Citigroup chip analyst Glen Yeung reiterates a Neutral rating on shares of Intel Corporation (NASDAQ:INTC), while cutting his price target from $25 to $23, after reducing estimates for this quarter and next to account for weaker-than-expected PC demand. Yeung says:
Our checks with the PC supply chain suggest Intel will launch the desktop version of its new Haswell architecture in April, notebook in June. Because Haswell is not socket compatible with Ivy Bridge (the prior generation), this has the effect of reducing demand for Ivy Bridge ahead of the Haswell launch.
While the slowdown in PC demand is nothing new, cutting the price target on Intel’s stock based on PC weakness is a little surprising. I feel Intel has a real shot to be a force in networking, datacenter, and the nascent dense server market.
Intel’s networking initiatives
Intel Corporation (NASDAQ:INTC) wants to dominate the networking and storage space, each worth about $25 billion a year in sales, just as much as it ever wanted to dominate the server racket, which accounts for around $50 billion a year in sales.
And if its goal is to double the revenue of its datacenter and Connected Systems group to $20 billion by 2016 — as general manager Diane Bryant reiterated in her presentation at Intel Developer Forum recently, then it is going to have to get a much bigger piece of the merchant silicon and software racket relating to switches.
Intel has acquired a series of strategic assets (including Fulcrum Micro, Wind River, McAfee, and Infineon), enabling the company to more deeply penetrate the datacenter market over the next decade. Intel’s addressable market moves beyond computing and into storage, switching, security, and specialty network equipment. Overall, Intel’s portfolio of acquisitions seeks to enable commoditized hardware platforms, while leveraging its value proposition in x86 processing driven by Moore’s law.
According to Bryant, the company is not just providing the hardware components to OEM customers in the switch racket, but also a full network operating system that supports software-defined networking. This operating system is based on the Linux kernel, and supports OpenFlow 1.0 control protocols and VXLAN, the extended LAN virtualization protocol espoused by VMware.
Meanwhile, Broadcom Corporation (NASDAQ:BRCM) announced that its new “Trident II” ASIC also supports OpenFlow 1.0 control protocols and VXLAN, and has enough oomph to drive over a hundred 10 Gigabit Ethernet ports – or lower numbers of 40GE and 100GE ports.
Intel introduced crystal forest
Intel Corporation (NASDAQ:INTC) introduced the Crystal Forest chipset a year ago, which has specific hardware and software-driven features that could speed up data processing on a network. There will be need for switches with high throughput for chip-to-chip connections, and Intel’s prototype, known as Seacliff Trail, is capable of processing data at more than 1 terabit/sec or 8 terabits/sec of data throughput per rack.
The Seacliff Trail reference platform also includes a 22 nanometer Core processor, which is part of the Crystal Forest AMC control plane module that does deep packet inspection, packet acceleration, encryption / decryption, and other kinds of co-processing for the Fulcrum ASIC in the switch.
Intel vs. competitors
Intel Corporation (NASDAQ:INTC) suffered a minor setback in the server market earlier this month with the news that its former partner, SeaMicro, is being acquired by Advanced Micro Devices, Inc. (NYSE:AMD). But Intel said it was internally developing technology to remain competitive in the dense server market.
AMD is paying $334 million for SeaMicro, which, until now, was in a tight partnership with Intel to develop dense servers. AMD plans to sell SeaMicro-branded servers and license to customers its fabric technology, which virtualizes I/O and ties together storage and networking. The deal is expected to close this month.
SeaMicro provides Advanced Micro Devices, Inc. (NYSE:AMD) an instant presence in the nascent, but fast-growing, dense server market and Intel will now be playing catch-up, analysts said. AMD’s purchase of SeaMicro was an unexpected but smart move, said Nathan Brookwood, principal analyst at Insight 64. The dense server market is growing, as companies look to curb electricity costs by deploying low-power servers to respond to Web and database queries.
Meanwhile, FBR Capital‘s hardware and software analysts this week issued a broad overview piece on how they view emerging datacenter technologies, such as “microservers” and software-defined networks. According to them Broadcom Corporation (NASDAQ:BRCM) has a lot of upside from networking:
While Broadcom’s mobile and wireless division gets most of the attention, the company has established an extremely comprehensive portfolio of networking technologies. We do not expect Broadcom to enter the microserver SoC market in the near term, as the company traditionally waits for markets to develop and then moves quickly to integrate its portfolio of discrete technologies and close the technological gap. However, we recognize Broadcom’s incredibly strong portfolio of complementary technologies, as well as its ARM v8 architectural license, and may only assume that it would forcefully enter the microserver market were it to inflect. Additionally, Broadcom remains a strong beneficiary of the movement toward merchant switching silicon and is extremely well positioned to benefit from the adoption of software-defined switches (although, we note that Intel may be a formidable foe here someday).
The Bottom Line
Intel Corporation (NASDAQ:INTC) has tremendous opportunity in networking and datacenter, which will lead the company to generate billions in revenue in the long run. I feel any dip in Intel’s stock following Citigroup’s recent announcement should be utilized as a buying opportunity for long-term investors.
The article Forget PC Weakness, Intel has a Real Shot in Networking originally appeared on Fool.com and is written by Anindya Batabyal.
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