its modem for all its 2018 iPhone models. Intel stock has rallied 12% since the release of its third-quarter earnings results on October 25.

However, these tailwinds might not last in 2019, and the company will need a stable CEO to boost future growth. Intel’s CFO, Robert Swan, has taken on the CEO role on an interim basis, but the company’s first priority is to find a new CEO.

In this series, we’ll look at Intel’s headwinds and tailwinds in 2019.


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